I have been getting a lot of mail lately asking about how television revenues impact MLB and the 30 clubs. Whether it’s regarding the proposed deal to make MLB Extra Innings exclusively available on DirecTV, or how someone like John Kerry might try to derail that effort, there seems to be more interest than ever in how sports-or more correctly, MLB-is impacted by the boob tube.
To that end, one of the single biggest influences over television has been the increased growth in regional sports networks, or RSNs. Every club is now broadcasted on an RSN, with some clubs being partial owners of them. Doing some research, here’s a list of some RSNs that are controlled, or partly controlled, by MLB clubs:
Regional Sports Network Franchise Association NESN (New England Sports Network) Red Sox, Bruins MASN (Mid-Atlantic Sports Network) Orioles, Nationals YES (Yankee Entertainment Sports Network) Yankees, Nets RSN (Rogers SportsNet) Blue Jays, Raptors TBS (Turner Broadcast Station) Braves Comcast SportsNet Philadelphia Phillies, 76ers, Flyers Comcast SportsNet Chicago White Sox, Cubs, Bulls, RSTN (Royals Sports Television Network) Royals SportsNet NY Mets SportsTime Ohio Indians WGN Cubs
With the advent of the RSN, the questions are, 1) are they profitable? and, 2) are they considered to be part of the revenue-sharing equation? The answer is yes to # 1 and no to #2.
With that in mind, there have been echoes of MLB clubs using what is called “transfer pricing” to help shield baseball-related revenues in controlled RSNs to keep them out of scope of the revenue-sharing process. As an article from CFO.com outlines, such accusations raise the ire of MLB executives. As the article points out, “under the current CBA rules, PricewaterhouseCoopers performs a separate revenue-sharing audit on every team based on ‘aggressive’ rules defined by a committee of owners and other staff, and reviewed by the players’ association.”
The article also mentions that shielding revenues does occur.
“Ask baseball CFOs about related-party transactions and see if they don’t turn pale,” suggests Ray Schaetzle, former executive vice president of finance of the New Jersey Nets, which merged with the Yankees to form the YankeesNets organization.
“When you have related-party transactions, you have a lot of opportunity to reduce costs through economies of scale-or to hide things and make the franchises look less profitable than they are,” explains Schaetzle.
Which brings us back to the RSNs and their financial states. With data obtained from the Sports Business Journal, we can see the following:
rank* Network Team** No. of games 2006 rating Avg. households 1 NESN Red Sox 150 10.6 252 2 FSN Northwest Mariners 108 8.9 101 3 FSN Midwest Cardinals 107 8.6 105 4 FSN Detroit Tigers 112 7.1 138 5 FSN North Twins 119 6.7 110 6 Cox Channel 4 Padres 140 6.5 66 7 FSN Ohio Reds 115 5.5 48 8 CSN Philly Phillies 93 4.8 139 9 FSN South Braves 25 4.4 93 10 YES Yankees 126 4.3 317 11 Turner South Braves 54 4.1 87 12t FSN Pittsb. Pirates 118 4 47 12t FSN Arizona Diamondbacks 70 4 67 14 STO Indians 130 3.8 59 15 FSN Southwest Astros 130 3.6 71 16 SN Chicago White Sox 95 3.1 106 17t SNY Mets 124 2.9 211 17t FSN North Brewers 123 2.9 26 17t FSN Florida Marlins 149 2.9 44 17t SN Chicago Cubs 72 2.9 99 21t SN MidAtlant. Orioles 83 2.8 31 21t FSN RM Rockies 126 2.8 40 21t FSN Bay Area Giants 97 2.8 66 24t FSN West Angels 100 1.7 91 24t FSN P-Ticket Dodgers 101 1.7 96 24t FSN Southwest Rangers 81 1.7 40 27t FSN Florida Devil Rays 77 1.6 28 27 FSN Bay Area A's 73 1.6 37 *2006 rank ** Data not available for the Blue Jays, Royals, and Nationals.
