On Saturday mornings, KTRS-AM in St. Louis airs a one-hour, legal talk show called “The Law in Your Life.” The show provides a platform for two local attorneys whose firm not only pays for the air time, but advertises with the station and its 50 percent owner, the St. Louis Cardinals.
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St. Louis Cardinals radio broadcasters Mike Shannon
(left) and John Rooney call a spring training game
against the Florida Marlins. |
Welcome to the new economics for pro teams: A growing number believe they can derive more money by eschewing the bear market in rights fees in favor of becoming media barons themselves, either alone or in a partnership.
The Cardinals shocked fans last summer by announcing they had abandoned their booming 50,000-watt home of 52 years, KMOX, for a low-rated, eight-year-old, 5,000-watt station whose signal sometimes couldn’t reach the frontier edges of St. Louis County.
The move has elicited negative reaction from a wide range of constituencies, ranging from traditionalists who grew up listening to Harry Carey and Jack Buck to fans who receive only static at the 550 AM frequency.
The Cardinals sought to mollify fans by sending out vouchers to 55,000 fans in “blackout” areas that are good for a free XM satellite radio so they can hear every game. But there’s a catch: The suburbanites have to shell out $13 a month for the service.
If the move has inconvenienced some fans, few are doubting it will be a huge money-maker for the team.
“The Cardinals made a calculated decision that 55,000 people are not going to get them multiplatform selling on the Internet, on the outfield wall — one-stop shopping for Cardinals ads. They could be sacrificed. The most valuable people are in the metro area,” said Jody McCoy, director of the Media Services Group, a radio brokerage company in Colorado Springs, Colo.
Cardinals executives have said the move was imperative in order for them to remain competitive on the field.
The situation has radio executives worried that if the Cardinals make more money than under a straight rights deal, other teams will follow suit.
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Host Glen Ordway talks to a caller on WEEI, which at
press time was waiting to see if its partnership with the
Boston Red Sox would continue. |
By controlling the machinery behind their radio output, from production to ad sales to promotion, teams believe they can make more money and skip the headaches of dealing with independent stations whose agendas and interests don’t always align.
“When you are selling an integrated [sponsorship] package, it’s worth more than [selling] one platform,” said Mark Shapiro, the former head of programming at ESPN, and now one of Washington Redskins owner Dan Snyder’s right-hand men as CEO of Six Flags Inc.
So far, only Snyder and Arte Moreno, owner of the Los Angeles Angels of Anaheim, have bought stations outright. Moreno paid $42 million for KXME in order to secure a more powerful signal for the Angels’ Spanish-speaking audience.
At press time the Boston Red Sox were mulling whether to stay with seven-year partner WEEI, an Entercom property, or buy 25 percent of two Greater Media stations, one of which would likely be WBOS-FM, a classic rock station.
The Cardinals and Redskins have one thing in common: They refused to accede to demands by incumbent CBS Radio for a reduction in straight cash fees in favor of a cash and profit-sharing arrangement. CBS’s WJFK also ended its 10-year relationship with the Baltimore Ravens as the team signed with WBAL.
Changing landscape
“Radio rights are not as exclusive as they were five or 10 years ago,” said CBS Radio president and CEO Joel Hollander. “There are all these other avenues for people to hear games.”
Increased competition from satellite radio, the Internet and the spread of regional cable sports networks that put almost every game on television has tempered the appetite for sports among their traditional carriers, the AM giants whose signals can carry thousands of miles at night against the summer ionosphere.
| Profile of sports radio listeners | | With an average age of 47, sports radio has one of the oldest listener bases on the airwaves, and it’s getting older. In the fall of 1998, less than one-third of the sports radio audience was older than age 44. Today, that group makes up 41 percent of listeners. | View the chart | |
Hollander has not been shy in insisting the company will no longer buy sports rights on a loss-leader basis, even if the assets are gold-plated ones such as the Cardinals and the Redskins.
CBS may lose the Minnesota Twins next year as well, although it’s not clear if the team is thinking about buying a station after its deal with WCCO expires. The team’s contract is reported to be worth $9 million a year and Hollander is taking an early aggressive position on holding the line.
“We might walk on them,” Hollander said at the Octagon/SportsBusiness Journal World Congress of Sports in March. “WCCO is a great signal in that part of the country, but there are only so many great AM signals that boom that you can be on.”
Said Twins President Dave St. Peter, “We have not ruled out anything yet at this point. We definitely have a lot of options.”
Like the Cardinals, the Redskins risk facing public enmity because of the weakness of their stations’ new signals.
In January, Snyder shocked Washington when he bought three suburban stations rather than accede to CBS Radio’s demands for a cut in its five-year, $50 million rights fee at WJFK-FM. Snyder then hired Bennett Zier, who oversaw 32 Clear Channel radio stations, to run his new Red Zebra Broadcasting unit. Zier did not return phone calls seeking comment on how the team would plug the holes in its broadcast map.
In St. Louis, CBS complained that it was tired of losing money on its $6.7 million a year rights deal. The team balked when CBS offered to guarantee only $4.7 million on top of a profit-sharing arrangement. To account for the lost signal strength, the Cardinals have tried to cobble together a bigger network of stations around Missouri and surrounding states. But gaps remain.
