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TOMS: Why MLB is Thriving.... and Dying PDF Print E-mail
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Pete Toms Article Archive
Written by Pete Toms   
Monday, 10 February 2014 15:02

MLBEarlier this winter I listened to a sports radio segment where 2 Toronto sports pundits attempted to explain the seemingly counter - intuitive news that MLB annual revenues have climbed to upwards of $8 billion.

On the one hand, they noted, steadily diminishing national TV ratings (including ASG and WS), reveal that baseball is clearly less popular. And hasn’t the NFL, long ago, and by a wide margin, supplanted MLB as the dominant pro sports league? And wasn’t it, after all, inevitable? Isn’t baseball anachronistic? From a slower, analogue, monolithic popular culture?

On the other hand, they understood why MLB revenues have skyrocketed. The biggest factor being the enormous increase in TV $$ from both national, and especially, local deals. Plus, attendance is stable, at near-record levels. And yes, almost ironically, slow, staid MLB has better exploited the internet than any of the other so-called Big 4.

They’re right, on both counts. Yes, baseball is dying. And the evidence is not found in the diminished national TV ratings (TV ratings are down for all programming except the NFL) but in who, and who isn’t, watching. Old guys, not young guys, like baseball. Jonathan Mahler was amongst those who reported this fall that the median age of the 2012 WS TV viewer was 53.4. Perhaps more telling is the steady, long-term decline in the number of kids playing baseball.

But it is precisely because MLB fans are old that business is booming. The huge boost in MLB TV $$ comes from us old guys who subscribe to Pay TV. We are footing the bill for the recent spate of MLB mega deals with local RSNs. We aren’t the cord-cutting, digital natives who have never paid for content. They believe that paying $100/month to watch video is stupid. Earlier in the year Joe Flint reported that, “By 2015, almost half of all television viewing will be done by folks over the age of 50…” The migration of local MLB broadcasts from free over-the-air TV to Pay TV was inevitable. Why? Because MLB fans can afford Pay TV. We are baby boomers, the most affluent generation in history. And baseball fans are the most affluent of sports fans. We complain about our cable bills, we’re old, so we’re allowed. But we’ll still pay for the nightly, pleasant, familiar, tribal, ritualistic pleasures of watching our team on our big TVs, in our comfortable basements. It feels good.

While there is debate about the future prospects for the Pay TV industry, under pressure from OTT, potentially one, or some of, Google, Apple and Aereo, and politicians and regulators sabre-rattling over channel bundling…. in the present, it’s still thriving. And as long as MLB continues to aggregate large TV audiences of purchasers of financial services, luxury autos and ED remedies , there’ll be plenty of money in it for them.

You can follow me on Twitter @PeteToms


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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LWIB: Dynamic Ticket Pricing and the Secondary Market in MLB, Worldwide Draft Update, Plus Tidbits PDF Print E-mail
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Monday, 27 February 2012 18:03

Last Week in Bizball by Pete Toms

This week in “Last Week in Bizball”, dynamic pricing and the secondary market, worldwide draft update, plus tidbits.

DYNAMIC PRICING & THE SECONDARY MARKET

Seemingly every week I mention that another team has either implemented, or expanded their use of, dynamic pricing of tickets. Another subject that I frequently bring attention to is the challenges that the secondary ticket market pose to many MLB franchises. Despite the reported approximate $60 million annually that BAM earns from their formal partnership with StubHub, and the avalanche of qualified sales leads it generates, many clubs believe that secondary ticketing is killing their primary sales. My piece from December on MLB and secondary ticketing included this quote (courtesy of SBJ) from Braves Executive Vice President of Sales and Marketing Derek Schiller, “I don’t believe there is any bigger obstacle or issue, any bigger threat to the professional team sports marketplace and industry as a whole…This is the single biggest issue facing our industry….The amount of dollars at risk is growing near exponentially. And we absolutely as an industry — and not just baseball — need to manage it.”

The Giants were the first MLB franchise to implement dynamic pricing, using it on a limited basis for the 09 season. This season, 17 teams will use dynamic pricing. 10 of those teams will use dynamic pricing to set the price of all single-game tickets. Initially, the motive behind dynamic pricing was both to increase the number of tickets sold and the average sale price. More recently, clubs are also implementing and expanding the use of dynamic pricing to limit the amount of ticket inventory resold on the secondary market. LWIB Danny Ecker reported on the Cubs decision to use dynamic pricing this season for 5,000 bleacher seats. According to the piece, “Expanding that model to the entire ballpark could mean recouping as much as $11 million a year from resellers.” And, “Teams are looking at (dynamic pricing) to capture some of that secondary market that they're not capturing,” says Colin Faulkner, the Cubs' vice president of ticket sales and service…”

