Major League Baseball enjoyed the sports last day off for all 30 MLB franchises Wednesday, a day after the American League beat the National League 3-2 to secure home field advantage for the World Series. MLB took advantage of the All-Star break to make several important business announcements,
headlined by a new seven year television agreement with Fox and Turner worth an estimated $3 billion. Were the new television agreements good or bad for the baseball industry? And it’s well worth remembering where MLB was a little over a decade ago with their network television partners.
The television agreement further shows sports and television are heading to a cable universe. Fox has committed to televising the World Series, one of the two League Championship series and the “opportunity” to increase its Saturday Game of the Week from 18 to 26 games. According to USA Today’s Michael Hiestand, MLB will see an increase of 19 percent in its national television rights fees. In an era of ‘supposed’ physical restraint on the part of network television executives, sports rights fees show no sign of decreasing. Hiestand suggested all told MLB new agreements (Fox, ESPN and TBS) will see MLB enjoy nearly $670 million a year in national television rights fees. With the rights to the remaining LCS yet to be negotiated each MLB franchise stands to receive a little more then $22.3 million annually from the sports national television agreements. When you factor in local television agreements (different in each market particularly in bigger markets Boston and New York, and smaller markets Milwaukee and Kansas City) baseball’s 30 team owners are a happy group today.
One of the questions raised when the announcement was made focused on one of the two LCS series heading to cable TV. “The only thing I can tell you about that, that's the last piece of the journey here to be solved, and there is an enormous amount of interest. I think that sooner or later, we'll finish that, too. We have a significant number of people who now really want to have the last component. So we'll be able to hopefully announce that in a very short period of time,” Selig told the media.
MLB had to know Selig was going to be asked that question. Baseball fans still have one of the two league finals carried by an over-the-air carrier. The National Basketball Association and the National Hockey League with the exception of a few playoff games only have their championship games on network television. The National Football League remains the only major North American sports property with all of their games available through over-the-air television. Network television remains interested in sports is prepared to pay (with the exception of the NHL) more for rights fees, but wants to show fewer games. The sad news, those on a fixed income (seniors and those who can’t afford cable) will become more disenfranchised from sports. On one hand disenfranchised fans have more opportunities then ever to follow their favorite teams wherever they live, however if you can’t afford to play you’ll be on the outside looking in.
One issue seems to have escaped many observers. Major League Baseball has agreed to move the start of the World Series from a Saturday to a Tuesday night. Needless to say the rationale has nothing to do with what’s best for baseball fans, but what baseball’s television partners wanted the sport to do.
“Well, it's so appropriate. That's the way it used to be. For years, we started on a weekend, everybody grumbled to me. I heard this years ago, and Tony and David and Ed certainly are more knowledgeable about that; but why do you do this on a Saturday night? It's awkward, it's a tough
television night. So not only were we going to do it once during the World Series, but we're going to do it twice.
“And I'm excited. We're going to do it Tuesday and Wednesday, off Thursday, Friday, Saturday, Sunday, Tuesday, Wednesday. It could not have been better. It will be a better fit for us, better fit for them. We'll somehow work out the schedule so that that is not a problem,” Selig told the media.
Even more interesting FOX Sports President, Ed Goren made it clear the network appreciates the impact the National Football League has on Fox’s World Series plans.
“If you look at the current World Series schedule, I believe that the NFL went dark during the World Series on their Sunday broadcasts in the past. That very well may continue."
The difference is that number one; our ratings research shows that this schedule should generate higher ratings. The Commissioner had touched on the fact that starting on a Saturday night, having two Saturdays is a low viewership evening.
And the other factor, there's always an unknown when you get into a post-season series whether it's going to be five games, six games. We can't sell a seventh game very effectively on the come or a sixth game. So this schedule, and if those games are on weekends, I know this is a shock to you; it's hard to find ad agency people around on weekends.
So what this effectively does is it gives our sales organization, in effect, a full day and a half, two days, to sell the Game 6, and then a Game 7.”
Goren who came to Fox Sports after working with CBS Sports, knows the pain of a network that loses a major sports property to another network. "After all my years at CBS when I saw what happens when you lose contracts (including football and baseball), I never wanted to live through that again."
Baseball ratings have remained ‘flat’ on Fox, unchanged from a year ago, drawing 2.4 percent of the households average according to Nielsen. Nonetheless Fox is happy just to have MLB and sees real value regardless of static ratings.
