This week in “Last Week in BizBall”, the Texas Rangers blockbuster deal with Fox Sports Southwest.
RANGERS BLOCKBUSTER DEAL WITH FS SOUTHWEST, WHO’S NEXT?
The biggest story LWIB was the report in USA Today that the Texas Rangers and Fox Sports Southwest (FSSW) had reached agreement on a 20 year extension of their current deal which would pay the baseball franchise $3 billion. Maury Brown of the Biz of Baseball was very quick to question the reported dollar figure, he wrote that …some have said that the figures could be off – possibly wildly. As the day progressed, reporters received confirmation from Fox that a 20 year extension had been agreed upon but the $3 billion figure was “wildly inflated”. Nobody from either side would go on the record but numerous reports pegged the value of the deal at $1.6 billion. Reportedly, the extension takes effect after the 2014 season while the Rangers will receive an upfront payment - again reportedly, of approximately $80 million - before next season.
The Rangers current deal with FSSW was concluded in 2000. That deal pays the Rangers $17-$20 million annually (some reports cite $300 million over 15 years, others $250 million over the same) for their local cable TV rights. Only 10 years later Fox has agreed to QUADRUPLE (or more) their rights fee for Rangers baseball. This enormous and rapid increase in the value of the Rangers local TV rights is the most recent example of the critical importance of Regional Sports Networks (RSNs) to the biz of baseball. In 06, the Angels agreed to a 10 year/$500 million deal with FSN West. In 07, it was the Mariners and FSN Northwest agreeing to 12 years/$500 million. In 08, it was the Tigers turn when FSN Detroit agreed to pay a reported $400 million for 10 years.
In August, LWIB examined the role of RSNs in MLB and I wrote, “The vigorous competition amongst MSOs, telcos, sat providers and programmers for local TV rights has proven a cash windfall for many franchises with some potentially blockbuster deals on the horizon.” As was discussed in the report, the importance of Rangers baseball to Fox initially came to light during the bankruptcy auction of the franchise earlier this year. Many baseball biz observers were surprised that Fox considered bidding for the franchise, given their reported losses of hundreds of millions of dollars incurred as owners of the Los Angeles Dodgers from 98-04. But Fox’s interest in owning the Rangers had nothing to do with operating another baseball franchise and everything to do with preventing a competing RSN to FSSW from entering the market. Any upstart RSN in the Fort Worth-Dallas market would require Rangers baseball and the near 162 games that would provide the foundation of it’s programming. Similarly, Mark Cuban’s plan to launch an RSN in Fort-Worth Dallas was the key to his interest in acquiring the Rangers. Locking up the Rangers rights until 2034 also allows Fox to prevent Comcast from launching a competing RSN to FSSW. Comcast shares ownership of a number of RSNs with MLB franchises. CSN Bay Area (Giants), CSN Chicago (White Sox, Cubs) CSN Philadelphia (Phillies) and SportsNet NY (Mets)). In fact, the Rangers extension with FSSW was viewed by some as a sign that Fox has conceded that they will soon lose the rights to Astros baseball to Comcast. Speculation has been widespread for months that the Astros will exercise their out clause with Fox Sports Houston after the 2012 season. Reportedly the competition amongst Fox, Comcast and AT&T/EchoStar for Astros rights is fierce with Comcast the frontrunner. (Comcast is the dominant cable provider in the Houston market). LWIB, David Barron wrote;
Fox’s willingness to commit to a new deal with the Rangers was interpreted Monday as an indication that it is moving on from what appears to be a futile attempt to keep the Rockets and Astros past 2012. Major League Baseball’s rules governing broadcasting territories will allow FS Southwest to continue airing Rangers games in Houston, even if the Astros and Rockets go elsewhere.
