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kid-watching-tvThe Houston Astros are set to make $99 million this year, according to Forbes, a fact about which I am equal parts shocked and dubious. The 2013 Astros are a testament to the power (and, nowadays, value) of tanking, and they could finish as the worst team in baseball in a decade. How does such an abomination make as much money as the last six World Series winners combined (again, according to Forbes)? No payroll, and big-time TV dollars.

The article is an interesting read for those into the business of baseball, and how the Astros’ deep rebuild could actually help them financially. For their part, the Astros have said Forbes’ numbers are way off, so I’m not going to steer us too far in that part of the conversation.

Instead, the portion that grabbed my eye is the discussion of the Astros’ ownership interest in regional sports provider CSN Houston. The Astros’ current TV deal with CSN Houston pays the organization $80 million per year to broadcast Astros games (the Cubs, in contrast, are believed to be receiving around $50 million total for their games right now), which is a healthy sum for a terrible team. The deal comes with a huge HOWEVA: although the Astros are raking in big bucks from their TV deal with CSN Houston, they own a substantial portion of CSN Houston … which is, itself, is losing millions of dollars ($63 million last year, according to Forbes). Why? Well, cable providers don’t want to pay the massive carriage fee for CSN Houston because there aren’t a mess of Astros fans out there saying, “Come on, cable provider, get CSN Houston on the cable tier that everyone gets! I don’t care if it means I have to pay $3 more per month, just do it!!!” Just 40% of Houston homes carry CSN Houston, according to the Houston Chronicle.

And why aren’t Astros fans out there clamoring for more coverage? Well, obviously: the team is terrible.

Thus we reach the chicken and the egg of these big-time regional sports deals: the big money from the deal helps your team win, but you’ve got to do a little winning before the big-money deal looks attractive to the regional sports network. (Or, in the particular case of the Astros, before the network you own stops bleeding the very money that it’s trying to pay your organization to cover the big money deal you’ve already signed.)

Is there an issue here for the Cubs, as they look to negotiate the block of games that become available for bidding after next season?

Actually, the Cubs’ TV negotiation efforts come with a myriad of special issues – only half of the games are up after 2014, the organization has built a national following on WGN, the Cubs may have restrictions on whom they can offer their rights to, on and on – that will be addressed in a long-promised separate piece.

For now, I find the chicken and the egg problem of TV dollars to be an interesting issue for the Cubs.

The Cubs would like to have available more revenue so that they can put a better team on the field (theoretically augmenting a young, internally-developed core with pricey (but useful) free agents). The biggest source of new revenue these days is a new, big-money TV deal. But if a TV deal’s value can be held down by poor past ratings, and a crummy team drives poor ratings … what comes first? The revenue from a TV deal, or a good team to drive the TV deal?

The problem for the Cubs is that the TV negotiations are likely to take place after this season, even though the rights don’t come up until after 2014 (with other teams, these deals seem to be inked at least a year out). That means the Cubs will be negotiating from the standpoint of having fielded several consecutive bad teams, and from the standpoint of reportedly having declining TV ratings.

Because a little more than half of the Cubs’ games aren’t available for bidding until after the 2019 season, perhaps the Cubs already have their answer: they’ll seek to perform well over the 2014 to 2018 stretch, thus improving the value of the TV deal post-2019. That, of course, assumes the TV bubble doesn’t burst in the interim, but it wouldn’t be a terrible play, given the state of the rebuild (and the timing of the Wrigley renovation). We’ve often heard President of Baseball Operations Theo Epstein remark that the trajectory on the baseball side and on the business side are lining up, and it sure looks that way when you consider the upcoming TV stuff through this lens.

