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Volume 21 No. 1
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Deal with Dodgers shifts attention to local team rights

John Ourand
Just about every conversation I had during Super Bowl week came back to the same topic — one that had nothing to do with the NFL, New Orleans or the big game.

Instead, many of the sports media executives in New Orleans seemed more focused on Los Angeles, where Time Warner Cable just agreed to pay $8 billion over 25 years for the rights to handle ad sales and affiliate sales for the Dodgers’ new cable channel.

These executives want to know what the Dodgers deal, if MLB approves it, will mean for other markets. In short, they all agreed, it means a lot more money. Networks will have to pay higher rights fees for local team rights; distributors will have to pay bigger license fees to carry regional sports networks; and consumers will be socked with larger cable bills to access their team’s games.

That scenario has been the cable industry’s business model for decades. But many sports executives believe the size and scope of the deal with the Dodgers puts a value on local sports rights that will accelerate these increases.

In New Orleans, the distribution executives I interviewed were furious that a fellow cable operator would make a deal that escalates the cost of sports rights so quickly.

Dodgers owner Mark Walter has been a key figure in the team’s aggresive media strategy.
Network executives said that while they aren’t happy to have another competitor in the space, they view Time Warner Cable’s commitment to the Dodgers, in addition to the reported $5 billion it’s shelling out to the Lakers over 25 years, as a vote of confidence in the business.

League executives were obviously thrilled, as they believe Time Warner Cable’s deal shows that there’s still a ton of money left for sports rights.

Here are three areas where I will be focusing my attention over the next year.

Expect teams to look into restructuring their deals.

Time Warner Cable is paying the Dodgers an average of $320 million per year. In the first year of the deal, Time Warner Cable’s payment would be $137 million, according to RBC Capital Markets analyst David Bank. But because of a legal agreement set forth by MLB and the team’s former owners, only $84 million of that will be eligible to be part of baseball’s revenue-sharing system. The rest is held under a fully owned subsidiary called American Media Productions, and goes straight to the Dodgers.

That’s the key point. While this deal likely will face litigation, I believe it will be approved. If it’s approved, I expect most big-market teams to pressure their local rights holders to reopen their deals immediately to set up a system similar to the Dodgers, essentially locking up a significant amount of rights fees that will not be eligible to be shared with their baseball colleagues. Using this system, clubs could save money even if RSNs end up paying a lower license fee, which would have to be the enticement to get them to open up their deals.

This is where it gets uncertain. MLB will fight this type of setup, and small-market clubs are sure to revolt. But if the Dodgers set a precedent and their deal is approved, what would stop big-market clubs from doing the same thing?

Get ready for a battle in New York.

YES Network’s deal with Time Warner Cable is up prior to the 2014 season, sources said. If the Dodgers try to command $5 per subscriber per month for its channel, which many believe will be the number, what do you think the Yankees could get in New York? According to SNL Kagan, YES Network gets about $3.20 per subscriber per month from distributors this year.

DirecTV’s RSN surcharge will become an industry standard.

DirecTV started charging consumers an extra $3 per month in markets that have more than one RSN. Verizon rolled out a similar strategy. As the cost of RSNs continue to rise, I expect more distributors to follow suit, using these fees as a way to try and contain costs.

John Ourand can be reached at Follow him on Twitter @Ourand_SBJ.