WORLWIDE DRAFT UPDATE

January 9 was the date of the first meeting of the International Talent Committee. The co-chairs for the committee are MLBPA ED Michael Weiner and MLB’s senior executive on labour matters, Rob Manfred. According to the press release, “…the International Talent Committee is responsible for examining a number of areas related to the procuring of international players including but not limited to the exploration of the possibility of an international draft, improving the education and acculturation programs of Clubs at their international academies and the development of appropriate country-by-country plans for playing and development opportunities for players prior to draft eligibility.” This committee exists as a direct result of the new CBA, which contemplates either an expansion of the Rule 4 draft, or the introduction of a wholly separate “international” draft. (The Rule 4 currently includes Canada and Puerto Rico). After years of attempting to control club spending in the Rule 4 via his office’s “slot recommendations” commissioner Selig succeeded in the last round of negotiations in implementing fundamental changes to the acquisition of amateur talent. Beginning this season, clubs exceeding spending limits in both the Rule 4 and international free agent market will be severely penalized by MLB. In addition, MLB foresees the implementation of a draft in the Dominican Republic as part of its ongoing efforts to reduce age/identity fraud and bonus skimming there. LWIB, commissioner Selig commented to Baseball America on the much discussed worldwide draft, "It is inevitable. I would like to see it. We have made some significant progress to that end. When we went to the draft in 1965, it was to create a more level playing field. We've done that, and the same thing will have to happen internationally." Josh Leventhal added that there is plenty of opposition to a worldwide draft, both within, and outside of, MLB.

….many front-office officials have said they neither want an international draft nor are confident that MLB has the ability to pull it off.

The Dominican Republic, Venezuela and the other Latin American countries all have their own issues with laws, player registration and investigations that would need to be worked out. Then there are agreements with Asian baseball governing bodies that would have to be worked out, including Japan, Korea and Taiwan, all of which have their own professional leagues.

Some major league club officials think an international draft will penalize teams that work hard in Latin America and have invested more resources into scouting the region. However, many teams, trainers and agents have seen the writing on the wall the last couple of years that an international draft was behind MLB's efforts to reform Latin America, even if MLB didn't always explicitly frame it that way.

Also LWIB, Zachary Levine examined how the Astros attempt to greatly increase the quality and quantity of players they recruit in Latin America is being impacted by the aforementioned changes in the CBA.

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Last Week in Bizball: The Padres and Fox Sports San Diego, plus Tidbits PDF Print E-mail
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Tuesday, 21 February 2012 10:34

Last Week in Bizball by Pete Toms

This week in “Last Week in Bizball”, the Padres and Fox Sports San Diego, plus tidbits.

PADRES & FOX SPORTS SAN DIEGO

The Padres have concluded an agreement with the soon-to-launch Fox Sports San Diego. As a result, the Padres are going to see a big boost in local TV revenues from the reported $15 million they received last season from Cox. Beyond that, reports on the details of the deal vary greatly.

As mentioned last week, Bob Nightengale reported in USA Today that the value of the Padres/FSN deal is $1.5 billion over 20 years. LWIB Jay Posner reported that Nightengale’s numbers are exaggerated. According to Posner, the Padres will receive a 20% equity stake in the new channel (common in recent local rights deals with RSNs). Posner reports the Padres rights fee in the initial year of the deal is $30 million, with a signing bonus boosting it to $40 million. Again, according to Posner, the value of the annual rights fee will escalate about 4% annually, bringing it to approximately $65 million in its final year.

LWIB, Bill Shaikin reported that the deal includes an upfront $150 million signing bonus for the Padres. According to Shaikin, Jeff Moorad intends to use Fox’s money to complete the purchase of the franchise from John Moores. You likely know that the owners recently, and surprisingly, delayed approval of the completion of the sale. Commissioner Selig, in the cases of Tom Hicks and Frank McCourt, has set a precedent of forbidding owners to invest Fox’s money outside their baseball franchises. And so, MLB’s approval of both the transfer of ownership of the Padres, and their pending deal with Fox, are in limbo.

LWIB, Barry Bloom reported that the Padres pending deal with Fox spans 20 years and is worth $1 billion. According to Bloom, the initial annual rights fee will be $30 million and by the end of the deal it will have climbed to $70 million. Bloom also reports that MLB is delaying approval of the deal over the aforementioned concerns as to how the signing bonus is invested. Bloom pegs the bonus amount at $200 million. What stands out in Bloom‘s piece is his reporting that the deal is being complicated by Moore’s desire to retain an interest in the new channel while simultaneously completing the sale of his remaining 51% stake in the Padres to Moorad.

