SBJ/Feb. 17-23, 2014/Franchises

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  • Phillies CEO breaks down TV deal

    Ten years ago the Philadelphia Phillies moved into Citizens Bank Park. Four years later, the team won its second World Series title. Two years after that, the franchise set an attendance record.
    Now, as spring training for 2014 begins, the landscape for the Phillies has changed. The club heads into the new year with an aging roster, a rookie manager in Ryne Sandberg and a new television deal that doesn’t kick in until 2016. But Phillies President and CEO David Montgomery can’t wait for the new season to start. He talks here to correspondent John George about why the team decided to stick with Comcast SportsNet as its broadcast partner, how the deal’s structure could affect the players who are on the field, and what he thinks about the expanded use of instant replay in MLB this year.


    The big offseason news was the television deal with Comcast SportsNet. The deal was reportedly for $2.5 billion over 25 years and includes the Phillies getting a 25 percent equity stake in Comcast SportsNet and a cut in the ad revenue for game broadcasts. Is all of that accurate?

    MONTGOMERY: What is accurate is the elements you talked about. You hit on the three components that require focus. These deals are often a combination of rights fees and equity. In our case, we were unusual in that we had retained, in our past deal, the advertising. … One of the challenges in negotiating with Comcast is they wanted to control the advertising so they could package it and sell somebody year-round sponsorships that have the Flyers, Sixers, the Eagles’ postgame show and Phillies baseball. Our side of the equation is we also sell our radio, signage in the ballpark and promotion days — and we wanted to be able to bundle TV with that. [Getting a portion of ad revenue] is probably one of the unique aspects with our deal with Comcast, as opposed to other baseball television deals around the country. Most RSNs sell the advertising.
    As part of the arrangement with Comcast in our 15-year deal from 2001 to 2015, we had the opportunity [to] continue a dialogue with Comcast about renewing the deal. That [exclusive negotiating period] would have expired this coming March. Last February, we started to talk to Comcast to decide if continuing on this path made the most sense for both parties. We think we got a good result; I hope Comcast feels the same way. It means that in this market, at least for the foreseeable future, one regional sports network is going to carry the major sports that are available.

    Did you ever talk to anybody else?

    MONTGOMERY: Under the contract we couldn’t talk to anybody else until March. Comcast had this window of opportunity to hang on to us, and eventually they succeeded.

    So you could have waited until March, rolled the dice and gone with somebody new?

    Montgomery says the deal with Comcast SportsNet made the most sense for the team.
    Photo by: JEFF FUSCO / PHILADELPHIA BUSINESS JOURNAL
    MONTGOMERY:
    We considered that. In our case, we knew Comcast owned one franchise (the Flyers) and had a long-term deal with another (the 76ers). We, the Phillies, would have been going head-to-head with them. They have a significant portion of the distribution in this market. We felt if we could negotiate a fair deal with Comcast, it would be the right thing to do.
    Is it possible that, come 2016, somebody new could have come in and used the Phillies as the linchpin for a new sports network, and perhaps the only element on that station? What would be the first thing they would have to do?
    They’d have to sell it to Comcast to be the distributor.

    And that could have created some challenges?

    MONTGOMERY: Who knows? The answer is, We’ll never know. It’s certainly a legitimate question to ask: When did you know it was right to stay where you are? We felt in this market, with the relationship we have enjoyed with Comcast SportsNet and the fact we did get some equity — I’m not going to be specific about it — this was a good deal for us. We did get that equity, but not any governance, I might add, which hedged our risk. If our rights fee becomes disproportionate, we have the opportunity to make it up through the equity stake. We were also able to reach an accommodation on the advertising. When we combined the three elements, we thought it was a fair deal and something we were comfortable going forward with.

    So when some people say you could have gotten more?

    MONTGOMERY: We weren’t convinced we could have gotten more; maybe we could have. The reality is we felt our timing was pretty good. The marketplace had moved favorably for us with some of the recent deals ($320 million a year for the Los Angeles Dodgers, $150 million a year for the Los Angeles Angels and Texas Rangers). We felt knowing with certainty what we could get from Comcast was better than the risk associated with being out there trying to fly alone.

    What are the expectations fans should have with the new influx of money coming in a couple of years?

    MONTGOMERY: We’ve had one of the top three, four payrolls in the game in recent years. There was a time we weren’t able to do that because we weren’t drawing fans. We’ve been fortunate here to have marvelous fan support. With the backing of this [new television deal], if we do take a bit of a downturn in attendance, we should still be able to support a very significant payroll. That’s our anticipation.
    Fans will always have opinions as to whether we are spending it wisely or not. They probably thought we were spending it wisely from 2008 to 2011, and all of sudden we got dumber the last couple of years. We want to reward the fans for the support they have given us, whether that was re-signing Cole Hamels or re-upping Chase Utley or whatever. The reality is our fans have been used to us having some of the stars of the game play for us. We hope to be able to continue that. We are acutely aware our nucleus is getting older. That’s why we are anxious, on a one- or two-people-a-year basis, to bring youth onto the team.

    What do you think about the expanded use of instant replay in MLB this season?

    MONTGOMERY: I’m anxious for it. One of the drawbacks in our sport is we were very limited in what we could show in the park. With the changes, we are going to be much more open in the ability to give all fans replays. Umpires understand they will have the opportunity to get calls right. That’s what they want, but there has been no mechanism to change the calls. Hopefully this opens up a whole new era of getting calls right and, perhaps more importantly for our fans, having them experience everything you can experience at home. For all of us, the challenge is that viewing experience at home keeps getting better and better. We have to keep the ballpark experience appealing to bring fans, who are content to watch us at home, to the ballpark.

    John George writes for the Philadelphia Business Journal, an affiliated publication.

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