Category: cable contracts

Diamond Sports Group is indeed about to go bankrupt as foretold last month, and the sports media is losing its collective shit over what this will mean both for baseball’s $10 billion in annual revenues and for baseball fans who might want to keep watching games on TV. The operators of Bally Sports, the collection of former Fox Sports Net stations now owned by Sinclair, missed a $140 million interest payment last week, and now appears likely to file for Chapter 11 next month, putting nearly half of all baseball broadcasts in jeopardy just as spring training gets underway.

What does this mean in practical terms? Chapter 11 is the reorganization kind of bankruptcy, so clearly the hope all around is that Diamond will be able to simply stiff its creditors while continuing to broadcast ballgames. But MLB commissioner Rob Manfred has hinted that the league might like to take advantage of the chaos in the cable industry — which has been slowly collapsing for more than a decade — to finally offer a streaming service that allows fans to watch their home teams’ games with no blackout rules:

“I hope we get to the point where, when you go to MLB.tv, you can buy whatever the heck you want,” baseball’s commissioner told reporters Thursday. “You can buy an out-of-market package. You can buy local games. You can buy two sets of local games. Whatever you want!”

Sounds great! (Except for the “two sets of local games” bit, whatever that means, but it wouldn’t be a Manfred quote without something that sounds AI-generated.) Only it leaves out one small complication: MLB doesn’t actually own the broadcast rights to its games, individual team owners do. And those owners are not going to hand over those rights for nothing.

The list of teams with Bally Sports contracts spans the big- to small-market spectrum: the Los Angeles Angels, Atlanta Braves, Milwaukee Brewers, St. Louis Cardinals, Arizona Diamondbacks, Cleveland Guardians, Miami Marlins, San Diego Padres, Texas Rangers, Tampa Bay Rays, Cincinnati Reds, Kansas City Royals, Detroit Tigers, and Minnesota Twins. Angels owner Arte Moreno gets about $125 million a year for his local TV rights; Royals owner John Sherman gets about $50 million a year. That’s a sizable difference, and it’s unlikely that the Morenos of the baseball world are going to give up that market-size advantage and accept an equal cut of some future MLB.tv+ package.

Which brings us to another Manfred quote, about the league’s formation of an “economic reform committee” of owners:

“It came out of a recognition of a couple of issues — one new, one old — that were particularly acute for us,” commissioner Rob Manfred said. “The new one’s the local media situation. I think that people see it as an opportunity to rethink the revenue side of the house a little bit, which has been hard in our sport. People entrenched in their local (media dynamics).”…

“When you start thinking about the opportunities in terms of a more national (broadcasting) product, it did lead into a conversation about our disparity issues on the revenue side,” Manfred said. “We have businesses that are literally not similar in terms of the overall revenue that they’re generating. And to the extent that you could find a new distribution model that actually helped on that disparity side, that would be the daily double. So people are having conversations that haven’t been had in baseball, and it’s really been owners talking to owners, which is a good thing.”

CBS Sports read this as a hint that owners may be preparing to try to impose a stricter salary cap. But while MLB owners would no doubt love to force themselves to stop bidding up the price of places, there’s a simpler explanation, which is that Manfred, as he says — in too many garbled words — wants to “find a new distribution model that actually helped on that disparity side.” That would mean using the collapse of Bally Sports to shift toward more of an NFL model of TV revenue, where most of the money is national, not local. The NFL doesn’t have MLB’s problems of having to jury-rig revenue-sharing plans to shift money from rich teams to less-filthy-rich ones to ensure they can all compete for players, because NFL revenue is mostly all shared from the start: The Kansas City Chiefs can easily win a Super Bowl because they get the same Fox checks as the New York Jets.

(We will now pause briefly here to note that the Kansas City Royals have actually won a World Series more recently than the New York Mets or Yankees. Market size is not destiny, even in baseball.)

Okay, so more local games on TV, better competitive balance — what’s the catch? And what does this all have to do without stadiums, this is going to end up being about stadiums, right?

The problem with freeing baseball teams from the tyranny of market size is that this is what has led to MLB’s relative franchise stability: Only one team has moved in the last 50 years, the Montreal Expos to Washington, D.C. to become the Nationals, and that’s 100% because where you play matters so much more in baseball, thanks to those cable deals. An NFL owner can happily decamp from, say, Houston to Nashville without thinking at all about TV revenue, because they’ll be getting the same amount regardless of where they play; an MLB owner, meanwhile, has to think twice before giving up a lucrative cable contract. Take that out of the picture, and baseball teams could be far more footloose, willing to play in any two-bit town that coughs up money for a shiny new stadium.

(We will now pause again briefly here to note that baseball teams do have to sell 81 games worth of tickets vs. eight for NFL teams, so market size would still matter some to MLB owners in a post-local-cable world. But it wouldn’t matter as much as it does now.)

So, if Manfred has his way, it could soon be easier to watch your home team’s games without signing up for cable, but it could also be easier for your home team to eliminate your blackouts by picking up and moving to a different city entirely. Not that they don’t threaten to do that now already, but it would give the threat more teeth, and the last thing anybody wants is sports team owners with sharper chompers.