Ratings for 10 of the top-rated RSNs declined or were flat last year, but in the overall context of the industry, this is not seen as a concern. Eight of those ten declines have seen overall ratings increases since 2003. With ad deals normally being structured in three-to-five-year increments, a dip this year hasn’t raised the concerns of most in the RSN business, as outlined by the overall health of ratings in comparison to a three-year span of time.
rank Network Market 2003 rating 2006 Rating 1 NESN Boston 2 3.4 2 FSN Detroit Detroit 1.5 2.4 3 FSN Midwest St. Louis 1.8 2 4 FSN North Minnesota 1.3 1.9 5 Cox Channel 4 San Diego 1.1 1.6 6 SN Philly Philadelphia 1.6 1.5 7 FSN Northwest Seattle 2.1 1.5 8 FSN Ohio Cincinnati 1 1.2 9 YES New York 0.8 1.1 10 FSN Southwest Houston 0.9 1.1 11 SN Chicago Chicago 1.1 1 12t FSN North Milwaukee 0.6 0.9 12t FSN Arizona Phoenix 1 0.9 12t FSN Pittsburgh Pittsburgh 1 0.9 12t FSN Bay Area San Francisco 1.4 0.9 16t SN MidAtlant. Baltimore NA 0.7 16t SNY New York 0.5 0.7 16t FSN Florida Miami 0.9 0.7 16t SportSouth Atlanta 1 0.7 20t FSN West Los Angeles 0.8 0.6 20t FSN Rocky Mtn. Denver 1 0.6 20t FSN Southwest Dallas 0.9 0.6 23 FSN PT Los Angeles 0.4 0.5 24 FSN South Atlanta 0.7 0.4 25 FSN Florida Tampa NA 0.3 NA: Not available Note: Turner South was rebranded SportSouth in October 2006 Source: SBJ research
In relationship to total households, the declines from 2005 include:
Network Team* Change in HHs vs 2005 NESN Red Sox -10.40% FSN Northwest Mariners -4.80% FSN Midwest Cardinals -6.70% FSN North Twins -0.20% Cox Channel 4 Padres -2.10% FSN South Braves -23.10% YES Yankees -5.10% Turner South Braves -31.10% FSN Pittsburgh Pirates -11.10% FSN Arizona Diamondbacks -13.60% STO Indians -42.60% FSN Southwest Astros -8.40% FSN North Brewers -33.20% FSN Florida Marlins -32.00% SN Chicago Cubs -24.60% SN Mid-Atlant. Orioles -30.30% FSN West Angels -3.30% FSN Southwest Rangers -31.80% FSN Bay Area A's -5.60%
* Data not available for the Blue Jays, Royals and Nationals.
There were some increases, most notably FSN Detroit, which saw a 92 percent increase in average households from the year prior due to the Tigers’ Cinderella run to the World Series, and an 87.20 percent increase at SportsNet New York due to the Mets.
Those with increases in total households include:
Network Team* Change in HHs vs 2005 FSN Detroit Tigers 92.00% FSN Ohio Reds 29.70% SN Philly Phillies 16.10% SN Chicago White Sox 19.70% SNY Mets 87.20% FSN Rocky Mtn. Rockies 69.70% FSN Bay Area Giants 3.90% FSN PT Dodgers 32.40% FSN Florida Devil Rays 6.20% * Data not available for the Blue Jays, Royals and Nationals.
Overall, the data shows two things. It shows that revenues from RSNs have been up for the period leading up to the CBA. When that fact was tied to other revenue streams, it set up an environment where free spending in the off-season was ripe for an increase.
While the data shows increases over the past several years in ratings and the total number of total households with access to RSNs, the numbers in decline from last season may be a trend, rather than an anomaly. One might suggest that the steep decline in NESN viewership last season was due to the lackluster finish to the season. With the aggressive off-season activity by the Red Sox and the addition of Daisuke Matsuzaka, interest will be increased at the early part of the season, and then depending on the performance of the team over the course of the season, those numbers will fluctuate accordingly.
Lastly, there will be ebbs and flows in the RSN game. As an example, starting in 2008, the Kansas City Royals will increase the number of games seen on television to 140 in total. That’s due to a deal with Fox Sports Midwest. It will also mark the end of Royals Sports Television Network (RSTN), the Royals attempt at a regional sports network. RSTN is expected to televise 114 games, including 14 over-the-air games, in 2007. As for additional RSNs, the Angels came very close last year to creating one before inking a deal with FSN West, and other clubs will surely investigate whether controlling an RSN is beneficial to them.