NEWSLETTER
For 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.
