Regional sports network executives are experiencing their own version of Groundhog Day, as games missed from a league work stoppage are starting to affect their bottom lines.
Last year, it was the NBA that canceled early-season games through Christmas. This year, it’s the NHL that’s canceling games.
In both cases, RSNs face a significant financial burden as the number of missed games continues to climb.
That’s because of a standard clause in most cable affiliate contracts called a “product guarantee provision.” This clause mandates that the RSN has to repay a portion of its affiliate fee if it cannot provide a specific number of games.
Last season, the NBA played an abbreviated 66-game season, meaning each team lost 16 games. Repayments on the NBA last season were not significant, sources said. Typically, a cable or satellite provider would deduct the fee associated from the product guarantee provision from its monthly payment. In several cases last year, though, the product guarantee provision did not kick in. In other cases, RSNs made a “payment” as part of other deals with the cable and satellite operator. Bigger RSN groups, like Fox Sports and Comcast SportsNet, can avoid specific payments by “horse trading,” or cutting better deals on other Fox or NBC channels.
So far this season, the NHL has canceled around 35 games per team, which means some repayment clauses already have kicked in.
Though standard throughout the cable industry, each product guarantee provision is negotiated separately. In general, RSNs have to make repayments once 10 percent of games are missed. The repayments are based on how much of an RSN’s programming is made up of NHL games. An RSN like Root Sports Pittsburgh, which doesn’t have winter professional sports other than the Penguins, a payment would be higher than for Comcast SportsNet Mid-Atlantic, for example, which carries both the Capitals and the Wizards.
NHL game ratings typically are lower rated than the NBA, meaning that RSNs are facing a lower rebate than last year with the NBA lockout.
But affiliate fees make up around three-fourths of an RSN’s revenue. RSNs do not have to pay teams for the games they don’t play. But, generally, the amount from affiliate fees is higher than the amount they pay for the rights. That means that the longer the lockout continues, the more painful it becomes for regional sports networks.
RSNs typically cost between $2 and $4 per subscriber per month and are among the most expensive channels distributors carry.
