Sam Mellinger: Royals must be patient as they work on new TV deal

The future of the Royals will be disproportionately shaped by what happens this season, in private settings and phone calls between executives, and for once this is not about the potential for trades of Eric Hosmer, Lorenzo Cain and other stars.

It’s about negotiating the financial ability to support the next generation of ballplayers, to best position the franchise to more freely spend on talent than its been able to do with one of the worst television contracts in major American professional sports.

That deal runs through the 2019 season. Officials from the Royals and Fox Sports have had preliminary discussions about the next deal, each expressing a desire to continue their partnership. Those talks will increase in frequency and seriousness.

We tend to focus on free-agent signings and trades, and make a big deal when a new manager or general manager is hired.

But with the notable exception of a change in ownership, a new television contract is the single most important move a Major League Baseball team can make.

This is the Royals in the beginning stages of replacing a deal that has left the franchise behind for the last decade, needing desperately to avoid a similar mistake hanging over it for the next decade or more.

Also, there’s this inconvenient fact: nobody is even a little sure what the value or distribution of cable sports programming will look like for most of the years of the Royals’ next television contract.

Multiple conversations with sources on both sides of these negotiations — baseball teams and in the television industry — detail the risks and strategies facing the Royals, as well as some reasons the club may again end up with a payout below market value.

TV contracts can be complicated. For instance, the Reds represent a comparable market, and signed a 15-year deal last fall, but it included a minority ownership stake in the local Fox Sports network for the Reds, so not all the cash will come through regular payouts.

But the Royals’ current deal pays around $20 million per season, and the most basic estimates of a new deal are generally between $50 million and $70 million per year.

Royals owner David Glass has said he puts all profits back into the club. We can all choose how literally to take those words, but this would represent an extra $30 million to $50 million per season. Even if some of that goes into Glass’ pocket or toward other expenses of running a Major League Baseball franchise, that’s still enough to cover the salary of an extra star or two on the big-league roster.

It is hard to overstate the awfulness of the Royals’ current contract. Cincinnati is one of two baseball markets smaller than Kansas City, the Reds’ local ratings are lower than the Royals, and their old deal paid $30 million per year — 50 percent more than the Royals.

But it’s not just the payouts that make it a bad deal. Both sides understand what’s true of all negotiations — that leverage matters, and the more bidders the Royals can generate the more money they’ll make. The current contract has clauses that will make that more difficult, and less effective.

Fox has exclusive negotiating rights through the end of the 2019 season, so if a new deal is not done before then, the Royals would effectively have to speed date other potential TV partners in the offseason to get something in place for 2020. Fox could release the Royals to talk with other providers before the end of the 2019 season, but even then would retain the right to match any offer.

It’s unclear who those other bidders would be. After Fox Sports, Comcast has the most contracts around baseball, but generally limits itself to markets where it is the dominant cable provider.

Kansas City’s No. 1 cable provider is Spectrum, which once partnered with the Royals when it was Time Warner. But the company’s new ownership has made it clear that sports programming is not central to its business plan — including the recent and significant layoffs at what used to be Time Warner Cable SportsChannel.

This means that in addition to being one of baseball’s smallest markets, Kansas City likely will be a one-bidder market among traditional operators.

The Royals could look into what could be called “non-traditional” providers, but that’s generally believed to be highly unlikely.

Even if Google or Amazon offered the most money, it would be a bad deal for the Royals if their distribution was limited. The Dodgers are going through this, with fewer than half the metro area able to watch games. The Royals want their product in as many homes as possible.

But even if the team was open to it, Google or Amazon don’t often “do small.” Those are big platforms that are easily scaled nationally and internationally. A small regional baseball contract wouldn’t fit.

The Royals’ best play, then, is to wait. The future of television, and particularly sports on cable TV, is uncertain. Networks can’t be sure how much of the audience will be on mobile devices or through the Internet in three years, let alone 10.

But the Royals can be confident that their product will demand an audience no matter what. Kansas City is one of a handful of markets where baseball games are the most-watched shows during the season. Whatever the distribution looks like, people want to watch baseball, which means providers want to pay for the rights.

So the Royals will continue to have conversations with Fox Sports, but should know that time is on their side, and resist the temptation to go too heavy in negotiations too soon. Doing so could provide an immediate bump the next two years, but would sacrifice leverage and bigger money on the back end. It would, essentially, repeat the mistake that got the club into the current deal.

Assuming the next two years represent a natural reduction in big-league payroll as stars age out, the timing is actually favorable for the Royals to wait for the best deal possible.

The club can’t be sure who will broadcast its games in three years, but it can be sure those games will be valuable programming for someone. Its current contract and specific market factors will make the next negotiation more difficult, but the Royals have lived long enough with a bad deal to do everything possible with this rare opportunity.

Waiting now and getting a better deal later could make a huge difference. Think about what the Royals could do now with an extra $30 million or so.

This story was originally published May 26, 2017 at 12:51 PM with the headline "Sam Mellinger: Royals must be patient as they work on new TV deal."