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kid-watching-tvFor a while now, the Chicago Cubs’ TV rights situation has been framed in a few contexts: will the Cubs stick with WGN, at least until 2019, when the rights to their full slate of games is available for bidding? Can the Cubs get a significant enough increase in the rights fees for the WGN games from 2015 to 2019 to make a meaningful revenue difference? Will the TV rights bubble burst before the Cubs have an opportunity to cash in post-2019 when their deal with CSN is up?

I’ve certainly played my part in providing those contexts, but I think I have been remiss in not hitting another context hard enough: if the Cubs can give up short-term dollars on the WGN games now in order to partner with another network to guarantee a big-time TV rights contract post-2019, don’t they absolutely have to do it?

Forget trying to line up a bridge contract – with WGN or whomever – that represents a slight increase in the fees the Cubs would collect for the 70 odd games on WGN from 2015 to 2019. Now is the time to lock in the huge money, long-term deal, even if that means sacrificing a little on the rate for those WGN games before 2020. Yes, even if it means departing WGN. This is the sad reality of modern baseball economics.

And when I say the Cubs need to do this now, I’m not talking about the need to guarantee a significant long-term revenue stream in order to support the Cubs’ ability to put a winner on the field in 2015 (although, let’s be honest, that would be nice). Instead, I’m heavily focused on the cable TV rights bubble.

Increasingly, I’m growing concerned that if the Cubs don’t find a way to cash in on the big, long-term, full-slate-of-games deal soon, this window will irretrievably pass them by. The year 2020 is six years away. Six years ago, the iPhone had just been released. Twitter had just been formed and was home to a whopping 400,000 tweets per quarter. No one was streaming anything on Netflix, let alone original programming of award-winning caliber (try to think back to those days, and laugh at how crazy you would have thought that seemed).

The world, and technology, changes rapidly. Does anyone want to bet their financial future on the current cable fee, territorial restriction-driven environment that has allowed baseball TV contracts to grow so rapidly being around in six years? That it will look and function the same way? Sure, it’s possible that rights fees will be worth even more at that time, but a few billion birds in hand are worth more than 10 billion exceptionally skittish birds in the bush.

Thankfully, I am hearing whispers that this is, indeed, what the Cubs are hoping to accomplish, and may be on track to locking in a long-term deal soon, with a pot of gold at the end of that rainbow. Don’t get too excited just yet. Whispers are only whispers for a reason.

For anyone needing an additional nudge that now – not years from now – is the time for the Cubs to lock in a long-term TV deal, even if means sacrificing a few bucks on the WGN games, check out this extensive write-up on baseball, TV deals, and cable problems here from the Motley Fool. (Thanks to BN’er Rcleven for passing it on.)

The focus in that piece is the extent to which ever-increasing affiliate fees – the money cable systems pay to have regional sports networks (RSNs) featured on their lineup – are propping up the baseball rights bubble. Those fees, you’ll note, get passed on to consumers, who see their cable bills going up, and up, and up. The problem of cable-cutters and the desire for a la carte programming are not new concerns, but the Motley Fool piece does an excellent job of laying it all out within the context of baseball.

Yes, live sports are among the most desirable programming, and yes, there are a large contingent of viewers who would scream bloody murder if they didn’t have their local sports on the cable package. But, as we’ve seen in San Diego and Houston, the kind of affiliate fees necessary to support these mega TV rights deals can get out of whack, leaving cable systems unwilling to pay, and fans out in the cold. And what if those fans don’t scream loudly enough to get the games back on their package? And what if the RSN can’t bend on the affiliate fee because they’re already committed huge money to the baseball team? At what point do the major TV networks decide these billion dollar deals are too risky, and are no longer the appropriate way to approach regional sports?*

*(The other big risk here that goes largely undiscussed: what if, by way of legislation or court decision, territorial rights become a thing of the past? One of the reasons RSNs can charge enormous affiliate fees in the first place is because local games are blacked out on services like MLB.tv. If your local cable provider doesn’t carry Cubs games, you don’t have a licit way of watching those games, even if you’re willing to pay a la carte. Maybe someone decides that kind of anticompetitive practice is not good for consumers, MLB’s antitrust exemption notwithstanding. If a team hasn’t locked in a big-time local deal by then, they could be screwed when consumers are simply able to subscribe to MLB.tv, by paying into a pot that goes to all teams, and can watch their favorite team that way.)

