I suppose I expected this story to come from an actual sports reporter rather than from the entertainment business, but I guess it’s not too surprising to see Deadline‘s Nikki Finke with this big scoop:
Insiders tell me that Fox Sports is close to clinching the exclusive TV rights for the Los Angeles Dodgers by paying between $6 billion and $7 billion over 25 years to put the team on its regional sports network in Southern California and of course its national Fox Broadcasting Company. Fox already shows the games on its Prime Ticket local cable channel but also has Fox Sports West here.
The previous agreement expires at the end of next season, and saw Fox Sports paying only about $40 million per season for the Dodgers TV rights. There was speculation the final price would just go north of $150 million per season. This new deal soars to $280 million per season (the average for the life of the contract). The huge outlay by News Corp demonstrates the increasing value of sports to its bottom line, while the huge payday for Guggenheim offsets the record-setting $2.15 billion price paid for the Dodgers.
…wow. That sounds absurd. It is absurd. And yet… it’s really not, considering recent events, because sports have become so incredibly valuable as DVR-proof, advertiser-friendly television. NBC recently tripled the $23 million per year fee the English Premiere League was getting to win soccer away from Fox. Fox just paid $3 1.5 billion to buy nearly half of YES, which broadcasts Yankee games; the Lakers, as you all know, are getting about $150m per year from Time Warner for the next 20 years. Considering that there’s twice as many baseball games in a season than basketball games, it’s about right that the Dodger fee is about twice what the Lakers are getting.
The deal isn’t done yet, as Finke goes on to point out, because the exclusive negotiating period for Fox ends on November 30th and they reportedly would walk away if the deal isn’t complete by then.
If this does get finalized, consider the ramifications here. In six months, the Guggenheim group would have turned a $2.15 billion investment into a cash cow which pays three times that over the next twenty years – without selling a single ticket, parking spot, beer, or replica jersey. Suddenly, all the talking heads who crowed that the price was absurd and that they’d never make a profit after paying that much seem kind of silly, don’t they? Think about it this way: you could have a $200 million payroll every year for the next 10 years, make your purchase price back… and still have $2 billion coming to you, plus whatever else you make in tickets, parking, beer, etc. All of a sudden, I’m less worried about the luxury tax than ever, because the new owners have earned the benefit of the doubt that they won’t suddenly act like Jeffrey Loria in Miami.
For Dodger fans who lived through the McCourt era, or those who got fed up and turned away, that mostly seems like a win. The obvious downside here is the question of where that money comes from, and the immediate answer would seem to be higher cable rates for subscribers. That may be unavoidable, which is unfortunate, though it’s the general trend of the industry and often difficult to identify exactly what programming is leading to what increased costs. Unless, as Finke notes, “a la carte” pricing is in our future – spoiler alert: it’s not – everyone with cable ends up paying for channels they don’t want or need. In this case, that’s more a concern for people who don’t care about watching the Dodgers, and it’s safe to say that’s not really my target audience here.
On the other hand, the biggest winner might also be the biggest loser, since Joe Flint of the Los Angeles Times detailed last week how badly this would all turn out for Fox, having sold the team for only $450m eight years ago and now potentially paying out about 15 times that just to retain television rights. Obviously, having lost the Lakers to Time Warner, they can’t afford to lose the Dodgers – again – here as well. Sorry, Rupert!
As incredible as this all sounds, I’m not taking it too seriously until there’s pen on paper. I know Finke’s very connected in the industry, but she misstates that the Dodgers would have no leverage if this deal doesn’t work – it’s not like working with Time Warner or starting a Dodger network (which wouldn’t have been fun) aren’t viable options, and somehow I doubt Fox would really drop out entirely – and she isn’t exactly an impartial reporter here:
But the sheer greed of Guggenheim’s ask on this new deal is staggering, especially when you consider it will all get passed down to the cable systems, advertisers, and ultimately consumers. The alternative for Guggenheim included higher ticket prices which would serve to only further alienate fans. Plus the new owners claim to need the money to bribe talented players to come to the mediocre Dodgers. And then there’s the sad fact that Major League Baseball teams are shifting from broadcast TV to cable networks – so fewer games will be available on free TV. Fox Sports expects to broadcast only one or two Major League Baseball games a week for the national audience next season.
Sheesh. “Greed” is a matter of opinion, I suppose; I’m not sure how we can be upset that a group who paid a massive fee to acquire an asset wants to maximize the return on said asset, particularly when they’ve shown so far that this isn’t just about pocketing every last cent, that they’re more than willing to invest in the team. Second, the part about “bribing talented players to come to the mediocre Dodgers” is not only a cheap shot, it’s just not true, and finally, ”the sad fact that MLB teams are shifting from broadcast TV to cable networks”? Welcome to 2002. That’s been an ongoing trend in baseball for years – the Red Sox, for example, moved their entire schedule to cable in 2006 and the Cardinals announced they’d do so in 2010 – and has little to do with the Dodgers specifically.
Anyway, issues with this reporter aside, this definitely passes the sniff test based on the other recent deals and everything we’ve heard, and we should know a lot more about it in the next few days before November 30th. At some point, the television bubble is going to collapse upon itself, as this Deadspin report details and which Rob McMillin at the mostly-inactive 6-4-2 was worried about from the moment the team was purchased. But that does seem like a game of musical chairs, where the teams stuck in undervalued television deals that don’t expire for years – hello, Atlanta – may find themselves in the cold when they’re finally able to negotiate freely. For the Dodgers, partially due to luck and partially due to the foresight of the Guggenheim group, their timing appears to be impeccable to cash in.