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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

12 comments have been left for this article. (Click to hide comments)

BP Comment Quick Links

Matthew Avery

So, what you're saying is that now that MLB finally has an opportunity to make MLBTV slightly less screwed up with its blackouts... they're not going to?

And on top of that, last May they decided I wasn't going to be able to watch two playoff games?

WHY DO YOU NOT WANT ME TO WATCH BASEBALL BUD SELIG?!

Jul 09, 2012 07:33 AM
rating: 7
 
beerchaser42

I agree with you 100%. Unfortunately, having an "opportunity" to fix the blackout policy versus having an "incentive" to do so are two different things. As long as the subscriber revenues for MLB.tv continue to roll in, MLB has no incentive to fix the blackout issue and likely will not do so, no matter how much public jawboning they get about it. They have had the "opportunity" to fix it all along; they have just chosen not to use it.

Jul 10, 2012 11:53 AM
rating: 1
 
fatted

It's so frustrating that you assume nothing will be done to fix the blackout rules with MLB.tv. I'm not saying you're incorrect, just disappointing that even with a new contract the MLB.tv product will still be inferior to what it could be.

Jul 09, 2012 07:59 AM
rating: 2
 
jhardman

I agree with Matthew Avery's comment above completely. they have an "opportunity" (realizing that MLB controls their own "opportunities") to relax some of the ridiculous blackout rules currently in place and at least acknowledge that they could be relaxed without harming the gate or the network coverage.

Also, could MLB at least start showing all the games at "bad times" where national audience share would be poor plus no other game in going on in any other market? That could be done now on MLB network or even a network like NBCSports Network after the new contract. More games at any time make for happier baseball fans in general. ESPN usually shows the Patriots Day game in Boston nationally each year (the game with the worst start time of the year), so why can't that be done with other games?

Jul 09, 2012 08:01 AM
rating: 0
 
jrbdmb

"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."

That is an understatement, to put it mildly. I think an interesting future atricle would be on how things go until the rights fees bubble bursts. Are cable and satellite subs really going to pay $10 - $20 a month or more just for their local RSN?

Jul 09, 2012 08:01 AM
rating: 2
 
EdgarKid

And what it will cost!

The Edgar Kid
(aka: Ray Werner)

Jul 09, 2012 09:20 AM
rating: 0
 
misterjohnny
(925)

The trend was really set by the Big Ten Network. When they got national coverage by football season in 2008, it told the rest of the nation that more RSNs are viable.

But are they?

The Longhorn Network is looking like a big failure. Verizon FiOS is the only national provider with carriage (and they only reach about 10% of the nation, with only 3m TV customers). Nobody else outside of Texas is coming to the table.

So the question becomes, how viable are multiple RSNs in a city? Los Angeles has two, with Lakers Network coming on board in the fall. Can the Dodgers make it a fourth?

My take is, the baseball teams will need to team up with basketball or hockey in order to have a truly viable RSN. Only a team like the Yankees can go it alone.

Jul 09, 2012 10:01 AM
rating: 1
 
indianacardinal

I still have a question dating back to your May 29th article about the new CBA Part I.

Does the team that loses a free agent and that has made a qualifying offer ONLY receive a draft pick at the end of the first round or does that team get BOTH that pick AND the first round pick of the signing team, if not one top 10 picks in the first round?

I missed asking that question in conjuction with that article.

Another related question.....has anyone estimated what a qualifying offer will calculate to be. I know it is the average of the top 125 2012 contracts, but has anyone attempted to estimate how much that will be?

Thanks.

Jul 09, 2012 11:34 AM
rating: 0
 
Worthing

Anyone know Bud Selig's email address?

Jul 09, 2012 12:29 PM
rating: 1
 
drawbb

What e-mail address?

Jul 10, 2012 20:19 PM
rating: 0
 
colt45s

There's one problem with the assumption that MLB is about to hit the jackpot. America (not to mention much of the rest of the world) is in the early stages of Great Depression II. That doesn't mean immediate doom, but advertisers may not have the cash to keep of pouring booze into baseball's punchbowl.

Jul 09, 2012 19:33 PM
rating: 0
 
drawbb

Those economic conditions also applied when each of these local cable rights renegotiations occurred and didn't hinder the price explosions whatsoever.

It isn't the unimaginably wealthy advertisers and networks who are hurting financially in 2012, it's the potential field of viewers.

Jul 10, 2012 20:19 PM
rating: 0
 
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