Increasingly, as we saw with the Phillies recent mega deal, together with the Dodgers’ and Yankees’ situations, ownership groups are taking equity in the RSNs with whom they partner on rights deals. In so doing, the RSN is able to hedge against underperformance, while the baseball team is able to access dollars that are unreachable by MLB’s revenue sharing system. Should the Cubs land a huge, long-term deal, you can expect equity to play a role.

Fortunately, because of the advertising advantage associated with live sports, there’s still plenty of money to be made in RSN deals, especially when the associated team is winning. Ah, but therein lies the one rub to this “do it now!” admonition for the Cubs. It’s no secret that five years of declining performance have left Cubs TV ratings considerably down. If a major bidder is going to commit billions to the future of the Cubs’ ratings, they’re going to want to know that, for realsies, the Cubs have a plan in place that will bear fruit consistently over the course of the next 20 or 30 years. Of course, having the infusion of television money is a major component of bearing that fruit in the first place. Once again, the team sharing in the equity seems a reasonable way to bridge that chicken/egg problem. The TV partner doesn’t have to guarantee as much cash up front, but the Cubs directly benefit down the road if the team is fantastic and the ratings skyrocket.

In any case, the upshot remains the same: landing the right long-term deal as soon as possible is the right approach, even if it means sacrificing a little upside in the near-term. The future, particularly in this space, is far too uncertain to risk another six years in the wilderness. Hopefully, if and when the Cubs soon announce their next TV deal, it will be with a partner who is picking up the WGN games for the 2015 to 2019 period, and then is taking on the full slate from 2020 on.

  • Webb

    Great stuff.

  • Sandberg

    It would really be nice if the Cubs didn’t get screwed over for once.

    • ClevelandCubsFan

      It’d be even nicer if the Cubs could not lock themselves in too much and are able to anticipate the market shift before it happens and be on the front end of whatever surpasses the “big market TV deal.”

  • inkastad

    THIS is why I come to this site. Best in class.

  • Kyle

    Getting our own TV deal locked in would be the best thing Ricketts has pulled off to date.

  • CubChymyst

    Doesn’t the Ricketts already have a 25% share in CSN Chicago?

    • http://www.bleachernation.com Brett

      Yes. Figuring out how to deal with that, depending on the future partner – hey, it could still be CSN – is something that would have to be considered, I’d think.

      • http://bleachernation.com woody

        That would work real good for us in Northern Indiana that don’t get the local FOX feed from Chicago. We have a local FOX affiliate here in the Michiana area. If Fox got the deal I wonder if our affiliate would pick up the games too?

        • BenRoethig

          WFLD offers the Bears games to other Fox affiliates. They could offer the games to Affiliates in the Cubs Blackout area of Illinois, Indiana, Iowa, and the SW & SE Corners of Wisconsin (which are in the Cedar Rapids and Chicago media markets respectively).

      • JB88

        I can’t imagine there isn’t a divestment option built into the agreement with CSN. If there wasn’t, whichever attorney drafted/performed due diligence on it for the Cubs should be flogged.

      • BenRoethig

        I think CSN will be a player when its all over, unless there’s some hard core interference from Jerry’s 40%. I think they’ll play it cool until Fox or any other players make their move. End of the day, I don’t think they want a competing network and end of the day without the Cubs its less money for everyone… if even viable at all.

        • BenRoethig

          I think they want other offers out there first so they can try to lowball it a little bit leveraging an extension of the existing contract.

