Its tempting to call the Dodgers megadeal with Time Warner just another case of a big-market baseball team striking it rich.
By PETE GRATHOFF
The Kansas City Star
The numbers are eye-popping: The reported agreement could fetch as much as $7 billion over 25 years.
Sure, the Los Angeles TV market is among the largest, but a quick scan of recent local cable television deals in baseball shows some smaller teams have hit paydirt, too.
Its not simply a matter of small market, big market its also a matter of when contracts expire, said Andrew Zimbalist, the Robert A. Woods professor of economics at Smith College who has written extensively about baseball economics. Teams that are re-upping and signing a new deal now, or if they signed last year or even two years (ago) or maybe one year at the most into the future, are in very good shape.
Teams that signed their contracts three years ago or four years ago, or teams that sign their contracts in another couple of years are not going to benefit from this bubble. This is true whether they are in large markets or small markets.
And thats the bad news for Royals fans. The teams TV deal with Fox Sports Kansas City, which launched in 2008, pays the team $20 million a year and runs through 2019, Kevin Uhlich, the Royals senior vice president of business, confirmed. They dont have an opt-out clause.
So the Royals are forced to watch as the bubble continues to grow. Here are four teams that struck it rich, according to Forbes.
• In 2010, the Rangers received a 20-year deal from Fox Sports that starts in 2015. Texas got $100 million, will receive $80 million annually and gets a 10 percent equity stake in Fox Sports Southwest.
• The Houston Astros deal gives them $80 million a year and a 45 percent stake in Comcast SportsNet Houston.
• In 2011, the Los Angeles Angels got a 17-year, $2.5 billion deal that pays an average $95 million rights fee with a 25 percent equity stake in Fox Sports West.
• Last year, the small-market Padres received a $1.2 billion, 20-year deal with Fox Sports San Diego. The Padres also have a 20 percent equity stake in the network.
The Indians, the Royals rival in the AL Central, sold SportsTime Ohio to Fox Sports in December for an estimated $230 million. The deal gives Fox the rights to broadcast Indians games for at least the next 10 years, during which time the team will receive at least $400 million in rights fees, beginning with $40 million this season.
The Royals will see an increase in revenue, thanks to the $12.4 billion deals with national broadcasters. Those deals run through 2021, but the money is shared evenly among each team. So there is no advantage there.
The good news for the Royals is that the Dodgers, and any other team that signs a monster local TV deal, send 34 percent of that annual revenue to Major League Baseball, according to Uhlich.
MLB then distributes the money evenly among all 30 teams. However, teams are finding a loophole. Money made off a teams equity stake is not shared.
Chris Bevilacqua, the founder and CEO of Bevilacqua Media Company, explained last year on Forbes SportsMoney program:
What you really are seeing is teams that are becoming media companies, theyre taking equity ownership properties, Bevilacqua said. So once you get into owning the actual media and having the intellectual property rights, the economics just become greater and greater.
But there is risk, too. The Dodgers deal is expected to call for a network dedicated to the team (a la The Longhorn Network). If advertisers dont pay as expected, that could cut into a teams profits.
And there is a chance for viewer backlash. The Dodgers deal means another channel for cable companies to pay for, and that cost is passed along to the viewer, whether or not they are fans.
Its not hard to imagine that some people in Kansas City would balk at an arrangement with the Royals. But sports have become cable televisions lifeline.
Nielsen reported that last year, $13.3 billion was spent on advertising within sports programs, which accounted for 23 percent of national TV ad spending. Nielsen also noted that 99 percent of people ages 18 to 49 watched sports programming live or that day.
DVRs make it possible to tape their programming and watch it some other time and when they watch it, they can skip their advertising, so that lessens the interest of companies to advertise on normal programming, Zimbalist said.
But sports fans want to see their games live, so the DVR effect doesnt really influence them, and companies tend to migrate their advertising from the traditional programming soap operas, comedies, serials toward sports, and thats been a strong influence over the last several years, but its pretty much played itself out.
Thats one of the reasons why Zimbalist believes the bubble is about to burst for baseball TV contracts.
However, the 140 regular-season games on Fox Sports Kansas City last season were the best ever, averaging a 3.8 household rating, according to Nielsen, up 13 percent from 2011.
Sounds like a good time to strike a deal, but the Royals likely have to wait a few more years. And, unlike LA, there likely wont be a bidding war to drive up the cost.
The situation in Los Angeles is sui generis, Zimbalist said. Its unique, because of competition between Fox and Time Warner and a variety of other factors. Its inflating those rights way out of proportion. Theres a bubble. Whether that continues is another question.
I think the exuberance in the market right now is likely to abate or disappear in the next couple of years, so I dont anticipate that kind of frenzied buying and upping the ante on rights fees will be present.
To reach Pete Grathoff, call 816-234-4330 or send email to email@example.com. Follow him at twitter.com/pgrathoff