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September 28, 2000

The Imbalance Sheet

A Good Deal...but Not a Great One

by Keith Law

In the next few days, there will be much ink spilled over Fox's big baseball gamble: paying $2.5 billion for complete rights to baseball's postseason and All-Star Game television coverage for the next six years. And beyond the obvious benefits (for example, none of the cloying, ADD-inspired coverage NBC has used to ruin the Olympics) of the change, there's much to ponder here.

Most interesting to me is that baseball continues to enjoy an escalation in national TV revenues even as ratings have declined for regular-season and postseason games, and as baseball has continued to show its ineptitude in marketing the game both domestically and globally. But baseball got lucky, too, and that doesn't hurt.

The incredible penetration of basic cable channels into American households has radically shifted the supply/demand balance for national sports. Once upon a time, there were three outlets on which a major sports league or consortium (e.g., the NCAA) could televise its games: NBC, ABC and CBS. Today, those outlets are joined by the free-spenders at Fox, cable channels ESPN and TNT, T&A channel USA Networks, and potentially by the WB network.

Yet the list of premium sporting events to be televised isn't really growing. The last such event to graduate to the major leagues, so to speak, was the NBA finals, which took the leap about ten years ago as David Stern's marketing and Michael Jordan's tongue-wagging brought the league out of baseball's shadow. Marquee events like the Super Bowl, baseball's postseason, March Madness and the Olympics (a debatable point this year) are few and far between in their ability to draw in millions of the young, often affluent males programmers and advertisers covet.

So baseball reaps a huge windfall: $2.5 billion over six years equals just short of $14 million per team per year, an increase of about $4-5 million over the previous deal. You know what that means: Matt Stairs can get a four-year, $24-million deal from the Brewers this offseason.

What's also interesting is that the numbers, while large and increasing, pale when compared to the revenues generated by other leagues. Including the regular-season package held by ESPN, MLB gets $590 million per year from its national TV deals. The NBA gets $660 million per year for its entire TV package, even though it was negotiated in 1997. The NFL's record deals in 1998 give the league $2.2 billion per year, and provide the league with significant national exposure for many teams, not just the big-city squads. Even college basketball, with just one month a year of games that any non-partisan fans care about, gets nearly $2 billion per year for its TV deal with CBS.

Why is our national pastime closer to the NHL than it is to the NFL in TV winnings? It comes down to marketing, as baseball has continued to mismanage its public image. While poor marketing is often blamed for such matters as baseball's declining showing in "favorite sport" surveys, it seems that it hurts baseball in the pocketbook as well. If ever there was an incentive for the owners to work together on something, this is it.

Keith Law can be reached at klaw@baseballprospectus.com.

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