One of the weirder sports business world moments in recent years came when Sinclair Broadcast Group, the cable giant best known for its creepy right-wing proselytizing, bought Fox Sports’ regional sports cable channels for $9.6 billion in 2019. (Fox Sports had to sell them because it had just been bought by Disney, owner of ESPN, a direct competitor, which wouldn’t fly under antitrust rules.) Sinclair then sold naming rights to its channels to Bally’s hotels and casinos, meaning tons of baseball games over the past two years featured a giant “Bally” logo as the network name, even though Bally’s had nothing to do with producing the broadcasts.

Anyway, those days are now behind us, as Sinclair’s sports division is on the fast track to bankruptcy, thanks in large part to Sinclair having the company itself take out loans to raise the money used to buy it. (This process, which I still find it hard to believe is legal and which maybe shouldn’t be, previously took down Toys R Us, among many other companies subjected to leveraged buyouts.) The disappearance of Bally Sports would leave 14 out of 30 MLB teams without a cable TV partner for the upcoming season, which is kind of a problem even in a world where “cable TV” is increasingly feeling like an anachronism.

Daniel R. Epstein at Baseball Prospectus has surveyed the landscape, and made several observations and/or predictions:

• “We don’t know who will wind up with those RSNs or if all games will remain available on TV—at least without an upcharge for viewers.” It’s maybe a silver lining that this is happening in January and not April, but still, anticipate some chaos in terms of how to watch your team’s games this spring.
• Overall MLB gross revenue was around $11 billion last year, with maybe 20-30% of that from cable deals. Losing half of that revenue slice won’t be disastrous, but it will hurt — though the pain could be lessened if teams find new TV partners willing to pay as much or more to broadcast games. (My own ed. note here: This seems more likely to be via streaming services than the dwindling number of cable channel owners, though streamers are slashing their spending right now as well.)
• MLB owners are very likely to use this news to cry poor and demand higher ticket prices, more stadium subsidies, and contract concessions from the players’ union. “More than likely,” writes Epstein, the Bally collapse “will taint all of [MLB’s] business dealings for the next few years—regardless of whether it’s fair to do so.”

Let’s take a close look at that last bullet point, both because it’s the one most of interest to this site (did somebody say “stadium subsidies”?) and also because it gets into some fascinating areas of sports and behavioral economics.

Using a shortfall in revenue one place to demand more from fans and taxpayers makes sense on the surface — as Epstein writes, history shows that sports leagues love to “take out their imaginary financial frustrations on everyone in their blast radius.” But that would imply that currently sports leagues and team owners are charging lower ticket prices than they could get away with, and demanding less in tax money than they might otherwise, because they’ve looked at their massive profits and decided, “Nah, don’t really need any more money, thanks.” If there’s one truism more absolute than “sports team owners will do everything possible to screw you over when they’re losing money” it’s “sports team owners will do everything possible to screw you over when they’re making money hand over fist.” So while, sure, Tampa Bay Rays owner Stuart Sternberg may use the collapse of his cable deal as an excuse to say he can’t commit much money to the new stadium he wants, he’s been refusing to commit much money for years now, so this just gives him some additional rhetoric to throw into his press releases.

As for taking it out on the players, here’s where we get into some murky territory. In classical economics terms, cable money shouldn’t have much impact on how much teams spend on players: It’s a fixed revenue stream, where you earn the same amount whether you sign every free agent in sight or sell off every big contract you can. (Okay, not the exact same amount if, say, you’re getting a cut of ad revenue and viewers all stop watching once your team stinks, but mostly this principle holds.) So a rational economic actor would try to score a huge cable deal, spend as little on player salaries as needed to keep fans buying tickets, and then pocket all the TV money for oneself.

But as the facts on the ground now show pretty conclusively, MLB owners aren’t rational actors when it comes to player spending. They’re more like middle schoolers spending their entire allowance on candy as soon as they receive it, which means if they have less change in their pockets, it might well cause them to bid less for players — or, at least, to tell the union that it has to give concessions in order to stop owners from spending themselves into bankruptcy because they just can’t help themselves.

In the grand scheme of things, losing Bally Sports isn’t going to make baseball evaporate or anything — even slicing off a billion dollars in revenues would just take MLB back to its income figures for 2019 or so — but it does throw some wrenches into all kinds of financial planning issues for the sport. (We haven’t even gotten into how this could affect internal revenue-sharing talks among owners, if those who lose lucrative deals insist that they need more relief from league-wide revenue on things like MLB.tv to make up for their losses.) Beyond that, we’ll just have to wait to see what happens; I’m personally rooting for “Twitch streamers challenge that ‘by the authority of Office of the Commissioner of Baseball’ rights-grab claim that MLB keeps slapping on its broadcasts despite all legal evidence that it’s nonsense,” but not really holding my breath, especially when Twitch’s owner is also an MLB broadcast rights holder. Maybe we could use a few more of those antitrust rules.