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July 10, 2006

The Ledger Domain

MLB's Landscape Leading Up to the CBA, Part II

by Maury Brown

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Part II - Diversification of Media Revenue, Television Rights, and more on why MLB has flourished

"My philosophy, like color television, is all there in black and white"--Monty Python

In Part I of this series, I outlined how baseball had presented itself as being in a depressed state at the beginning of the current collective bargaining agreement. I then went over some of the components that helped MLB start to "turn the corner."

What I didn't get into in Part I was the changes in television revenues, and the diversification of those media revenues that have changed landscape between August 30th of 2001, when brinkmanship nearly caused yet another work stoppage, and now.

Special Delivery

Drive around long enough, and you're bound to see this bumper sticker: KILL YOUR TELEVISION. Of course, the odds are that the vast majority of those behind the wheel of that car go home or to the office, and drone away their lives sitting at a computer screen.

See, it's not the TV; it's the content delivery system. Baseball, not exactly the bellwether for forward thinking in the past, actually got ahead of the curve in 2000, and has never looked back.

As I mentioned in Part I of this series, MLB got smart and put together a media arm called MLB Advanced Media (MLBAM). This started MLB down the path to diversifying its revenues well in advance of the other Big Four sports. When you look at how media revenues were split up in 1999 and compare it to the present, you see that while the pie is growing in size, it's also made of new slices as well: new content delivery methods that MLB could capitalize on to provide ever expanding revenues.

1999
Revenue Stream   Revenues       % of total
Network          $299,892,500   86.3
Cable             $42,395,000   12.2
Radio              $5,212,500    1.5
Total:           $347,500,000

2006
Revenue Stream   Revenues       % of total
Network          $416,768,000   51.2
Cable            $297,110,000   36.5
Radio             $58,608,000    7.2

Satellite Radio   $30,118,000    3.7
New Media         $11,396,000    1.4
Total:           $814,000,000

Note that the "network" portion of the revenue pie decreased by 35.1% while cable revenues increased by 24.3% from 1999 to 2006. There are also the new content delivery methods that were not available in 1999: satellite radio and "new media" (broadband internet and other high-tech content delivery methods such as cellphone technologies), which now comprises 5.1% of all of MLB's media revenue at $41.5 million.

Looking deeper into the numbers shows the dramatic shift that MLB has seen in terms of increases through the various media revenue streams. For example, while network televeision revenues have increased 39% from 1999 to 2006, growth of cable (600%) and radio (a staggering 1024%) have gone through the roof during the same period of time. At over $297 million, cable has nearly caught up with the 1999 revenues for network streams (without adjusting for inflation), and accounts for a large part of MLB's robust state over the course of the current agreement. It will be interesting to see if MLB will be able to sustain this growth, especially given the fact that at the end of this season, the national network agreement with Fox ends.

Thank You ESPN

In September of 2005, ESPN inked an eight-year, $2.37 billion contract with MLB that began this year-a 50% increase from the previous deal with the cable sports network. Where each year of the contract was $197 million a year in the old deal, it is now $296 million. The deal allows ESPN to broadcast three games a week (Sundays, Mondays and Wednesdays), and increased the total number of games per year by 150. Also, the deal is not television-based alone: ESPN is allowed to broadcast on other platforms such as cellphone technology.

ESPN is the only cable partner MLB has ever had, and MLB's done well with them. After all, from 1994 to the current deal brokered in 2005, the revenue dollars out of the deal have increased 830%.

Calling Fox?

As mentioned, Fox's current five-year network deal with MLB expires at the end of the season and is worth $2.6 billion, or $416.7 million annually. To place cable and network numbers in perspective, projections are for the next network deal to provide approximately $500 million a year in media revenues. Fox had the right to negotiate exclusively with the league until Dec. 31, 2005. The problem? They couldn't come to terms on a deal. Fox claims that they have lost $200 million over the course of the agreement with MLB, and to date, no new arrangement has been made with MLB to renew.

Fox seems willing to renew their deal, but not if they continue to bleed red. As News Corp. President Peter Chernin said of the arrangement between MLB and Fox, "We have enjoyed our relationship with them and are more than happy to renew, if we can make money on the contract. We are not prepared to sign a deal that loses money and we are prepared to walk away."

To try and cover their bases, MLB has looked to NBC and for more out of ESPN to see if they can meet network revenue expectations. The problem there is that NBC already has allocated a considerable portion of their sports programming dollars to the Olympics, and as mentioned earlier in this article, ESPN just started a new deal with MLB.

Conclusion to Part II

While the bumper sticker says "Kill Your Television," if you're MLB, you certainly love your old television along with all of your more newfangled content delivery methods. There continues to be an increased desire for fans to get games in any medium: on television, via broadband, cellphone, or via terrestrial or satellite radio. MLB media revenues are projected to grow, at least early on when the new Collective Bargaining Agreement is reached, and it's possible that that growth may continue clean through that agreement.

What we've seen in the first two parts of this series is that ownership and the players see revenues continuing to grow. Now, how local revenues are shared… that's a bone of contention that we'll talk about in more detail as this series continues.

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,  MLB Network,  Radio,  Deal,  Media

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