``A product that remains flat is a good product,'' said Tony Vinciquerra, president of Fox Networks Group, who negotiated the deal with baseball in a Bloomberg News report. ``In an environment where there are 200 channels for viewers to choose from, we think flat's a good thing.''
``Baseball's ratings and attendance have been solid,'' former CBS Sports President Neal Pilson, who now is an industry consultant, told Bloomberg News. ``This is the best deal for baseball over the next seven years.''
As for the dramatic increase on the number of MLB available to the consumer (MLB Extra Innings and the Internet) count Pilson as a believer sports fans have an appetite for sports that has yet to be satisfied.
``I've never had a complaint from any fan that there is too much sports on TV,'' he said.
Tuesday night’s All-Star Game on Fox produced a 9.3/16 household overnight rating and share, up 15 percent over last year, and drew 14.4 million viewers, according to Nielsen Media Research data. It was the highest household rating since 2003 and the largest number of viewers since 2002 for the All-Star game on Fox.
According to Nielsen estimates, the game was watched in all or part by a total of 31.2 million viewers, up 6 percent over last year. Fox sold out their advertising inventory for the All-Star Game commanding $375,000 for a 30 second spot a seven percent increase over what Fox changed for the 2005 All-Star Game.
When you remember where MLB was with network television agreements between 1990 and 1995, a look back at where baseball was leaves one to wonder how remarkable the next seven years will be for MLB.
1990-93 -- CBS pays $1.1 billion for 1990-93 rights: $275 million/year for the World Series, LCS, All-Star Game and 12 regular-season weekend games. CBS loses more than $400 million on this contract. ESPN pays $400 million for 1990-93 cable rights to six games/week (Sunday, Wednesday and doubleheaders on Tuesdays and Fridays, plus holidays). CBS Radio pays $50 million for 1990-93 radio rights to a Game of the Week plus ASG, LCS and World Series.
1994-95 -- MLB, ABC and NBC form a joint venture called The Baseball Network. The venture, scheduled to run through 1999, is terminated by agreement after two years. Under the agreement, the networks pay no rights fees; instead, MLB receives 87.5% of the first $160 million/year in net revenues, 1/3 of the next $30 million, and 80% of revenues above $190 million/year; the networks get the rest. CBS had offered $130 million/year to renew its previous contract, and WTBS had offered $40-$45 million/year for rights to another round of playoffs. The Saturday Game of the Week is abolished; regular season telecasts are limited to regionalized night games in the final 12 weeks of the regular season, to be split between the networks. Each year one network gets the All-Star Game and LCS; the other gets the first-round playoffs and World Series. The first-round playoffs and first five games of the LCS are regionalized. MLB also signs a six-year, $255 million contract with ESPN for a Sunday night Game of the Week and Wednesday night doubleheader, and a six-year, $50.5 million contract with CBS Radio.
11 years ago CBS wanted to stay as far away from baseball as it could, and The Baseball Network was one of the biggest single business disasters in the history of the sports industries. It makes the three current national agreements (with one more to come) that much more amazing when you consider where the sport was as a national television property after the 1995 season.
There remains a tremendous challenge that baseball continues to face, the battle of the have and the have not’s. Major market franchise (the Yankees, Red Sox, Los Angeles and the Chicago franchises to name a handful) easily generate between $50 and $100 million each in local rights fees. Smaller market teams (Milwaukee, Kansas City, Pittsburgh, both Florida teams to name another handful) likely can expect less then half of what major market teams generate. Selig as commissioner needs to address the tremendous financial disparity. One suggestion might be for Selig to play “Robin Hood” taking from the rich and giving to the poor.
Baseball which currently shares 24 percent of their revenues would be a very different sport if the smaller clubs forced the bigger teams to receive a smaller share of the national television pie. Imagine if Major League Baseball’s national television dollars weren’t divided up in equal shares but by how much local television revenues teams do or don’t generate? It becomes another method for baseball revenue sharing. It’s an inexact science, but at the end of the day the Yankees get to keep all of the money they generate in the New York market. At the same time by dramatically changing how its national television money is distributed MLB can force the smaller market franchises to use their additional national TV revenues on their payroll by creating a salary floor (a minimum team payroll) the first step towards a salary cap for Major League Baseball.
For Sports Business News this is Howard Bloom. Sources cited in this Insider Report: USA Today, Bloomberg and MLB.com