What do the Cubs do with the WGN portion of the games in the meantime? Well, they could just re-up with WGN for five years so that they can go to market with the full slate of games after 2019. They might not get big dollars for those games, however, in part because the team has been so bad over the past few seasons. The Cubs also likely aren’t going to see huge dollars from the Wrigley Field renovation for another couple years, as well, so big market payrolls might not be in the offing for a little while, even after the Cubs’ next TV deal comes online. In short, it could be more short-term pain in exchange for long-term gain on a number of fronts. I know everyone hates waiting, but a Cubs organization that’s been focused on building the farm system for years and then has a huge money TV deal/network in place by 2019 – not to mention an already completely renovated Wrigley Field – is probably a powerhouse of the kind we’ve always wanted to see the Cubs build. It could be sustainable, and it could be a very big spender.

I suppose I’ve digressed a little bit, but it’s difficult to narrow your focus, given how intertwined all of these issues are.

Ultimately, the Chicago market and the Chicago Cubs are probably “different” than Houston and the Astros, but the Forbes story at least brings up the issue of performance versus TV contract value. For the Astros, they’re willing to stomach the CSN Houston losses (which, by the way, the Houston Rockets – who also own a big chunk of the network – are subsidizing) while their baseball operations department gets the house in order. Slashing payroll to under $30 million helps on both fronts, even if you risk losing fans permanently at that level. Of course, the Astros already have their big money TV deal in place, and the dollars at CSN Houston will necessarily turn around when the team starts performing a little better. In the Cubs’ case, they’ve got to get their big money TV deal first, and they might have to do it while negotiating from a position of relative weakness – i.e., the terrible performances of the last few years.

At bottom, one thing is relatively clear: fielding an awesome team that consistently wins year-in and year-out is probably good for the bottom line.

  • DarthHater

    Seems to me that the best way to resolve this bewildering logical conundrum would be to simply try to win as many games as possible each season. Not to mention that that is, like, the whole point of the sport.

    • http://www.gravatar.com/avatar/653cc0c5f0eded621ab13b4f631de7da.png Cizzle

      That is of course assuming that *trying* to win as many games this season and last doesn’t affect how many games you can *try* to win over the next 2-3 years.

      • Koyie Hill Sucks

        But if you win how will that get you a top 5 pick to build through the draft!?

    • J.F.Edwards

      Here’s the deal with chickens and eggs: if you have one of them eventually you’ll end up with the other one.

      And I trust the Cubs FO to know how to take care of what we’ve got, be it the chicken or the egg–and we’ll get the flip side soon enough.

    • Die hard

      Wrong again professor Irwin Corey🎓🎓 Astros with 13 mil payroll to net 100 million this year— winning isn’t everything and its far from being the only thing– apologies to Lombardi affecionados

      • DarthHater

        FYI, Die hard, that was me being critical of the FO, so don’t say it never happens.

        And while we’re at it, this is me being critical of you:

        [img]http://farm6.staticflickr.com/5536/9488263369_08eb8507ae_o.jpg[/img]

        • Die hard

          Read your prior post twice and still didn’t see any criticism — you’ll have to do better than that to shed the shill skin😀

          • DarthHater

            You mean you can’t understand what’s right in front of your face? Shocking!

  • Dan Hyde

    Wonderful piece Brett. Lots of info to process.

  • Jason Powers

    It alludes to 2 seperate but intertwined models: the financial model and winning baseball games. The expiring tv deal could be boosted by signing FAs that will win games and provide a face for viewers. There are 2 cy young pitchers on the market. Done right, it may alleviate both issues to go with smart offense upgrades.

  • MightyBear

    I think the Houston and Chicago analogy is very strong. People forget Chicago is the third biggest TV market in the country and Houston is the fourth largest market in the country. While Chicago is twice as large as Houston, Houston is growing at a faster rate.

  • fortyonenorth

    I didn’t really follow the Dodgers TV deal negotiations. Based on the logic laid out in this piece, how did they manage such a mega-deal considering the suckiness of their recent teams?

    • http://deepcenterfield.blogspot.com Jason Powers

      Market size certainly helped.

      This gives you a list of TV markets – Houston is not 4th largest market. Roughly 2/3 the size of the Chicago market…
      http://www.tvb.org/media/file/TVB_Market_Profiles_Nielsen_Household_DMA_Ranks2.pdf

      • http://deepcenterfield.blogspot.com Jason Powers

        Add to that, the mobile phone market/Pad market, this becomes a more complex issue.