    • Patrick W.

      Not for nothing but it’s 20% not 25%

      • BenRoethig

        Depends on how you look at it. They have a quarter of the 80% team share (Cubs, Sox, Bulls, and Blackhawks all have an equal share) with NBC-Comcast owning the remaining 20% the teams don’t own.

  • blublud

    The Cubs management are all pretty smart. I can’t imagine a scenario that they have not investigated thoroughly. I’m pretty sure they have the information to make the right choice for what’s right for the franchise.

    • fortyonenorth

      Let me get this straight, blublud. You’re saying that Theo, a Harvard grad, and the billionaire Ricketts, are smarter than John from Mt. Prospect, Kevin from Palos, and Tommy from Lagrange? While that may be true, it certainly isn’t something that’s going to fly on social media. Insanity.

      • Jon

        John, Kevin and Tommy might be smarter than Tom Ricketts considering his billions come from being born into wealth.

        • hansman

          I guess that is the same reason why Todd Ricketts runs a multi-billion dollar company of his own…oh, wait.

          • Jon

            Would he in the position he is today if not for his family upbringing and the advantages that provided for him? Probably not.

            • CubFan Paul

              So you’re against/hate the privileged?

              • blublud

                Damn Paul, we agree on something. :)

              • Jon

                No, just pointing out that John, Kevin, and Tommy might be as smart or smarter than Tom Ricketts.

                Are you against middle class guys from the suburbs?

                • blublud

                  No. But no one is assuming they are dumb or smart, or couldn’t be as accomplished because of where they come from.

                  • Jon

                    That was exactly what was suggested:

                    “Tom runs a billion dollar corporation, so he’s smarter than these goofs posting on a blog”

                    • blublud

                      Uh, I never mention Tom specifically. However, that opinion was based off what I know, or think I know about the guys running the company and not anything to do with where those guys came from.

                • CubFan Paul

                  “Are you against middle class guys from the suburbs?”

                  No, why would you ask Jon?

            • blublud

              Would I be in the position I am without my family upbringing and the advantages provided me? Probably not.

      • TWC

        “… and Tommy from La Grange?”

        I once knew a Tom from La Grange. Smartest and handsomest guy I’ve ever met. I think he moved to California.

        • blublud

          If only that guy was bound by his upbringing, he could have been very successful. :)

          • TWC

            It’s quite possible, Jay, that he’s succeeded in *spite* of his upbringing!

        • hansman

          Clearly no too smart. Handsomest isn’t even a word.

          • TWC

            It’s more of a nickname.

          • mjhurdle

            sure it is.
            Used in a sentence :

            ‘Almond Joys are the handsomest of all the candy bars’

          • hansman

            So everyone jumps on me for noone, yet handsomest is allowed to stand.

            SMH.

          • DarthHater

            From Merriam-Webster.com:

            hand·some adjective \ˈhan(t)-səm\
            : pleasing to look at; especially of a person : having a pleasing appearance that causes romantic or sexual feelings in someone

            : large in size or amount

            : done or achieved in an impressive way
            hand·som·er hand·som·est

            • hansman

              Well crap. I am just gonna give up for the day.

              • TWC

                “Noone” is judging you, Joe.

              • DarthHater

                [img]http://farm4.staticflickr.com/3682/11986320713_1ba6c3a16f_n.jpg[/img]

    • hartmtown

      Except, let’s remember, it’s likely Theo and Jed’s input on this kind of deal would be minimal. They’re baseball operations. This is going to be ol’ Crane Kenney’s baby, which is another reason to be very worried.

      • blublud

        Nah. This is a organization thing. I’m sure Theo, Crane, the Ricketts all the way down to the secretary will have some opinion or input on the inside.

        • hartmtown

          I’m not saying they wouldn’t have some input. But they’re not going to be the main architects of the deal or figure out the particulars of the Cubs’ strange situation which Brett mentioned. Kenney’s going to be the point man on that, with Ricketts giving the final okay.