Despite all this, it is expected that Fox Sports San Diego will broadcast the Padres Home Opener on April 5th.

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Last Week in Bizball: The RSN Windfall and MLB's Luxury Tax, Plus Tidbits PDF Print E-mail
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Tuesday, 14 February 2012 00:00

Last Week in Bizball by Pete Toms

This week in “Last Week in Bizball”, the RSN windfall and competitive balance, plus tidbits.

THE RSN WINDFALL AND COMPETITIVE BALANCE

Commissioner Selig often trumpets the healthy state of competitive balance in MLB. Amongst other facts, he would cite the 9 different World Series champions in the last 11 seasons. Commissioner Selig would also argue that, under his guidance, MLB has achieved greater competitive balance by narrowing the revenue gap separating the largest and smallest markets. This has been accomplished with increased sharing of local revenues and the Competitive Balance Tax (CBT), or as it’s more commonly know, the Luxury Tax. In the recently concluded CBA negotiations, Selig successfully bargained for the implementation of a soft cap, similar to the CBT, in the Rule 4 draft. As well, the new CBA provides greater incentive for clubs to keep big league payroll at, or below, the CBT threshold. Cynics argue that redistributing revenues and taxing “overspending” isn’t about competitive balance but rather limiting player compensation. Since 10, I’ve been blogging about The Importance of Regional Sports Networks in MLB. A few weeks ago I noted a very prominent sports media consultant’s prediction that the windfall of RSN money flowing to MLB will soon see industry revenues increase from $7 billion annually to $9 - $10 billion. So, the inevitable questions is, will this windfall of billions of dollars in RSN revenue work against MLB’s efforts to “level the playing field”?

Some believe that the impact on competitive balance of soaring local media rights will be negligible. After all, each team’s current deal will eventually be up for renewal, and when it is, each will benefit from the same factors driving up rights fees (competition amongst MSOs & telcos for live sports, plus threat of OTT alternatives) which exist in every market. For instance, LWIB Bob Nightengale reported that, “…even the San Diego Padres— playing in the 26th largest market in baseball — are, pending MLB approval, poised to sign a new deal with Fox Sports that will guarantee them $75 million a year for the next 20 years.” The Padres current deal with Cox reportedly earns them $15 million annually. (For more on the Padres new partnership with FSN, see here) But, while each team will eventually “cash in”, the value of an RSN, or a rights fee, is not based on viewers or ratings but on the number of subscribers. And the number of subscribers is determined by carriage deals and, perhaps more critically for MLB, market size. Again from Nightengale, "It does have the potential to hurt competitive balance," said White Sox chairman Jerry Reinsdorf, MLB's longest-tenured owner. "The big TV deals are basically a function of market-size and competition. There's no way that Kansas City can get a deal comparable to what the Angels did."

In recent years there has been talk about an “emerging middle class” in MLB. In December 10, Eric Fisher noted that during that calendar year, a record number 7 nine-figure player deals had been concluded (a number matched last year). Of those deals he wrote, “…nowhere in that list are the New York Yankees and Mets, Chicago Cubs or Los Angeles Dodgers — four clubs typically among the highest earners in MLB. That quartet of teams was involved in nine of the prior 19 $100 million-plus contracts. Just as in the standings this past season, and the San Francisco Giants-Texas Rangers World Series matchup, MLB’s economic middle class continues to grow more assertive.” If we assume that there is a growing middle class in MLB (I’m not so sure), is it largely due to the annual redistribution of approximately $400 million from big revenue to small revenue franchises? And, with local media revenues soaring, will MLB and the MLBPA need to be more vigilant in ensuring that those revenues are being reported and redistributed? You can read my previous posts for more details, but an ever increasing number of team owners also own stakes in RSNs, or the club itself has equity in an RSN. (Comcast initiated the trend of offering clubs equity in their RSNs and FSN has followed) In such relationships, there are, inevitably, lies, damn lies, and related party transactions. In other words, how much local media revenue is being underreported to both limit club’s exposure to revenue sharing and boost the profitability of their RSN investment? For instance, if the Padres are set to earn $75 million annually for their local TV rights, how much are the NYC teams taking in? SNY, the RSN controlled by Mets owners Sterling Equities, reportedly paid the Mets a $68 million rights fee last year. That will reportedly rise to $83 million by 15. Again, according to Nightengale’s report, “The Yankees say their TV rights are worth about $85 million to $90 million a year from YES, while the Red Sox insist their TV rights from NESN are worth less.” To state the obvious, if these reports are accurate, there are hundreds of millions of dollars that are not being accounted for in calculating revenue sharing payments.

