The Mariners are in negotiations to re-sign King Felix, which may be a key to their future TV deal.
I collect quotes, some I impose on graphics I like and use as screensavers. One I’ve had for years is from Abraham Lincoln “You defeat your enemies when you make them your friend.” What has this got to do with the Mariners? It might illuminate their best path forward.
The biggest impact on the game in the past two or three years is not the new collective bargaining agreement (CBA) but the effect of new media rights deals on the game. You want proof? The Dodgers sold for $2.15 billion dollars; their new TV deal with Time-Warner Cable is reported by Sports Business Daily to be worth $7 billion for 25 years. This takes their regional TV revenue from $39 million this season with Fox to $280 million a year with Time-Warner using the $7 billion valuation. The M’s were reported to receive $45 million a year for their regional rights currently by Wendy Thurm of Fangraphs.
Normally MLB is entitled to 34% of all team’s local revenues from things such as tickets, in-park advertising, regional media rights sales and such, after subtracting costs, MLB then distributes this equally to all clubs. However there is a way around surrendering much of the regional media revenue by setting up a separate company that operates a regional network (like the Yankees YES network which Fox bought a 49% stake in not long ago which valued YES at $3 billion) usually in partnership with a big media company such as Fox, Time-Warner Cable and Comcast and this entity operates the new network and makes money from selling their product to local cable networks, reportedly for as much as $5 per month per cable subscriber in the southern and central California, Hawaii and Las Vegas markets for the Dodgers. This new separate entity is not subject to MLB’s 34% local revenue sharing requirement, because the league allows teams to reduce their revenue-sharing contributions by the cost of running their own TV networks. It has to pay a nominal fee for the rights and it usually divides its profits between its partners as well as building future equity value for them that can be sold separately from the team. In the Dodger’s case their new network SportsNet L.A. will be solely owned by the Dodgers, Time-Warner Cable it will handle all ad sales and affiliate sales for the channel.
According to the LA Times Mark Walter, the Dodgers’ controlling owner has negotiated extensively with the league over how much of the television money must be shared with the other 29 Major League teams. The Dodgers’ revenue-sharing bill could range from $1 billion to $2.7 billion, based on the structure of the deal the LA Times estimates. The Dodgers deal is unique in that MLB agreed to a limit on what it could receive from the Dodgers as part of the settlement of the bankruptcy proceeding in which the team was sold last year. The league agreed to value the potential TV rights of any future deal at $84 million the first year, rising 4 percent every year thereafter. Over 25 years, that estimated TV rights revenue of $3.5 billion.
The Times points out that the new channel would also give the Dodgers the opportunity to expand team-related programming throughout the day, as the Los Angeles Lakers currently do on their Time Warner Cable channel. “If you look at what the Lakers are doing, they’re communicating with their client base,” Dodgers owner and Guggenheim Partners President Todd Boehly told the Times last fall. “It’s fantastic. It becomes self-fulfilling. If you start interacting with the team in all-new ways, you’re going to love the team even more.”
So, things are coming up roses for the Dodgers and being a Dodgers fan going back to the early 1950’s I’m happy for them getting out of the cesspool McCourt dragged them into. Interesting, but what does it mean for the Mariners, other than the 1/30th share they get out of the Dodger’s 34% local revenues, however much that ends up being? Well that won’t exactly be chump change but its value is in the template it further establishes for clubs to control their own media networks. They make more money by becoming a partner with an established cable network than by just selling their rights to them, they get to keep more of the money they get and they help build team awareness by creating additional network content.
For the M’s additional content is only limited by their imagination. Obviously it includes all M’s games, pre-and-post game content and game replays. Features based on their history, giving fan favorite players their own shows, airing games from their minor league affiliates so fans can buy into prospect progress, doing Spanish or Japanese language features, a local Fan Cave, a GM and/or Manager show year around, coverage of spring training and winter leagues, an on air M’s blog, etc.
The thing is baseball has a limited live window and action time. What is needed is additional team participation, like the Yankees did with the (then) New Jersey (now Brooklyn) Nets and what Fox Sports West does with the L.A. Angles of Anaheim and the L.A. Kings. Given that the existing local regional teams, NFL, Soccer and NCAA are already married to existing contracts it limits the prospects. To keep regional sports fans tuned in year round is a difficult task for a single team network. So what should the M’s do? Do as Lincoln said, make their enemies their friends.
Chris Hansen’s new Supersonics are made to order, as would his NHL hockey team be, if and when he lands one, the sum would be greater than its parts, it just makes sense. The new arena issue can be left up to the environmental study, whatever it decides. The synergy potential and income enhancement from a joint venture between the M’s and Hansen is obvious and now is the time to do it. Once Hansen brings the Sonics back and cuts a separate media deal the opportunity is gone. The horizon is finite and near. How they cut up the pie is negotiable and can be scheduled ahead of the M’s being able to opt out of their current deal in 2015. It would no doubt require the M’s to back off their arena opposition but working together just is common sense, it’s a win/win deal and the way forward for the M’s to a more sustainable future off the field as their farm restructuring will enable their progress on the field.