          • blublud

            That being said, I don’t dislike Crane Kenney the way some people here dislike him. It appears the guy is pretty damn smart himself.

      • Brocktoon

        Why is that reason to be worried? What has Kenney done to make you think he’s incapable of doing his actual job?

  • http://bleachernation.com woody

    I wonder if they have a deal basicly done and awaiting final tweaks? If they are 99% sure they have a deal then that could impact the Tanaka situation. I’m sure that Rupet Murdoch would love to get into a big market like Chicago.

  • http://bleachernation.com woody

    Brett;
    I’ve been thinking about those blue and gold shoes of yours. They wouldn’t be very popular in South Bend In. I think we should take up a collection and get you some kelley green and gold shoes!

  • fortyonenorth

    Did anyone hear Wittemyer on the Score this morning? Weak sauce.

    • brickhouse

      What were Wittenmeyers comments on the Score ?

      • CubFan Paul

        fortyonenorth is lying, I don’t see a link.

        • blublud

          Paul, chill man. The point is you are hardcore with your opinions and when ask why or where’s the proof, you get offended and defensive. No one is accusing you of lying. However, just because you read something from any scout does mean it a fact.

          ” a man was shot in north Chicago today”

          Thats the type of statement that if true is a fact.

          “CJ Edwards will have a better career than Mike Olt”

          That is a statement that is an opinion, at least until both their career are at least established. Just because Jason Parks agrees or disagrees doesn’t make it a fact.

          • CubFan Paul

            “you are hardcore with your opinions”

            Only when informed.

            “No one is accusing you of lying”

            You have MULTIPLE times.

            google.com

            Use it.

            • blublud

              I have never accused you of lying. We all hear shit that others here don’t hear. One scouts opinion that you read versus other just as qualified scouts different opinion that I heard doesn’t make either of us anymore informed than the other. The point is, you decide you win debates because you read this somewhere, or heard that somewhere or because you watch games that no one else does. So that why you always get ribbed. The pointis, you are winning the Olt versus Edwards debate anymore than the people on Edwards side. The funny thing is I’m not as high on Edwards as some, though I still have decent expectations, and I’m probably higher on Olt than most. That means we agree. I’m just confused at how you think you a right on something that has yet to be proved.

              • blublud

                But hey, I’m black pot myself, Kettle.

                • hansman

                  Racist.

                  • CubFan Paul

                    Got a link to prove that Hans?

                    • Edwin

                      google.com ?

                    • mjhurdle

                      i learned from a guy that watches like every game and postgame ever that you don’t need links to prove anything. Just direct anyone that doubts to to “the internet”. That should be satisfactory.

                    • TWC

                      “Got a link to prove that Hans?”

                      Criminy, Paul, you’re turning into the Blackhawks1957 of passive-agressive douchebaggery. I think that we get your point.

                    • DarthHater
                    • hansman

                      I’m just going to say that Darth’s wardrobe choice, today, is tacky.

                    • DarthHater

                      Hrmph. Last time I stick up for you.

                    • hansman

                      Friends don’t let friends dress like idiots.

      • fortyonenorth

        That’s bizarre, Paul. Why would I lie about an interview on the Score? Here’s the link: cbsloc.al/1asJMlW

    • JB88

      For those who didn’t hear the interview, can you recap?

      • fortyonenorth

        Yes, financial stuff and much negativity. He’s entitled to his opinion, obviously, but my overall impression is that he doesn’t have a lot to back it up. Take a listen and you’ll see what I mean: cbsloc.al/1asJMlW

        He kept harping on the Darvish, Ryu, Cespedes fails saying “the Cubs weren’t willing to spend the money…” That just strikes me as an uninformed opinion–something you’d expect from a Cubs fan who doesn’t understand the blind bid system and who really doesn’t follow baseball all that closely. I just expect a little more from a major market beat reporter.

