SBJ/September 24-30, 2012/MediaPrint All
Major League Baseball is poised to announce a stunning $12.4 billion worth of media deals this week as it completes negotiations on eight-year deals with Fox and Turner to go along with its earlier deal with ESPN.
The total take from its three partners more than doubles the amount from its previous deals.
The Fox and Turner deals were not signed by press time, but all sides had agreed on terms, and a formal announcement is expected this week.
Because the deals had not been formally announced, nobody from the league or networks was authorized to speak publicly last week, but sources confirmed that Fox has committed to pay MLB $525 million a year for a package that includes annually the World Series, the All-Star Game, one league championship series and two division series. As part of the deal, Fox will sell two division series games to MLB Network for $30 million each year. It also keeps the rights to the Saturday “Game of the Week.”
Turner, meanwhile, has committed to pay $325 million a year for a package that includes one league championship series, two division series and extensive digital rights. TBS will carry 13 regular-season Sunday afternoon games, down from 26 in the current deal.
Including the $700 million per year that ESPN will pay under terms of its new deal, MLB will more than double the media rights fees it had been getting to an eye-popping $1.55 billion per season.
The deals provide yet another example of how much the market for sports rights has exploded. Last year, for example, the NFL sold its media rights for a combined $6 billion a year.
The way the market was setting up for MLB, the league expected to at least double it media rights fees. It was in the enviable position of having more bidders than packages. ESPN, Fox, Turner and MLB Network wanted to retain their packages. Newcomer NBC negotiated for a piece of the baseball pie to help its struggling NBC Sports Network cable channel. And even CBS kicked the tires at one point, looking into a joint bid with Turner.
The league took steps to try to whip up even more of a frenzy, as well. Commissioner Bud Selig approved a plan to combine two of the packages — Fox’s and Turner’s — into one. Tim Brosnan, MLB executive vice president of business, told the networks that their bids had to be “all-in,” meaning one bid for both packages.
The first shoe dropped in late August, when ESPN signed a deal for “Sunday Night Baseball” plus Monday and Wednesday night games. ESPN agreed to pay double for the rights, increasing from $350 million to $700 million. ESPN, though, did not include any of the playoffs, other than one wild card game. When the ESPN deal was announced Aug. 28, it seemed the league would finalize the rest of its package within a week.
At the time, the league was locked into serious negotiations with Fox. Fox Sports’ top executives, co-presidents Randy Freer and Eric Shanks and executive vice president Larry Jones, flew home from New York to Los Angeles at the end of the week of Aug. 27 to ponder whether they should do the deal.
It appeared that Turner, which had carried the MLB playoffs since 2007 and has carried baseball games since the 1970s, was going to be left out. NBC also looked to be left without a package, because though it made an offer, MLB didn’t consider NBC a serious bidder after the ESPN deal was made public.
But Turner’s president of sales, distribution and sports, David Levy, wasn’t ready to give up.
Fox was dragging its feet at the cost of an all-in package, which would have cost it more than $800 million a year. The network talked about its plans to rebrand its motorsports channel Speed as an all-sports channel called Fox Sports 1 at some point before the 2014 MLB season. Fox executives felt like they needed programming that MLB had for such a channel, but they didn’t believe that they needed to buy both packages.
Meanwhile, Levy wanted to keep baseball on his network. He constantly lobbied Brosnan and his team about keeping the packages separate. He told them that Turner would not return as an interested bidder in 2021 if they didn’t at least retain their package. Plus, baseball had become important to Turner, particularly the postseason on TBS.
For Turner, it was an aggressive gamble Levy felt he had to make.
Cable operators pay Turner $1.21 per subscriber per month for TNT and 59 cents for TBS, according to numbers from SNL Kagan. Turner’s plans to increase that fee rest on keeping high-quality sports programming like the MLB playoffs in its lineup.
Turner also wanted to use baseball rights to seed Bleacher Report, the website company Turner bought in August for $175 million.
As Levy was making his argument, talks with NBC cooled. Sources said NBC did not make a strong offer, and that it was most interested in ESPN’s package, which includes exclusivity on Sunday night and the two midweek games. When ESPN took that package, NBC’s interest waned.
Levy eventually won over MLB executives, who were convinced that baseball’s rights would command a higher rights fee for two packages, rather than one. In the end, it was an easy decision to make, especially considering the long history TBS has with MLB, one that dates to 1973 when it started carrying Atlanta Braves games.
MLB eventually decided to split the packages and keep both Fox and Turner as partners.
Editor's note: This story is revised from the print edition.
Silver Chalice New Media has begun to sell online video advertising on a cost-per-completed-view basis, a new model that veers away from the traditional method based on a site’s audience reach.
