Two weeks ago, the Phillies signed their biggest deal of the offseason. No, it wasn't with a new free agent, nor was it a contract extension for a young star. It was a $2.5 billion pact with Comcast SportsNet, a deal that will grant the network broadcast rights to Phillies games for the next quarter-century.
The total is staggering enough -- the Phillies will make an average $100 million per year over the course of the deal -- but even that sum doesn't completely capture the windfall the Phillies will receive. As club president David Montgomery told the Philadelphia Inquirer this week, "These deals have various components attached to it, not just rights fees, which is what people focus on."As the Inquirer reported, the Phillies will not only rake in money from the rights sales, but the club also will own a 25 percent stake in the Comcast SportsNet Philadelphia network.
It's unclear exactly how much additional cash this arrangement will bring to the Phillies' coffers, but the amount will be substantial. Additionally, unlike with the rights fees, the revenue brought in from the Phillies' ownership stake will not be subject to MLB's revenue sharing program.
The Yankees and YES Network serve as the best example of this relationship: the club owns a 34 percent equity stake in the network, a veritable gold mine given the Yankees' gigantic fan base and the equally huge media market around New York City. Other teams have similar deals, as shown in the table below:
|Baltimore Orioles||Mid-Atlantic Sports Network (MASN)||87%|
|Boston Red Sox||New England Sports Network (NESN)||80%|
|New York Mets||SportsNet New York (SNY)||65%|
|Seattle Mariners||Root Northwest||50%|
|Houston Astros||Comcast SportsNet Houston||45%|
|Chicago White Sox||Comcast SportsNet Chicago||40%|
|San Francisco Giants||Comcast SportsNet Bay Area||35%|
|New York Yankees||YES Network||34%|
|Los Angeles Angels||Fox Sports West||25%|
|Chicago Cubs||Comcast SportsNet Chicago||20%|
|San Diego Padres||Fox Sports San Diego||20%|
|Washington Nationals||Mid-Atlantic Sports Network (MASN)||13%|
|Texas Rangers||Fox Sports Southwest||10%|
*Data from FanGraphs.com
All of these teams are traditionally large market or large payroll teams, with a couple of notable exceptions: the Padres and their 20 percent stake in Fox Sports San Diego, and the Astros, with their 45 percent stake. And here is where the issues begin.
In San Diego, roughly 40 percent of cable subscribers spent 2013 unable to watch their team, as Time Warner Cable rejected Fox Sports San Diego's subscription fee demands. From the San Diego Union Tribune in April:
"Fox Sports San Diego maintains Time Warner Cable should pay the same rates as the four carriers currently distributing Padres games -- Cox, DirecTV, Dish Network and AT&T U-verse. Time Warner Cable's position is that it is being asked to pay more since some of the Fox Sports San Diego programming duplicates some events it currently carries under existing contracts."
In Houston, the situation is worse. In late November, new Astros owner Jim Crane sued Comcast and NBC Universal Media as well as his predecessor Drayton McLane. Per Houston's ABC News affiliate, Crane allegedly "lost possibly hundreds of millions of dollars because they misrepresented the value of a regional television network that broadcasts Astros games." When Crane bought the club, games were only broadcast on 40 percent of the city's cable households, due to the same balking at carriage fees that kept Padres games off Time Warner Cable in San Diego.
The Astros are currently locked into a rights deal that pays $80 million per season until 2032 -- a far sight more than, say, the Milwaukee Brewers ($20 million), Miami Marlins ($18 million) or Pittsburgh Pirates ($18 million). But Crane and the Astros must feel like $80 million is a disappointing sum compared to recent deals negotiated by the Rangers ($150 million per year), Angels ($150 million) and Dodgers ($340 million). Hence Crane's suggestion that the Astros "now face a situation where either we accept millions of dollars in loss each year, with the damage to this franchise and this city for next 20 years, or we fight back," from the ABC report. If the Astros win the fight, they could be in line for one of those huge paydays, assuming the market holds true to recent trends.
The past three years have been the perfect time to strike and renegotiate a huge windfall for a franchise. The multi-billion dollar deals negotiated by the Dodgers, Angels, Rangers and now Phillies have all occured since 2010. The big question, though -- one examined in great detail by Patrick Hruby on this site
last year -- is when this bubble will burst. If teams like the Astros and Padres are already having issues getting cable providers to pay carriage fees, what will the market look like in five years when the Brewers, Royals, Pirates and Cardinals (all earning under $30 million in rights fees without an equity stake in the network) can finally renegotiate their TV deals?
This sounds like a question the fan who only cares about results on the field can ignore, but massive competitive balance implications rest on its answer. In leagues like MLB where players have free agency, studies have shown nothing -- not a salary cap , not player drafts -- leads to more competitive balance than more revenue sharing. And although MLB's revenue sharing program will throw some of the new TV money down to the smaller market, late-negotiating clubs, it might not be enough to offset the growing gap in gross rights fee revenue and the non-shared money coming from club-owned equity stakes (like the one in Philadelphia).
Over the next 10 years, at least 12 teams will see their television deals expire, shown in the following table:
|Club||Network||Annual Rights Fee ($M)||Expiration|
|Colorado Rockies||Root Rocky Mountain||20||2014|
|Arizona Diamondbacks||FS Arizona||31||2015|
|Cincinnati Reds||FS Ohio||30||2016|
|Tampa Bay Rays||SunSports||20||2016|
|Detroit Tigers||FS Detroit||40||2017|
|Chicago Cubs||CSN Chicago/WGN||50||2019|
|St. Louis Cardinals||FS Midwest||27||2019|
|Kansas City Royals||FS Kansas City||20||2019|
|Milwaukee Brewers||FS Wisconsin||20||2019|
|Pittsburgh Pirates||Root Pittsburgh||18||2019|
|Cleveland Indians||FS Ohio||40||2022|
|Oakland Athletics||CSN California||45||2023|
*Data from FanGraphs.com
Of these squads, all but the Cubs qualify as something less than a major-market team or a perennial low-payroll club. These teams will be left even farther in the financial dust than usual until they are able to negotiate their deals. And when they finally do get a chance to renegotiate, there's no guarantee the market will be nearly as friendly. The gigantic spread between the large markets and small markets we'll definitely see over the next half-decade could extend even longer.
For a fans of small-market franchises, nothing is more infuriating than seeing the business of baseball matter more to wins and losses than the actual playing of the game. MLB has managed to maintain competitive balance despite large gaps between the haves and have nots in the past, thanks to revenue sharing and the luxury tax. Teams like the Rays, Athletics, Twins, Braves and others have maintained competitiveness without huge revenues because they're well run, and that's the sign of a league with a healthy competitive balance.
None of this is to suggest deals like those reached in Los Angeles and Texas are bad for baseball. They shouldn't be. But they will test the current competitive balance and revenue sharing measures the league has in place. It will be critical to make sure these deals aren't just good for their home cities and teams, but are good for the league as a whole, because not every major league city is guaranteed to have the good timing and good fortune the Phillies had this offseason.
As the internet continues to shape and reshape how sports are delivered to fans, the next decade projects to be a fascinating -- and potentially volatile -- time for the industry. For now, the money is flowing, but booms can turn to busts in a heartbeat. Fans just have to hope their team is in the right place at the right time.