Underreporting of local TV rights is nothing new in MLB. The sale of the Cubs to Tom Ricketts was reportedly delayed over a dispute of the value of the rights fee paid to the club by broadcaster WGN (both entities owned by Tribune Co. at the time). In 10, sports economist Andrew Zimbalist wrote, “In 2008, approximately $400 million was transferred from the high- to the low-revenue teams. The higher a team’s revenue, the more it has to contribute. The lower the revenue, the more it receives. The principal terrain of disputation is related party transactions, where team owners also own the regional sports network (RSN) that broadcasts the team’s games. It appears that several teams underreport the market value of the RSN revenue received by tens of millions of dollars and, in one case at least, this underreporting appears to exceed $100 million by a substantial margin.”

If indeed, MLB Teams are Media Companies, and you believe that revenue sharing contributes to competitive balance, how MLB calculates RSN revenues is about to become much more important and contentious. The MLBPA will also be closely scrutinizing the reporting of these revenues because underreporting obviously reduces the amount of money available to players.

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LWIB (Part II): Are the Wilpons and Katz Keeping the Mets? Plus Tidbits PDF Print E-mail
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Wednesday, 08 February 2012 12:14

Last Week in Bizball by Pete Toms

This week, a second edition of “Last Week in Bizball”. Can Wilpon and Katz keep the Mets?, plus the tidbits.

ARE WILPON AND KATZ KEEPING THE METS?

Where to start with the Mets woes? Irving Picard, representing the victims of Bernie Madoff, is attempting to extract close to $400 million from Mets owners Fred Wilpon and Saul Katz (aka Sterling Equities). The Mets operating losses over the past 2 seasons are reportedly $120 million. In November, the Mets arranged a bridge loan from BofA for $40 million. MLB also loaned the club $25 million and both are expected to be repaid next month. The baseball club and Sterling’s RSN, SNY, combined, have a reported $375 million coming due in a few years. Attendance and ticket prices at Citi Field have dropped dramatically the past few seasons. This upcoming season will see the Mets slash year-over-year payroll by $50 million plus and the team is expected to stink. They also folded a minor league team this off season. Last month it was reported that the Mets had retained the services of “turnaround specialists” CRG Partners. CRG was one of the key players in the bankruptcy auction of the Texas Rangers. David Einhorn agreed to invest $200 million in the Mets, but the deal collapsed. But, unlike with Tom Hicks and Frank McCourt, MLB hasn’t wrested the Mets away from Wilpon and Katz. Oh well, we cynics think, eventually being an FOB won’t be enough to save the Mets owners. They‘ll soon go bust and the creditors will take over.

But, LWIB there was buzz amongst sports industry insiders that Wilpon and Katz aren‘t leaving MLB any time soon. In this SportsMoney video segment, big time sports banker Sal Galatioto of GSP (no, not MMA) predicted that the many reports of the Mets “near bankruptcy” are “greatly exaggerated”. Galatioto foresees the Mets current efforts to raise $200 million via the sale of 10 minority shares in the team @ $20 million per succeeding. He also sees a lot of value in the Mets media rights. Sterling owns approximately 70% of the RSN (SNY) which broadcast Mets games. TWC and Comcast own the balance. The banker notes the guaranteed value of these cable rights deals, “...when you have a media deal, like a cable rights deal, you’re going to get paid, whatever your rights fee is whether the product is good or the product isn’t good.”

LWIB, Richard Sandomir reported in the New York Times that the Mets are close to finalizing the sale of the $200 million in minority shares. Richard confirms the earlier LA Times report that Steven Cohen (also bidding for the Dodgers) is set to become a Mets minority investor. But Richard’s scoop, and the more interesting development, is that the Mets aforementioned partners in SNY will invest $80 million in the baseball franchise. Howard Megdal explained that TWC and Comcast are motivated to help Sterling maintain control of the club for a few reasons. First, because Sterling owns both the team and a majority of SNY, the RSN lowballs the club’s rights fee, which is good for TWC and Comcast. And, if Sterling is forced to sell the team there is no guarantee SNY would continue to control the Mets local TV rights. Losing the Mets would make SNY worthless because they don’t own the rights to any other properties of significant value.

LWIB, Bill Madden wrote that the expected $2 billion sale price of the Dodgers will be a big help to the Mets owners. According to Bill’s unnamed “industry insider”, if the Dodgers are worth $2 billion, the Mets must be worth $3 billion. “What that means,” said the insider, “is that the Wilpons can now go back to their banks, point to the value of the team, and say: ‘Lend us more money.’”

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