Fans might be angry, but Corey Busch, a consultant and former San Francisco Giants broadcast executive, said teams could make out better by establishing a network of stations around a region rather than have a single dominant signal in their market.
“The money is relatively the same,” Busch said, comparing the two strategies. “The advantage of putting together a series of smaller networked stations is the ability to do local promotions in all the different markets.”
In Dallas, the Cowboys opted against the ownership route when CBS’s KLUV-FM dropped out of bidding on a renewal, saying it had lost money on the $8 million a year deal. Instead, popular sports talker The Ticket KTCK-AM/FM, which had earlier rejected a straight rights-fee deal, changed course when the Cowboys suggested they form a partnership instead with both teams selling Cowboys ad inventory on three stations, including a sister FM outlet.
Cowboys spokesman Rich Dalrymple declined to give any details of the arrangement, and KTCK General Manager Dan Bennett could not be reached for comment. Team owner Jerry Jones told reporters recently that he never had serious discussions about buying a radio station due to the lack of time before the 2006 season.
SBJ / SBD ONLINE POLL | What do you think?* |
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| How many hours of sports radio do you listen to each week? | | 1-5 | 37.8% | | 6-10 | 21.4% | | 11 or more | 9.3% | | None | 31.6% |
*A nonscientific poll offering a snapshot of readers' thoughts. Question was posted April 17-19 on sportsbusinessjournal.com and sportsbusinessdaily.com and drew 355 respondents.
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Bringing rights in-houseAnother avenue for teams seeking to maximize revenue has been to bring their radio rights in-house, opting to buy time on the stations and retain the ad time. The Kansas City Royals did this in an unusual midcontract move with WHB this year.
Teams have less control over promotions and ancillary programming than if they had equity, but believe the same one-stop shopping approach that is the hallmark of owning a station — offering advertisers signage, tickets and other goodies — will bring in more money.
“Even if it has a very competitive team, it may go in-house so it can make more money if it can run a more efficiently managed property,” said Mark Wyche, managing director of Bortz Media & Sports Group, which advises teams and leagues on media issues.
But whichever direction stations go, CBS is likely leading the way in drawing the line on spending.
The radio business has been stagnant in recent years — revenue rose at most companies in the low single digits a year ago — and the number of satellite radio subscribers has risen quickly.
While the satellite companies still retain a sliver of the market, stations are in no mood to take on loss-leaders even if they take on their traditional roles of helping the rest of the station’s schedule. That has led to a third way of financing sports rights.
In Boston, the Red Sox were seeking an increase of their $10 million to $12 million a year deal with WEEI, and the station had to ponder whether it was worth paying $13 million to $15 million to renew. The station is usually among the top two billers in the market and has usually ranked among the most popular stations in Boston, among all listeners, not just sports radio.
The choice for stations is far from clear cut, sports marketer Rick Scott said. “When you don’t have the games, that’s a substantial amount of programming time that is taken away, although if it’s a phenomenal station, it will continue to do well. Take away 162 games a year, multiply times four or five hours per program and that’s a substantial number of hours to be replaced.”
And none other than former CBS CEO Mel Karmazin, now the head of Sirius Satellite Radio, criticized stations that decline to renew valuable sports franchises, even costly ones.
“I’ve always been a huge fan of buying sports rights,” he told a World Congress of Sports audience. “Sports is one of the top three things a subscriber gets for subscribing.”
Will it pay off?
While pro teams are not being shy in waving the threat of buying part or all of a radio station when rights bids come up short, there is little track record for anyone to gauge whether it will be successful.
Hollander warned that owners “go out and think buying a radio station is a good investment, but it’s a totally different business. If from an NFL or Major League Baseball team they were getting $7 million to $10 million in rights fees, it’s going to take time to build it up.”
What do teams need to do to guarantee they remain on sure footing as fledgling media barons?
For starters, get a good, strong signal. The Cardinals and Redskins have gaps in their markets because they bought weaker stations. Finding available properties to fill those gaps may be easier said than done, said radio broker George Reed, managing director of Media Services Group.
Teams also should make sure they hire good managers who know the radio business and can find a solid format. The stations do not have to be all sports, Busch said, as long as the audience is compatible with a sports demo. Analysts think Snyder has a chance to succeed because he put radio veteran Zier in charge.
Busch warned teams not to overpay to get control of their radio rights. He said they should consider alternatives to buying equity stakes, such as time buys or barter sales.
On the other side, stations can do more to keep teams from increasing rights fees at renewal time, said Andrew Ashwood, vice president and general manager of Fox Sports Radio Network and former operations manager at San Antonio’s WOAI-AM, which has held a stable relationship with the Spurs for years.
“The biggest thing to realize is you’re not selling commercials, you’re selling brands, you’re selling events,” he said, pointing to tailgate parties as perfect opportunities for joint promotions.
Stations need to continue working to keep close ties with their teams, he said. “If you’re having a constant dialogue on what’s working and what’s not working and try to minimize those negatives, those go a long way down the road when it’s time to renew.”
Clancy Woods, president of Sporting News Radio, believes teams will succeed in their new venture because “you have really smart guys who own teams and who have been successful in other businesses, many of them in marketing and advertising who understand the value of their own property and the value of being able to brand their content in the advertising marketplace.”
Andrew Grossman is a writer in New York.
