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July 9, 2012

Bizball

How Much Could MLB’s Next National Television Contracts Be Worth?

by Maury Brown

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There was a point not too long ago when the key revenue stream for Major League Baseball was the gate—ticket sales—with media rights through television coming in second. Recently, however, there has been an explosion in the amount of money coming into sports properties in the U.S. via media rights that is altering the landscape. Whether it’s collegiate sports conferences or the “big four” sports leagues (NFL, MLB, NBA, NHL), the dollar amounts for national and local broadcast rights have increased. The reason? With the advent of the DVR and movies on-demand, regular programming can be watched whenever viewers like. With content being recorded, fast-forwarding past commercials has become commonplace. Live sports programming is the exception. Since fans want to see action when it happens, advertisers are placing more focus around sports than ever before.

The increases in media rights fees have happened already at the local and regional level in baseball, as exhibited by the Rangers, Angels, and Astros (and soon to be Dodgers and Padres). In the coming months, MLB itself will be cashing in, too, when the national television broadcast rights come up for renewal. Currently, the deals with FOX, TBS, and ESPN all expire at the end of 2013. According to sources, informal conversations have already begun on renewing the national television deals.

The looming question is, “How much will they be worth?” Also, will the same broadcast partners be in the mix, or could others jump into the fray? The payday for the league will be a significant jump from where they are now, no matter who the players are.

To get an idea of where MLB could land, it’s important to understand how the current media rights landscape fits into the equation. Based on where the contracts are expiring, baseball is one of the last to see their contracts being renewed in this new media rights world.

The big change came about when collegiate sports conferences started launching their own networks. The PAC-12’s deal set the table when negotiations brought about a deal that garners $250 million annually, a massive escalation based upon changes in the market. That contract spawned the ACC deal with ESPN that now pulls in $155 million a year. That ripple-effect set the market for the rest of the sports landscape. The NBA renewed with ABC/ESPN and TNT in an eight-year deal that pulls in approximately $930 million annually, or $7.44 billion over the life of the contracts.

The NHL has benefited from this rights boom as well. They currently are pulling in $187 million annually after renewing with NBC and Versus—a 146 percent increase from the $76 million they were pulling in prior. The NFL renewed their contracts in late December last year and, with it, saw a 60 percent jump from what they were pulling in prior. The nine-year deals kick-in in 2014, and when it does, rights fees from CBA, FOX, and NBC will jump from $1.93 billion annually to an estimated $7 billion. Along the way, the Lakers 25-year deal with Time Warner Cable pulls in an estimated $200 million annually. That deal, which includes all preseason, regular season, and postseason games not broadcast nationally, eclipsing the prior deal that was reportedly $30 million annually. Throw in the aforementioned MLB deals (Rangers and Angels each getting $3 billion for 20 years; the Astros pulling in $80 million annually as part owners of Comcast SportsNetHouston; the Padres’ pending deal of $75 million annually for 20 years; and the expected windfall for Dodgers when their deal is reached), and baseball is about to hit the mother lode with their national contracts.

So How Much Could MLB Pull in?
Here’s a look at the current amount MLB pulls in via rights fees, not including the league-owned MLB Network:

Current MLB Rights Fees Annually (millions)

Partner

Amount

Duration

FOX

257.1

7 yrs

TBS

148.6

8 yrs

ESPN

296

9 yrs

 

701.7

TOTAL

Source: SportsBusiness Daily

Along with market escalation, competition from other networks could come into play. The big question is whether NBC Sports Network jumps into the fray. With the new network looking for solid regular programming, a bidding war could ensue with either FOX or ESPN. The question comes down to how much MLB will get for, ostensibly, one game a week plus playoffs (FOX, TBS) and Sunday, Monday, and Wednesday games (ESPN). The new Wild Card playoff format goes to TBS, while the league-owned MLB Network is in the mix with their Thursday games and now two Division Series playoff games.

Taking everything into account, it seems unlikely that baseball will rake in the increase that the NFL has. From a national programming perspective, the NFL is deemed to be better content for the increase based on massive ratings and viewership numbers. They are likely to see an increase over the NHL, and even though the NBA sees more games across the ABC/ESPN and TNT platforms, it’s possible for MLB to garner higher rights fees based upon popularity and programming that can run longer than basketball games.

Based upon market escalation, the possible bidding war with NBCSN in the mix, and attendance and possible ratings increase with the addition of two new Wild Card teams, an increase to $1.75-to-$2.5 billion annually is within the realm of possibility. At the high end, that would mark a 256 percent increase from the approximately $701.7 million annually that the league pulls in and a 169 percent increase over what the NBA is pulling in with their national broadcast partners. It would be well below what the NFL is garnering now but near or above the $1.93 billion they were pulling in prior to the media rights explosion.

The Effects Once the Rights Deal is Renewed
The profound effects of the media rights deal being reached no later than the end of 2013 cannot be overstated. As much as the local deals being reached have filled the coffers of those clubs, every club in the league will reap the benefits of the national rights deals. That will not only give each club more money to spend now (plus profits) but will increase the value of clubs when or if they come up for sale. As we’ve seen with the sale of the Dodgers, media rights play a huge part in how much clubs are worth.

And the deal will have an impact at the consumer level as well. In speaking with sources abreast of these media rights deals, one should expect national exclusivity to continue, especially given the sizeable fee increase. That means fans subscribed to MLB Extra Innings and MLB.TV Premium will still be hit with national blackouts. Going further, the massive escalation in media rights fees will be passed on to customers in the form of subscription fees through cable and satellite operators.

Remember, it’s not a matter of whether it will be a sizeable windfall for MLB; it’s simply a matter of how much.

Maury Brown is an author of Baseball Prospectus. 
Click here to see Maury's other articles. You can contact Maury by clicking here

Related Content:  MLB Network,  Deal,  Media

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