      • ssckelley

        Jason, thanks or sharing that. I am shocked at how big of a gap there is between LA and Chicago.

        Houston might be 10th but there is not much of a gap between Dallas (5th) and Houston. They should not be considered a small market team.

        • http://deepcenterfield.blogspot.com Jason Powers

          To put into perspective: Add Chicago TV market (3.5M) + Houston (2.2M) to get LA’s market(5.6M)….
          Again, what are the ramifications of the cell/pad market going forward? More mobile, less need to be at your home TV market.

          • Eternal pessemist

            Everyone seems to be ignoring the number of teams per market.

            • ssckelley

              Damn, I keep forgetting there is another team in Chicago.

              But there are 2 teams in LA and NY as well.

              • Eternal pessemist

                Yep, but only one in houston…dont know if this was calculated in.

      • jj

        Does anyone know if teams and media use the market size mentioned here (households) or the number of people in the market? E.g. Chicago has 3.5 million TV homes, but more than 7 million people live in the TV area. Using the latter number heightens the separation between LA and Chicago and between Chicago and Dallas through Houston.

        • http://www.bleachernation.com Brett

          Pretty sure it’s households, since you generally pay only one cable bill per household.

          EDIT: Then again, advertisers will want to know how many people their messages are reaching. Oh business, you get so complicated so quickly …

        • http://deepcenterfield.blogspot.com Jason Powers

          I would think they do both – to make whatever point they need to sell it.

          Potential market (demographics analysis) vs. Existing market vs. Growth potential (Demo shifts)

          If your doing well, you trumpet those facts that show that. If doing poorly, you play up potential and growth and new innovations to your campaign…

          In short, it is a bit of BS laid over numbers.

    • http://www.bleachernation.com Brett

      That would be very interesting to dig into, but I think the answer is a relatively boring one: the Dodgers absurdly well-followed in LA, regardless of performance. Then again, perhaps of more interest to us, they had also already locked up Matt Kemp and Andre Ethier, brought in Gonzalez/Crawford/Beckett/, spent huge on Puig and Ryu, and signed Greinke by the time they inked their deal with Fox. In other words, they’d already demonstrated that the team was very much going to be worth watching (and that they were committed to spending to keep it worth watching).

      • http://deepcenterfield.blogspot.com Jason Powers

        Which is part of what the Cubs ‘could’ do this offseason. Do something that helps in negotiating a better deal. Not saying sign all the high price FAs, but 1-2 big names that are the faces of the franchise – well known, marketable to the casual fan – so we can build toward that 2016/17 timeline.

      • http://deepcenterfield.blogspot.com Jason Powers

        Agreed too. Dodgers have a huge, once spoiled fan base. A Mecca to worship in, and Vin Scully to listen to…They once owned a lot of attendance records…course people leave games early to beat LA traffic. ;)

  • JB88

    Someone mentioned months ago that they believed that the Cubs’ contract with WGN (or Comcast, I can’t remember which) prohibited the Cubs from contracting to provide the WGN-games on a cable provider. I remember that you responded to this comment at the time. Have you learned anything more about this point? Obviously, that would have a significant impact on what the Cubs would/could do.

    • http://www.bleachernation.com Brett

      Nothing new, though it is believed to be accurate – in other words, for these five years, the Cubs could negotiate only with WGN, CSN, and I believe there’s a local Fox affiliate large enough to make a bid. But there’s so much that we don’t know (that we’ll never know) about the contracts.

      • JB88

        The Fox local bid is the one I’m most interested in, to be honest. Candidly, I don’t know what affiliation, if any, local Fox would have with the new Fox Sports 1 (and 2), but given their entry into the market, Fox’s work with the Big Ten to develop the BTN, and the aggressiveness that Fox as an organization has, I’d love them to be potential players and either have them outbid Comcast or scare Comcast into a fear of losing the Cubs after 2019 and upping their bid for the 2014-19 chunk as well as potentially renegotiating the entire contract going forward.

