Wednesday, April 27, 2016

Did the Athletics Miss the Broadcast Rights Boom?

Increasingly, the term "Peak Television" is used to describe a landscape in which there is an abundance of original scripted television programs, to the point where it is almost too much choice and too much content to be produced and consumed in a profitable manner. 

At the same time, the buzzsaw that is the cord-cutting phenomenon continues to threaten the cable bundle. For the Athletics, as for any NBA, NHL and MLB team, the demise of the bundle is big trouble. 

For years, teams have extracted mega-rich broadcast rights packages as sports were viewed as the last "must see" element of the bundle. The expression "striking while the iron is hot," while hackneyed, was apt. Teams were wise to sign long-term deals, ensuring cash flow for decades, regardless of the media landscape. 

For instance:

Dodgers - 25 years, reportedly more than $7B
Phillies - 25-years, $2.5B plus equity in broadcast network
Angels - 20 years, roughly $3B

And, perhaps most relevantly for the Athletics, the Giants have a 25 year deal partnership deal in place with Comcast SportsNet (CSN) Bay Area that reportedly provides around 30-33 percent of total revenue every year and started in 2008. Considering that in that time the Giants have won three World Series titles and that the channel also carries the blisteringly-hot world-champion Warriors, it is likely providing a nice chuck of revenue for the team. 

The Athletics bolted from CSN Bay Area to then CSN West and now CSN California starting with the 2009 season. The Athletics deal with CSN California reportedly provides $43-48M a year until 2029, with an opt-out clause in 2023. The team has no equity in the station and does not have a partnership deal like the Giants have with CSN Bay Area. Assuming the Athletics opt out, the contract should bring in about $672M (assuming $43M annually) over the course of the deal. If the same deal was extended to 20 years it would bring in $860M. 

The Athletics deal seems respectable, especially compared to the three "Big Market" examples outlined above, except for two things: 1) the Bay Area, despite the Athletics' spin, is a major market, the 5th biggest TV market in the country; and 2) other "Small Market" teams have cashed in with much richer deals recently. For example: 

Diamondbacks - 20 years, $1.5B+
Padres - 20 years, $1B plus equity in broadcast network

CSN California's owners Comcast are in an interesting predicament. On the one hand, as cable providers, they are acutely aware of the need for the bundle to have compelling content. On the other, they are also content creators and they have paid dearly for sports rights at similar regional sports channels across the country. And, based on ratings, we may have reached the tipping point where teams no longer have the leverage they have enjoyed in recent years -- especially with content that isn't highly-rated.

In a non-baseball example, the NCAA recently re-upped its deal with CBS and Turner Sports for the men's tournament -- despite the original contract not expiring until 2024. The new deal runs through 2032 and is set to pay $8.8B over eight years. This is despite the fact that this year's championship game -- featuring powerhouse UNC and a buzzer-beater by Villanova -- scored the lowest ratings since 2009. While CBS/Turner wanted the content, the NCAA preferred to take the easy route and guaranteed cash in extending, rather than testing the open market where the next logical suitor is a wounded ESPN. Just how wounded? ESPN has lost 7 million subscribers, out of its 100M base, in the past two years.

The reality is that the Athletics will enter a vastly different media market in 2023 or 2029 than the frothy times of a few years ago. Unless regional sports networks like CSN California start entering "Skinny Bundles" (streaming or cable-based) or launch stand-alone options, their reliance on the carriage fees provided by the bundle threaten any future mega broadcast deals with teams. The Athletics may very well be forced to accept similar or worse terms than their current deal offers. 

The above observation may lead to this conclusion: the Athletics should launch their own streaming channel. This would be a very tech-forward move, but its riddled with risk. The Athletics guaranteed cable money comes in regardless of viewership. Beyond a hardcore base, it's doubtful that a meaningful number of subscribers would materialize during a dreadful stretch -- like last season. In addition, the team would assume all costs -- including Ray Fosse's mustache wax. And, asking sports bars and restaurants to maintain a subscription for requesting patrons, in addition to a cable package, is nonsensical. In the future these channels may be the norm, but not in the foreseeable future.

The Athletics stadium saga is still a major concern, but without a long-term lucrative TV deal, they will only fall further behind in the revenue game.


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