The cable industry‘s willingness to pay ever increasing rights fees for local sports is an effort to prevent “cord cutting“ amongst their subscribers. At the same time, cable is increasingly a must for sports fans as “over the air“ broadcasters are unable to compete with cable for sports rights (including national) due to cable‘s more lucrative “dual revenue“ (sub fees and ads) model. In turn, the trend of MLB franchises cutting huge deals with RSNs for local TV rights is likely to continue. Two of MLB’s premier franchises, in two of the country’s largest media markets, could be next to cash in. The Dodgers current deal with Fox Sports West expires after 2013 and reportedly pays the franchise $45 million annually. Given that the Rangers will be earning $80 million annually from FSSW after 2014, speculation has begun as to what local Dodgers rights will fetch. (It should be noted that Fort Worth-Dallas is the 5th largest TV market in the country). Some pundits foresee the next Dodgers local TV deal earning the franchise $100 million annually. Court filings in the divorce trial of Dodgers owners Frank and Jamie McCourt have revealed that the franchise has examined the idea of launching their own RSN, nominally titled DTV (Dodgers TV). However, launching an RSN is a complicated proposition, carriage and programming issues being key. LWIB, Jon Weinbach wrote that a Dodgers owned RSN might not be a realistic goal.
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Fox already has two regional sports channels in Los Angeles, while Time-Warner, the dominant cable system in Los Angeles, has shown little interest in launching local sports channels. Comcast, FSN's primary competitor for local pro sports TV rights, operates channels in Chicago, Philadelphia and the Bay Area, but has no plans to launch a channel in Southern California, according to a Comcast spokesman. More broadly, it's hardly guaranteed that a Dodgers channel would automatically be available to viewers, as everyone from ESPN to the National Basketball Association to the National Football League has learned in protracted negotiations with cable operators.
The upshot: there are significant obstacles to the Dodgers launching their own channel, especially without the cooperation of another local pro team to provide year-round programming. In Southern California, FSN currently has the rights to all of the major pro franchises, including the NBA's Los Angeles Lakers, who are by far the most-watched local team.
The launch of a Dodgers channel could also could also be precluded by the outcome the McCourt’s divorce trial. Should the cash poor Frank McCourt be forced to buy out Jamie McCourt, many speculate that a heavily front end loaded rights extension from Fox Sports West is his only hope in retaining ownership of the franchise.
Further along, since the sale of the Chicago Cubs to the Ricketts family from Tribune Co. was concluded last year, there has been speculation that a Cubs channel was in the plans. Earlier this year, Bruce Levine wrote.
The Cubs’ future on television will find them venturing out with their own Cubs cable network at some point. The historic National League team has long agreements with Comcast, as well as WGN television and radio. However, the new ownership group, led by Tom Ricketts and his family, are looking into a new 24-hour Cubs station in the future.
The opening of Camden Yards in 1992 marked the beginning of an era where playing out of a new “retro ballpark“, with all the requisite premium seating and amenities, was the key to competing economically in MLB. Today, practically all franchises have long played out of “retro ballparks” and “in stadium” revenues have been maxed out across the industry. Future battles within ownership over economic disparities are now more likely to be focused on local media revenues. Just as the Royals and Pirates of MLB could never generate a fraction of the “in stadium” revenues of the Yankees and Red Sox, nor will their local media revenues ever remotely approach those of their large market peers. Will the increasing disparities in local media revenues lead to a demand for even more (last year approx $430 million) revenue sharing? Will small revenue franchises demand that industry giants the Yankees and Red Sox report more of their earnings from RSNs YES Network and NESN, as Baseball Related Income and consequently share more of it?
Are enormous, long term local TV deals the most recent disincentive to win in MLB? These guaranteed deals generate the same amount of annual revenue regardless of the product on the field. Already, revenue sharing has diminished the financial benefit to winning. (for both payors and payees) As well, MLB has centralized revenues from digital media, primary and secondary ticketing and merchandising via Major League Baseball Advanced Media. Winning baseball games has never been less important to the top and bottom lines of MLB franchises. Rangers fans should hope that the new ownership group led by Chuck Greenberg is more interested in winning a World Series or two than it is in counting it’s guaranteed $1.6 billion from FSSW.
Last Week in BizBall will return October 18.
Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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