        Of course (and I’m sure it is something with which you are dealing in the longer and long-promised piece), but I’ve always been curious whether the Cubs’ partial ownership of both WGN and Comcast will be an impediment to a contract for the Cubs.

        • Northside Neuman

          The Cubs don’t own WGN, Tribune owns 5% of the Cubs.

          In any event the WGN contract will be better than it currently is after 2014, Zell structured the WGN deal prior to the sale to Ricketts and locked in a VERY favorable broadcast deal for the Tribune. Which is why the sale price of the team fell from $900 million to around $845 million just a few months prior to the transaction closing. Ricketts had a fit when he saw how unfavorable the TV deal was and demanded a lower sale price.

  • Senor Cub

    great piece and quite interesting given that Houston is the 4th largest market in the U.S.

  • Scotti

    The largest factor in the WGN negotiations is that the Cubs are limiting WGN to an extension and not a long term contract:

    “WGN has the ability to retain those rights through 2019, provided that they’re willing to pay fair market value,” said Cubs spokesman Julian Green. “That’s a discussion for WGN and the Cubs to have together.”

    That limits the amount the Cubs bring in in the short term because WGN (or anyone else) are not going to bid top dollar for just 5 years. Those 25-year deals make sense for media companies because they fix the terms over a long period. So, while the Dodger deal brings in great money to the Dodgers now, the media company feels it levels off and gives them an advantage later on (after inflation, etc.).

    A new deal with WGN would have to be an improvement if only because the WGN deals have been so skewed toward the Tribune/Zell and not the Cubs. However, it won’t be a large deal that brings in “big time” cash because it’s just a five-year deal.

    • http://deepcenterfield.blogspot.com Jason Powers

      Cubs need another buyer of those rights…create competition, and well, if the price is right, take the next step and leave WGN.

      Or: get into the network business….YES, NESN, CSN Houston, etc. Leverage those broadcast rights.

      Kinda sucks for fans…but that’s the new model.

      • Rich H

        The Cubs are already in the network business with them owning 1/3 of CSN Chicago.

        • Jason Powers

          Then go 80 percent…prepare for ludicrious speed!

        • Patrick W.

          I think they own 1/5. The Blackhawks own 1/5, NBC owns 1/5 and the WhiteSox/Bulls own 2/5.

  • Paul

    If the Cubs and WGN do not reach a deal, the next generation of nationwide Cubs fans may not exist. I as well as millions of Cubs fans across the nation became addicted with the expansion of cable companies adding WGN to their lineup. I didn’t even really watch baseball in 1980, however there was one thing that I did watch. Tom and Jerry came on WGN every afternoon once the Cubs game was over. I came home from school everyday, flipped on WGN and watched the Cubbies until it was time for Tom and Jerry. I soon became mesmerized by these guys. My mom had to explain that Jesus (Jesus Figueroa) and DeJesus (Ivan DeJesus) were Latino and did not pronounce their names the same as Jesus Christ. That team was terrible, but I soon fell in love with them and ditched my old cartoon friends. The waning scheduling of day games and fewer games on WGN period have likely lost a good portion of new young fans. However, if WGN is out of the mix in years to come, where will the national throng of fans be once the last of us join Jack Brickhouse and Harry?

    Cubbies til the end- Die Hard Fan for 33 years.

    • http://deepcenterfield.blogspot.com Jason Powers

      We all want to go back to our youthful years…I moved to NW Indiana late in 1982. Saw the rise of Sandberg, watched Bozo on WGN. Loved the afternoons as I rolled papers before delivery at 4PM – or when the Cubs game was “decided.”

      • Paul

        Alas, we are saddled with daily America’s Funniest Home Videos marathons.

        • MichiganGoat

          The world changes we can’t hold onto the best parts of a generation and play the nestolgic game when things change.

          • Paul

            Nostalgia aside, marketing to millions of fans has its benefits. The sole reason you see hundreds of Cubs fans at road games is WGN. That sells merchandise.