    • http://www.bleachernation.com Brett

      I didn’t think it was too bad. A lot of the same financial stuff he’s been saying for a while, much of which is pretty well accepted now as likely true.

  • cubfanincardinalland

    What are the options as far as networks? Fox and who else.

    • rcleven

      I would hope just FOX.
      Fox has started up FOX Sports 1. Still needs a lot of programming.

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  • Greg

    It would be interesting to see how much the night game restriction affects a television rights contract. There can’t be that many eyes watching the mid-week afternoon games.

  • Cheese Chad

    It feels like waiting more than 2 years could be too long. This type of technology transforms and evolves so fast that the Cubs absolutely need to act quickly. Great article on a topic few people are talking about in terms of economics and sports. Are other sports involved in this? I know football is much more national but at some point…..

  • Scotti

    I would assume that there is a likelihood that CSN has an exclusivity window (like WGN did). Generally that’s a year prior to the context expiring (as it was with LA).

    Regardless, I see the issue in reverse of selling the WGN games low. I see selling them high (to engender favor with the Cubs who will be putting all the games on the block at a later date).

    Year in and year out the Cubs were the #1 road draw–they have massive appeal beyond Chicago and even the Midwest. They’ve fallen of that #1 road draw recently but they will be right back up there in 2019. That’s when you should sell those games as they will have tremendously more value than regional teams like the Astros or Phillies.

    If Fox Sports One wants all of the Cubs games in 2020 (of course they do) then let them prove it by playing nice now. The Cubs are in the drivers’ seat. There are four national baseball teams (CHC, NYY, LAD & BOS) and three of those are international teams (NYY, CHC & LAD). LAD & NYY have wrapped up their deals. The Cubs are the most attractive deal out there by far. No reason to sell these games short.

  • AB in MT

    These TV contracts are starting to feel more and more like NFL contracts (the “full” value of them, not the guaranteed part). Many of these RSNs are one trick ponies, and if the cable/satellite/undetermined new distribution technology revenues don’t continue to rise, they’re not going to be able to support these sorts of rights payouts. At which point they’re going to default on the contracts (see, e.g. Houston), go bankrupt, etc… As a team, I would be hesitant to count too much on the projected $ from year 20 of these things. In that sense, I’m not sure how much the Cubs are going to “miss” any window. It’s likely to either still be there, or not have mattered as much as you might think.

  • badatnames

    I understand that this will never happen, but I really wish the Cubs (or any team for that matter) would consider instant streaming games online. Of course there are a lot of licensing issues and what not, but I really think the benefit would outweigh the negative. Think about the new Mascot Clark going after a new generation of Cub fans, well instant streaming games online would bring in new fans the world over. It could reclaim the national market the Cubs use to have with WGN.

    Again, I know this won’t happen anytime soon, but I feel like this should be at least be a consideration.

    • mjhurdle

      mlb.com offers that for like $145 or so a year. You can stream every teams games all year.
      It is a pretty good deal, lets you stream them to your phone/tablet as well if i remember correctly.

      • badatnames

        I know that already, from my understanding is that there are a lot of blackouts when competing with local broadcasts and games that are nationally covered. And since I’m “in market” I already have game via cable.

        With Google in talks about eventually broadcasting (some) NFL games, I think the first team to make a large play towards an online presence will gain viewership from fans that wouldn’t have been available before.

  • DCF

    Really interesting article, BUT nobody knows anything about whether the “bubble” is gonna burst or not and not even if it’s a bubble at all.
    Looking bad, I don’t think there was ever a time where tv money for any live sports anywhere in the world has DECREASED substantially over time, only maybe if that particular sport went out of fashion altogether.
    And looking at other countries, i.e. European soccer, you will find that all the big leagues are exclusively on pay TV, charging something like $30 to $50 per month for fans to watch.
    Of course, ther American market is very different, but if there’s a trend to talk, I think it would be that, not the breakdown of cable networks.

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