Are regional sports networks a bubble ready to burst?
MLB teams, like the Mariners with Robinson Cano, are committing record salaries over the next decade based off anticipated revenue from new regional sports network contracts. But is it a sustainable business model?
Seattle Times staff reporter
Inside sports business
MLB Commissioner Bud Selig was surprisingly forthcoming two weeks ago in New York when I asked whether his sport’s increasingly lucrative local TV deals are too good to last.
“I don’t think anybody knows,” Selig told me. “It’s a very fair question. I have concerns myself.”
Media analysts have debated whether billions being paid for local TV rights to MLB games is sustainable. Selig hopes the money manifests his sport’s popularity, but admits even TV industry insiders he’s known for years can’t provide definitive answers.
“One can ask a question: Is this going to continue?” Selig said. “I don’t have an answer to that. But I’m going to be really candid with you: I do have concerns.”
For good reason.
MLB teams, like the Mariners with Robinson Cano, are committing record salaries over the next decade based off anticipated revenue from new regional sports network contracts. The deals have soared in value because advertisers know viewers still prefer to watch sports live without recording and MLB teams each offer 162 such programming dates annually.
But these deals have been increasingly likened to a real-estate “bubble” prone to bursting. Analysts warn that TV viewers aren’t all sports fans and are pushing back at paying more for an expensive RSN bundled into their cable bill.
Few agree on what will happen if lawmakers eventually “unbundle” cable packages and give viewers choice of what they’ll pay for. Or, if too many irate viewers dump cable and satellite TV for internet-based streaming options.
In the extreme, RSN deals worth billions could be dramatically reduced and threaten a network’s existence. Yet, huge player salaries awarded years earlier would still have to be paid.
Further complicating matters are MLB teams, like the Mariners, acquiring RSN ownership in hopes of even bigger revenue. But ownership also means bigger risk; as evidenced by the Dodgers and Astros, locked in RSN disputes that have largely knocked them off the air.
Any RSN must extend game broadcasts beyond immediate subscribers to maximize viewership and revenue. This happens by getting rival cable and satellite operators to pay “carriage fees” and offer the broadcasts to their own viewers.
But these increasingly bigger fees are then offloaded on those viewers, who’ve started grousing about monthly bill increases of $2 to $5 for games many don’t even watch. Rival operators in Los Angeles and Houston won’t meet the RSN asking price, leading to the Dodgers and Astros being shown in only 30 and 40 percent of their respective markets.
The Dodgers own 100 percent of SportsNet LA and committed $600 million in long-term player salaries in anticipation of that deal, today valued at $8 billion over 25 years. Fortunately for them, the unique deal sees almost the entire $8 billion guaranteed by TV partner Time Warner Cable, regardless of whether they ever gain full market viewership.
No such luck for the Astros, who own 41 percent of Comcast SportsNet Houston. That RSN is under bankruptcy protection and the Astros and their TV partners are suing one another.
Now, this doesn’t mean the Mariners should avoid spending more, fearing future problems with their reported 71 percent stake in ROOT Sports Northwest.
For one, they have a better setup than the Astros and Dodgers, who began with mainly a downtown TV presence and failed to expand. The Mariners are partnered with DirecTV throughout their 17-year ROOT deal, pegged at $2.5 billion by Forbes.
DirecTV already had satellite distribution covering the team’s five-state territory of fans, meaning the Mariners knew broadcasts would be widespread.
It’s easier to leverage rival operators outside Seattle into paying carriage fees when ROOT knows DirecTV already shows Mariners games in those places. Those rivals usually opt to carry games themselves rather than risk losing Mariners fans to DirecTV.
The Mariners spending more on winning teams should also further ensure rival operators carry their games. Operators in Houston claim they won’t buy Astros games because the team is so awful, viewers don’t care.
But there are no guarantees.
Superior distribution might protect ROOT if this represents merely a weeding out of questionable RSN setups in Los Angeles and Houston.
Sports media consultant Chris Bevilacqua said TV programmers and distributors have always haggled over price and even these disputes should eventually be resolved without the RSN industry imploding.
“It may accelerate at a less rapid rate than what we’re seeing now,” said Bevilacqua, who consulted with the Rangers, Padres and others on RSN deals. “But it still has a nice, upward trajectory.”
But all bets are off if those disputes signify an industry-wide RSN “bubble’’ headed for a major correction.
“This is the talk of the industry,” said a senior sports broadcast executive with intricate knowledge of several RSN deals. “Are we sort of at a breaking point?”
Which brings us back to the concerns of Selig, who’d best hope teams listen to the right analysts. As century-old financial firms found out the hard way in 2008, there’s nothing worse than betting wrong on a bubble that proves real.
Geoff Baker is a sports enterprise and investigative reporter who writes a column on sports business. firstname.lastname@example.org