SBJ/August 6-12, 2012/Opinion

The rise and fall of media rights fees

The $2 billion purchase-price line for a pro sports team has been crossed, and media experts are weighing in on whether this was a brilliant move by the Guggenheim group or a sign that Nostradamus isn’t much of a sports fan.

The inflation in sports TV rights is not limited to marquee teams. The San Diego Padres recently agreed a 20-year cable rights deal with Fox for $1.2 billion, which represents a 200 percent increase over their last deal. The new agreement isn’t official yet because of issues surrounding the sale of the team.

Will these mountains of cash continue to be deposited into the bank accounts of leagues and teams? The angel (not from Anaheim) on my right shoulder was smiling when he told me that sports media rights will climb forever. He cited the following:

• The forces of market competition. Teams and leagues create horse races among the media companies. If they don’t pay, the rights go to a competitor.

• Subscription fee revenue for programming is DVR-proof and exclusive to TV.

• Stratospheric sports cable rights are tied to subscriber fees. Critics say that sports rights mania ultimately is paid for by sports consumers through higher cable subscription fees. A broadcast executive once told me that all you need to create a long-lasting and ever more profitable regional sports package is a combination of winter and summer pro sports.

• Leagues can black out local broadcasts on desktop computers, tablets and mobile devices.

• With millions of eyeballs and wallets for the taking, we see more outlets trying to get into the local and national sports business. The latest example is NBC’s transformation of Versus into the NBC Sports Network. The platform created for wall-to-wall coverage of the London Olympics is the ultimate example of total media immersion.

• Live sports is and always will be the opiate of the masses. No matter how bad things get in our daily lives, sports remain unaffected. “You can take my house but please don’t disconnect my cable.”

“Not so fast,” said the Devil (not from Jersey) on my left shoulder. He wasn’t smiling and his tiny laser pitchfork was pointing to the following reasons.

• The global financial crisis of 2007-12. The housing bubble that blew up in our faces was caused by a complex witch’s brew of derivatives and credit default swaps, like a deal in which a player to be named later is consummated without the player or the money. It can happen in sports.

• The $2.15 billion paid to purchase the Dodgers is still raising eyebrows and blood pressures in the boardrooms of media companies that are addicted to sports. If the Dodgers can’t cash in on a record TV deal they could be the poster child for spending future rights fee that never materialized.

• Privatization. Pennsylvania spent close to a billion dollars in tax revenue to help build two new baseball parks and two new football stadiums in Pittsburgh and Philadelphia. California and its financially strapped municipalities have told team owners to pay for their own playpens. The Oakland A’s and Raiders, San Diego Chargers and Sacramento Kings have been trying for years to figure out how to finance new homes. Only the San Francisco 49ers have a new stadium under construction, for which they are borrowing a billion dollars. No matter how much money you borrow you still have to pay it back.

• Economic uncertainty. Just when you think we are turning the corner we get bad news. European debt crisis, banking faux pas, high unemployment, housing malaise, cutbacks in social services, and a presidential election with all of its economic uncertainties. Who will be left to spend big money on naming rights, seat licenses and premium seating?

While speaking at the recent Global Sports Economic Forum, one of sports’ deepest business thinkers had this insight into the future of media-driven sports economics: “It is what it is and it will be what it will be when it is.” That being said, “We should never say never, because even in the world of sports what goes up must come down.”

Andy Dolich (andy.dolich@gmail.com) has more than four decades of experience in professional sports, including executive positions in the NFL, MLB, NBA and NHL.

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