FanPost

Cable Television and the NL West

This was originally going to be a simple fanshot linking to the Forbes article on Baseball Valuations, but as I linked more content, and read more, I realized that the NL West is about to get a lot tougher for the Giants.

The Giants are the 9th most valuable franchise in the majors, according to Forbes.

They increased 14% in value in 2011, and made $230M in revenue last year. That means their expenses were $221.2M last year.

Yay for the Giants. But not for long:

"Rights fees paid by cable television channels are behind the growth in team values. Aggregate cable television revenue for baseball’s 30 teams has increased to $923 million from $328 million over the past 10 years. And thanks to new television deals inked by teams like the Houston Astros, Los Angeles Angels of Anaheim and the Texas Rangers that have yet to kick in, as well as the pending deal for the San Diego Padres and a likely rich deal that will begin in 2014 for whom ever buys the Los Angeles Dodgers, local television revenue could exceed $1.5 billion in 2015."

So both the Padres and Dodgers are due for huge revenue bumps in the near future:

"The Dodgers current local television deals with Fox’s Prime Ticket and local station CBS affiliate KCAL Channel 9 expire after the 2013 season and the next deal could pay the team a rights fee that averages around $100 million a year, $55 million more than the team took in last season from Fox and KCAL."

Imagine the Dogs with $55M more payroll to spend each year.

And what about the Padres?

"And while now is the time for conventional wisdom to kick in and dictate that such deals are only for big market teams and perennial favorites with great ratings, enter the San Diego Padres. Their current contract pending league approval with the newly launched Fox Sports San Diego is worth $1.4 billion, will pay them an average $50 million in rights fees beginning this year (four times their previous deal), and include a 20% equity stake in the network, making it three in a row for Fox to offer ownership in an RSN. How did a team playing in the fifth smallest market with neither commercial success (their television ratings last season dropped 41% from 2010) nor on the field success (in the last five years) manage that? Timing and a little bit of luck. Their deal with Cox Communications was over and they were open to entertaining all offers. Then the fact that the San Diego market has a high penetration of cable subscribers made them very attractive, especially for a new market for Fox. Lesson learned for small market teams."

How much are they getting now? I couldn't find that, but this article makes it seem like significantly less than $17M. So the Padres are looking at a minimum increase of $34M in revenue to play with.

Here's more from a second article:

"The Rangers’ deal with Fox, signed in September 2010, calls for an escalating rights fee schedule that will average $80 million annually over 20 years, plus equity in the regional sports network, blowing away the $30 million a year Hicks was bringing in. Anticipating that money, Ryan invested in better players, and those players have delivered two consecutive World Series appearances. Attendance, under 2 ­million for the 2008 season, hit 2.9 million last year.

"This was a real wake-up call, a team not based in New York or L.A. getting that kind of deal," says sports business consultant Bernie Mullin, a former baseball executive in Pittsburgh and Colorado.

The Angels, who are in L.A. but play second fiddle to the Dodgers, capitalized next. The Astros and Padres followed. The Detroit Tigers and Arizona Diamondbacks, both making between $30 million and $40 million annually in local fees, are next."

So even the D-backs are looking to get a huge payraise.

The Giants, however, sold their rights back in 2007, and sold them for 25 years. Although they scored big in 2007, looking at the deal in hindsight, it seems the Giants missed out on the recent boom in TV and cable deals for baseball teams: I couldn't find numbers on the yearly fees, but if they sold them for 25 years, they lose negotiating leverage for the next 20 years.

Why does that matter when they only negotiated the contract 5 years ago? Because cable television deals for sports have skyrocketed in the past 3-4 years:

"... you can thank a little device known as the DVR. In an age when fewer people watch television, and fewer still actually sit through the commercials, sports programming is the last bastion of appointment TV: It demands to be watched live. Some 42% of U.S. households now have a DVR, up from 29% three years ago—not coincidentally, Nielsen reports that ad spending on sports jumped 33% over that same period, to almost $11 billion annually.

"We believe there is no content more valuable in media today than live sports, and it’s a case we make with our ­distributors every day," says Jeff Krolik, executive vice ­president at Fox Sports Networks."

Sure, the Giants own 25% of CSN Bay Area, but that's equity for the Giants, and not annual revenue. And as we've seen, and as the Forbes' list shows so apparently, it's annual revenue that largely determines operating costs and thus, salary. The Giants taking 25% stake in CSN Bay Area in return for 25 years of broadcast rights makes the ownership group richer equity-wise, but only the annual fee paid by CSN affects the Giants payroll. And both were negotiated pre-cable TV sports broadcast rights boom.

So in 3 years, welcome to the new NL West, where the D-Backs, Padres, and Dogs can all spend $30-55M more than they are now, above and beyond typical payroll increases due to ticket price increases and inflation.

This FanPost is reader-generated, and it does not necessarily reflect the views of McCovey Chronicles. If the author uses filler to achieve the minimum word requirement, a moderator may edit the FanPost for his or her own amusement.

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