    • MichiganGoat

      Meh what WGN did for a generation of fans will never happen again in any market. With MLB.tv, regional sports networks, and the other ways to watch games we will never see a single team reaching every household like WGN and TBS accomplished in the 80s. Times have changed.

      • http://www.bleachernation.com Brett

        Of course, the argument could be that sticking with WGN has the potential to keep the Cubs “special” in an otherwise undifferentiated market.

      • DarthHater

        I’ve said it before and I’ll say it again. For day games, when advertising rates are going to be lower anyway, put them all on WGN to continue cultivating future generations of nationwide Cubs fans. For night games, when advertising rates are higher, televise all the games wherever revenue is greatest.

    • forlines

      Great point Paul. I was a Cubs ‘fan’ growing up, not having WGN (or cable at all for that matter). I knew very little, and cared only moderately. Once I finally got cable (which carried the station) I started watching every time they were on, and now, thanks to WGN, they are one of only 4 or 5 teams I care about.

  • ruby2626

    Are we 100% sure the CSN deal does not have some sort of out clause?????

    • http://www.bleachernation.com Brett

      No. No one has reported that it does, but I don’t believe it has explicitly been ruled out, either.

      That said, if there was an easy way out after 2014, I think we would have heard about it by now.

      (That doesn’t mean there isn’t a difficult way out).

      • Scotti

        Given that the Cubs have limited WGN, or whomever steps in, to five years, I think that the CSN deal is rock solid and locked tight.

  • Koyie Hill Sucks

    Well if they don’t end up getting a good TV deal at least that can still be used as an excuse for why the owners/FO won’t spend on free agents, so there’s always that!

  • Blublud

    If viewer ship is one of the problems, why can’t a deal be struck to pay-per-share. The larger the viewership, the more the network pays the Cubs. Sounds like a smart plan for both sides to me.

    • http://www.bleachernation.com Brett

      That is, essentially, what taking an ownership stake in the network does (like the Astros and CSN Houston).

  • http://ehanauer.com clark addison

    Who knows where broadcast TV is going to be 5 years from now? With phone and tablet and other means of delivering content, maybe broadcast and cable days are numbered.

    On the other hand, sports are about the only things worth watching live, where sponsors have an audience that can’t zap their commercials.

    • CubFan Paul

      You still watch commercials??

  • CubFan Paul

    This is another reason why i expect a busy offseason. Maybe not so much raising payroll but actually making upgrades on the major league roster by any means necessary, basically implementing phase 2 of The Plan (get to .500 or better and no longer play/suck for a protected pick).

  • North Side Irish

    Mark Gonzales ‏@MDGonzales 4m
    Baez, Almora, Soler and Bryant on Mesa’s AFL roster.

    Mark Gonzales ‏@MDGonzales 3m
    Almora on taxi squad. Also from Cubs on Mesa roster are pitchers Dallas Beeler, Matt Loosen, Armando Rivero and Arodyz Vizcaino.

  • http://Bleachernation Lou Brock

    AFL rosters are out. Cubs position players, Almora, Baez, Bryant, and Soler. Pitchers are Beeler, Loosen, Vizcaino, and Rivero.

  • Theo?

    This is a good article in that it’s right on the economic, logistic, business, and sports side of the equation. Besides a relatively strong pool of drafting with some strong potential upside (though nothing in the minors is guaranteed, it’s always a gamble – everyone knows that) I don’t understand what this administration is doing at all. Sports are for winning. If you need to rebuild, take 2 years, draft well, sign some players, and try to win.

    They haven’t even BEGUN to try to win in 3 and there’s no end in sight toward improvement. Then I discover this blog and all of these blog dudes say that the team is better than ever and I’m crazy to even point out our 20 games under 500 status, because they have 3 or 4 prospects. Guys, EVERYONE has 3 or 4 prospects, AND they’re building their team. We’ve depleted everything on the major league level, and you’re not going to win with a bunch of question mark rookies. This is mismanagement on the verge of dismissal for any other big-market franchise.

