Mariners acquire majority stake in regional sports TV network that could bring in millions
A potentially game-changing leap by the Mariners into the ownership side of sports television could reverberate throughout the city's sports...
Seattle Times staff reporters
A potentially game-changing leap by the Mariners into the ownership side of sports television could reverberate throughout the city's sports landscape for decades.
The Mariners announced Tuesday they had purchased a controlling stake in a new regional television sports network to be run with DirecTV that would carry their games through the 2030 season. In addition to Mariners games, the new network — which will retain the ROOT Sports name — will also carry college and professional sports programming.
Officials from the team and DirecTV also would not rule out eventually partnering with local entrepreneur Chris Hansen to carry NBA and NHL games on the new network should his group land such franchises. For now, the move opens the door to a major revenue boost for the Mariners that should enable them to compete with financial behemoths in their own division.
"It gives us the ability to make the long-range plans our competitors have been able to enjoy," Bob Aylward, Mariners executive vice president (business operations), said in a conference call announcing the new network.
Aylward would not disclose how much the Mariners paid for their majority share in the new venture, other than to term it a "significant" expenditure.
DirecTV president Patrick Crumb said viewers will notice little change in the arrangement, which allows both sides to continue their long-standing partnership and move forward with maximum stability.
The regional sports network market has exploded in recent years, with teams increasing broadcast revenues exponentially. Teams have either formed their own network outright, partnered with an existing network — as the Mariners are doing — or used the threat of going out on their own to leverage sky-high rights fees from TV entities broadcasting games.
In the AL West, both Texas and the Los Angeles Angels used the threat of forming their own networks to leverage 20-year deals worth a reported $3 billion apiece for their local TV rights. As a result, both teams took their annual player payrolls well above $100 million and now dwarf the rest of the division.
The Mariners began a new 10-year deal with DirecTV-owned ROOT Sports in 2011 in which the network paid an undisclosed amount to carry the team's games. Some reports pegged it at $450 million, but industry sources have indicated the real number might be twice as high.
But the Mariners had the ability to opt out of the deal after 2015, a likely move since the cost of rights fees soared after that prior agreement was negotiated.
With the potential for the Mariners to seek much higher rights fees from a different TV network in two years, or to simply form their own regional sports network outright, it gave them the leverage needed to change the relationship with DirecTV and become the big boss in the arrangement.
"It's not a surprise at all," said media rights expert Chris Bevilacqua, owner of New York-based Bevilacqua Media Company. "It's just kind of what's going on in the system here. They've got real leverage, so they've moved into a shared-risk, shared-reward model."
According to Adam Chase, a Washington, D.C.-based lawyer for Dow Lohnes, which specializes in sports media licensing, the Mariners are now in position to make bigger money because of their equity stake in the network. Besides the "benefits of ownership" in which the Mariners can control the direction of all content, they can also shield certain broadcast monies from Major League Baseball's revenue-sharing agreement that they could not before.
Under MLB's revenue-sharing rules, teams are expected to contribute 34 percent of all net local TV revenue to help smaller-market clubs.
But when a team owns its own regional sports network, it effectively pays itself to broadcast games and can sometimes understate what the amount is worth. Calculating the "fair market" value for those rights can be difficult for MLB, while teams running networks also are allowed to keep other fees from their broadcast deals without putting them in the revenue-sharing pile.
Steve Greenberg of the New York investment bank Allen & Company advised the Mariners on the transaction and said this new network leaves the Mariners "in a better position than some of their rivals and also competitive with all of their rivals in the division."
Sports economist and author Andrew Zimbalist said the threat of Hansen acquiring the NBA's Sacramento Kings for Seattle and then forming his own regional sports network likely spurred the Mariners into action.
"It's not only the possibility of the Kings going to Seattle but once the arena gets built, there's a good chance an NHL team will come," he said. "I think that's certainly figuring into their interests here."
Dr. Mark Rosentraub, a University of Michigan Sports Management professor, said the Mariners appear to trying to beat Hansen to the punch.
"It's probably a competitive strike worried about the possibilities of a Hansen group having an NBA team and possibly an NHL team on yet another competing sports network. If the Hansen group lands both an NBA and NHL team, they will have a tremendous advantage of creating a regional sports network."
But now that the Mariners have formed their own regional sports network, Hansen might decide it's more profitable to sell his broadcast rights to their network rather than engage in a costly turf battle for what is only the nation's 12th-largest media market.
Aylward said the baseball team would be open to any such talks. Aylward clarified that while the Mariners have opposed the location of Hansen's planned new arena, it is not against the idea of new teams coming to the city.
"It's going to now be in our interest to want more professional sports teams in Seattle with a loyal fan base," he said.
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