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Volume 22 No. 7
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Is Leonsis’ deal the new model?

One of the sports industry’s most visionary executives, Capitals and Wizards owner Ted Leonsis, made a big bet on the future of traditional television last week.

Leonsis’ launch of a localized over-the-top service, Monumental Sports Network, was the move that generated the most headlines. After all, look no further than Disney’s $1 billion investment in BAM Tech for evidence that all the big U.S. media companies are making bets on the digital future.

But Leonsis zigged where others may have zagged. A big part of his new media future still will have a distinctly old media feel despite industry belief that the longtime media pioneer would be among the first professional team owners to exploit his media rights on his own over-the-top service. That will not happen, at least not for his biggest teams, the Capitals and Wizards.

Almost lost among the glitz of the OTT launch was the fact that Leonsis decided to keep his local NHL and NBA live-game rights on a 32-year-old regional sports network, CSN Mid-Atlantic — a network in which he now holds a 33 percent stake — for the next 15 years.

NBC Sports Group, the RSN’s parent company and a minority owner in Leonsis’ OTT service, will pay handsomely for those rights. Amid concerns of a declining cable subscriber base that could cause a sports rights bubble to pop, NBC Sports more than doubled its average annual payout for the Wizards (to $35 million from $17 million) and Capitals (to $28 million from $13 million).

The move by Ted Leonsis (right), with son Zach, “confirms that the status quo is not disappearing,” one expert says.
Photo by: GETTY IMAGES
“To the extent that people are waiting for that bubble to burst, this wasn’t it,” said Doug Perlman, CEO of Sports Media Advisors. “It confirms that the status quo is not disappearing. Teams are still doing RSN deals, and RSNs still see value in the major leagues.”

What makes Leonsis’ move so intriguing to media insiders is his emphasis on balancing new and old media platforms.

Allen & Co.’s Steve Greenberg, who represented Leonsis in the yearlong negotiations, said that the deal is based on a belief that traditional cable television can exist side-by-side with an over-the-top offering — with the RSN carrying more popular programming and the OTT service carrying more niche sports.

“The RSN business is far from dead; it’s still alive, and it’s vibrant,” Greenberg said. “But this is the beginning of a new world, which is experimenting with keeping the RSN business vibrant with live games, but using this other medium to deliver other related sports content, ancillary sports content to your fans and customers who want the convenience of viewing it on the move.”

Over-the-top programming has become one of the trendiest strategies for sports media companies recently. Every media company seems to be trying to get their foot in the door and figure out how to make money from taking their product directly to consumers.

“OTT programming is one of the things that people talk to us the most about,” Perlman said.

Earlier this summer, for example, NBC signed a rights deal with the Portland Trail Blazers that is expected to lead to an OTT launch for the 2017-18 season. Last month, the Los Angeles Clippers signed a rights deal with Fox that keeps a lot of non-live game OTT rights with the team. Greenberg also represented the Clippers in their negotiation.

“The harder thing to get right in the negotiation wasn’t the money. It was really saying, ‘How do we work together over the next few years in a way that permits innovation and still leaves us with a stable base for our partnership?’” Clippers owner Steve Ballmer said during the NeuLion Sports Media & Technology conference in Los Angeles earlier this month. “I made mistakes at Microsoft investing in things too early. But you can also invest too late. I’m excited to be part of that transformation in terms of how the sport gets consumed.”

Still, Leonsis’ deal with NBC is unique because it’s not done in silos. Rather, both companies will develop a digital service together and jointly test programming and price points to see what works. This gives NBC Sports Group a template that it can take to other markets. Television network executives, who have a vested interest in making sure the cable business remains healthy and vibrant, acknowledge the need to be active in the over-the-top environment.

Monumental

Sports Network   
        
BY THE NUMBERS

Subscription Cost (annual):
    $8.99 per month
Subscription Cost (month-by-month):      
    $12.99
Available On:
    Apple TV              Android
    iOS                        Google Chromecast
    Amazon Fire         Roku
Among The Programming:
    12 AFL Valor games
    38 WNBA Mystics games
    76 AHL Hershey Bears games
    72 ECHL South Carolina Stingrays games
Video Series:
    “The Walk-and-Talk with Reggie Love”
    “10 Reps with Alan Stein”

“Our Monumental deal is representative of the deals that we want to do going forward,” said David Preschlack, president of NBC Sports Regional Networks. “We need to be looking at deals going forward where we can serve fans as best we can and in as many ways as we can and in ways that complement each other.”

For Leonsis, who described Monumental Sports Network as a “petri dish” where he can experiment with game productions, the two services will complement each other. The OTT service will promote Capitals and Wizards games on CSN Mid-Atlantic. Similarly, the RSN will devote news coverage and promotion for MSN’s teams, which include the WNBA’s Mystics and AFL Valor.

“We’ll learn together,” Leonsis said. “To have both networks live in harmony, and there is equity ownership and board management that is common, is very, very innovative.”

Both Leonsis and Greenberg believe that the OTT service eventually will grow to be big enough to carry some of the Capitals’ and Wizards’ games, in the same way that local broadcast channels currently carry smaller game packages. Owners like Leonsis will look to OTT as a better way than broadcast to reach millennials and others who don’t have cable.

Even then, he believes the bigger packages will remain on cable.

“If you look out 20 years, there’s no question that there’s going to be live sports games on this platform — probably sooner than 20 years,” Greenberg said. “Anyone we’re advising who’s doing a deal today — especially in a 10- or 15-year deal — has to think about what the world is going to look like and have the flexibility in the deal to manage through it.”