    • ssckelley

      This administration has only been in office for 2 years, this is the 2nd year they have rebuilt. The players they have “depleted” this organization of, outside of Soriano, were not even under contract for 2014 (3rd year). So they took those players, turned them into minor league assets that might help the Cubs down the road basically making something out of nothing.

      But I do agree if the administration blows up next year as another waste everyone is going to be growing tired of Theo and Hoyer.

    • ssckelley

      Theo?, your troll efforts would be much more effective if you did just a little research to make sure you had your facts straight. When you come at us with this garbage you really make yourself look like an idiot.

      • Theo?

        What is this “troll” thing you people keep talking about? Is this some kind of internet jargon for the basement dwellers?

  • cubfanincardinalland

    You are sounding like the mainstream media, talking about the Wrigley renovation, as though it were a done deal and all systems go. Nothing could be further from reality.
    There will certainly be no construction done after this season. Word is the face to face with the rooftop association went from bad to downright ugly in recent weeks.
    The last thing verbalized from the team, was we are not spending one dime until we know for sure we will not be sued, and there will be no long term restrictions. How do you get Wrigley renovations from that?
    Until this is settle, every other issue is spitting in the wind.

    • http://www.bleachernation.com Brett

      You may want to read what I actually wrote.

      “The Cubs also likely aren’t going to see huge dollars from the Wrigley Field renovation for another couple years … ”

      As in, I’m not projecting the video board being in place for *another couple years.* And that’s one of the first things the Cubs are going to do.

      From there, I projected that the renovation would be completed by the end of 2019 – more than six years from now.

      Setting all of that aside: the renovation is not the focus on this article. There is plenty of renovation coverage, none of which has been as cheery as you’re painting it.

      • ssckelley

        Wow, I did not realize the renovations are getting this serious. But I admit I do not read much of it as it usually involves a big political discussion that bores me. But if I am Ricketts I wonder how much longer I would keep prolonging this, I think my patience would have been gone by now.

      • Theo?

        It seems like Wrigley needs a gutting, updating, and a fixing, for sure, but I am against dramatic structural changes to the stadium itself. This is the only country in the world that is against protecting its own history from the caprice of commercial interests. A landmark is a landmark, better or worse, and it is our heritage in Chicago.

        • Patrick W.

          This is completely wrong. We were the first country in the world to have National Parks, Forests, Monuments. THE CAPRICE OF COMMERCIAL INTERESTS is exactly what led to Wrigley Field’s existence. It’s not Wrigley Field was built as a public park. I find it very difficult to understand how a place of business somehow loses it’s ability to operate as it sees fit simply because it has been successful at operating it’s business. Should the Berghoff family not been allowed to shut down in 2006 and reopen recently as a different type of business, renovated inside, just because it was around for 107 years and people liked going there?

        • ssckelley

          I agree, the Cubs need to leave at once so the city can start working on preserving the building for its landmark status. Those rooftop owners will be able to sell tickets so a Cub fan can see what the view used to look like back when the Cubs played there.

          • Chad

            I like Wrigley and it is cool, but why not just build a replica of Wrigley, with all the updates elsewhere. Seriously, in my mind something that is easier to get to would be fine, and then it could literally become Wrigleyville, where the entire block is focused on the cubs and the cubs organization making money. People would still flock and you would not have to deal with idiotic requests of the “community”. Now I know this will ever happen, but it would not bother me as a fan if this happened.

            • Theo?

              I think some of you are legitimate misanthropes.

              • Patrick W.

                I love people.

  • cubfanincardinalland

    That’s why I read here, you tell it accurately. I think the mainstream media is doing the Cubs a disservice, basically setting them up to look like the bad guy. And this ridiculous prolonged wait is hurting the franchise. They are being held hostage by the threat of litigation.

  • Kevin

    Is there a web site that discusses the current negotiations, or lack thereof, with the rooftops?

  • 5412

    Hi,

    sports owners sit in front of a wood stove and say, “give me heat and I will get you some wood”. In the case of Ricketts, I feel he gets it and will add payroll when he thinks it gives them a legitimate shot.

    Regards,
    5412

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