The company, formed by Chicago White Sox owner Jerry Reinsdorf, has instituted the video sales model for elements of its live and on-demand programming, including its college sports material. The model, known as CPCV, seeks to reassure ad buyers concerned that their inventory is being skipped over. Ad buyers pay based on the number of times their spot is seen to its finish.
Hulu, a dominant player in online video, began a similar strategy earlier this year. Several prominent entities in the industry, including MLB Advanced Media, are exploring the model, particularly for live events that do not lend themselves to delayed viewing.
“We’re trying to address concerns out there in the ad marketplace about accountability in digital marketing,” said Rich Routman, executive vice president of Season, a digital ad sales network operated by Silver Chalice. “And we see this as a real differentiator. The reality is that all of us in the sports vertical are very frequently calling on many of the same accounts. This gives us something different and meaningful, and hopefully another tool to siphon money away from TV budgets.”
Among early buyers in Silver Chalice’s CPCV model are Right Guard and several other undisclosed companies.
Routman said the completion rate on the CPCV ads sold to date with Silver Chalice’s network has often exceeded 80 percent. Industry averages have hovered at nearly 90 percent for long-form video content and around 55 percent for short-form material, according to several independent studies.
“Traditional [cost-per-thousand] models are not going away in this space,” Routman said. “But for those hesitant to move more money into digital, this is a very compelling proposition.”
Content powered by Silver Chalice includes the ACC Digital Network and Pro Football Weekly’s digital programming.
Stop me if you’ve heard this before: Regional sports networks are preparing for an autumn without professional games because of a work stoppage.
Last year, it was the NBA. This year, it’s the NHL. But for RSN executives, the situation is identical.
“Exactly the same,” said Comcast SportsNet Mid-Atlantic President Rebecca Schulte. “Everyone hopes the lockout gets resolved, but we are prepared to use the same plan we used last year.”
Executives at regional sports networks across the country are experiencing a sense of déjà vu as they scramble to fill in live games that will be lost if the league and its players can’t reach an agreement before Oct. 11, when the season is slated to start.
The fact that these networks have a blueprint from last year’s NBA lockout does not make the potential loss of NHL games any easier.
“Live local sports is the cornerstone of what we do,” said Jeff Krolik, executive vice president for Fox Sports Networks, which holds rights to 13 NHL teams. “When we lose live local sports, that’s not good for us. You can’t replace it.”
NHL game ratings typically are lower than ratings for MLB and NBA games but still are higher than almost anything else RSNs put on air. Pittsburgh Penguins games on Root Sports last season averaged a 7.89 rating, the highest mark for all U.S.-based teams, followed by the Buffalo Sabres, whose games on MSG Network averaged a 6.55 rating.
It’s virtually impossible to make up those ratings with replacement programming.
Fox Sports Networks will rely on college football, soccer and UFC programming to fill in any programming void left by the NHL.
Comcast’s RSNs will patch its NHL holes with similar programming, but it believes its RSN strategy of producing original news and studio programming will allow it to fill in programming holes more easily. CSN Mid-Atlantic produces 2 1/2 hours of studio programming each day, and some of its programming is working, as measured by ratings. The net has had its biggest success so far with Washington Redskins-related programming. Through two games this season, Redskins postgame programming has generated a 1.98 rating in D.C., 32 percent higher than the Washington Capitals’ 1.50 average game rating last season.
Most other programming, though, doesn’t match the ratings of live events, something that will become more of a problem once football season ends.
“There’s no immediate concern on a programming front, at least in the short term,” Schulte said. “Come January or February, when there’s less programming, it will become more of an issue.”
January and February is when RSNs will start to feel real financial pain, too, according to industry sources.
With the cost of local sports rights skyrocketing — plus the fact that RSNs are some of the most expensive channels available — cable operators are more likely to enforce contract clauses called “product guarantee provisions.” These mandate that RSNs have to provide a certain number of games. If they don’t, they will have to give distributors some sort of rebate.
Different networks have different contracts, of course, but typically these clauses kick in once an RSN loses around 20 games, sources said. Rebates can be anywhere from 10 percent to 50 percent of an RSN’s affiliate fee. The size of the rebate depends on several factors, like a team’s ratings and the total number of live games carried from all sports. If the NHL is the only winter sport on an RSN, the rebate would be higher.
These provisions did not kick in during last year’s NBA lockout because the league played a 66-game season, losing only 16 games per team.
RSNs also will be hit by the loss of advertising revenue. Because game ratings are so much higher than other programming, it’s difficult for RSNs to give advertisers make-goods for lost games. That’s lost revenue.
On the flip side, RSNs stand to get rights fees rebates from teams for games that aren’t played. RSNs also will save on production costs for lost games.
But potential pain is much greater than any reward. The longer the NHL lockout continues, the more RSNs stand to lose.
John Ourand can be reached at email@example.com. Follow him on Twitter @Ourand_SBJ.