By Phillip Swann
The TV Answer Man –@tvanswerman
TV Answer Man, I am not an economics major but it seems to me that if Diamond Sports and other RSNs stop paying teams to carry their games, they will have less money and that means they won’t spend as much on free agents. Am I missing something? — Rich, Reno, Nevada.
Rich, I think your analysis is right on. The financial crisis facing certain regional sports networks is threatening to disrupt the current economic model of the professional sports leagues, particularly certain teams in small to midsize markets. Let me explain.
Diamond Sports, the bankrupt owner of 18 Bally Sports regional sports networks, has already stopped paying the San Diego Padres to broadcast their games, turning the rights back to Major League Baseball. The company could take a similar course with at least four other teams (Twins, Guardians, Diamondbacks and Rangers) as it seeks to reorganize as a profitable venture. (Diamond Sports currently carries 13 MLB teams, 16 NBA teams and 12 NHL teams.)
In addition, Warner Bros. Discovery, which owns three AT&T-named RNSs, is negotiating the return of its broadcast rights to the NBA’s Houston Rockets and Utah Jazz, the NHL’s Pittsburgh Penguins and MLB’s Pittsburgh Pirates, Houston Astros, and Colorado Rockies. Why? Same reason. The company has concluded they can no longer be profitable.
There are no indications that other RSNs are preparing to exit the scene, but they face the same economic obstacles than their counterparts do: Carriage fees from cable and satellite operators are rapidly shrinking due to a decline in pay TV subscriptions thanks to cord cutting.
There are two reasons why this will likely mean less money for the leagues and their teams, which could cause some to spend less on free agents and existing players.
1. RSN carriage fees are plummeting.
The current RSNs agreed to pay the leagues and teams a fee based on how they thought the cable and satellite operators were performing. But since those agreements, cable and satellite subs have fallen dramatically and, consequently, the carriage fees they pay to the RSNs have as well. They will never be as high as they were even a few years ago and they will keep falling. The pay TV golden goose has been cooked.
When a RSN exits, a league will need to either find another broadcast partner or do the games itself. If it does the games itself and tries to negotiate a similar carriage agreement with cable and satellite operators (and live streamers), it will find that its fees will be significantly less than what the old RSN once received.
If the league tries to go another way and contract with a local broadcaster to provide the games, as the Phoenix Suns are trying to do post-Diamond Sports, the rights fees will still be less than what it was in the previous RSN contract. There just isn’t enough potential revenue for a local broadcaster to pay what the RSN once did.
Finally, if the league tries to make up lost revenue by selling the games on its streaming service, as MLB is now doing with the Padres, it’s still unlikely that it will do sufficiently well to come close to what the team and league once received from the RSN. That’s in part because the RSN paid so much in the first place. It’s just an enormous challenge to reach those numbers again.
2. The leagues can’t subsidize every team that loses a RSN deal.
MLB Commissioner Rob Manfred has said that in the case of the Padres, the league will ensure that the affected team will get at least 80 percent of its previous RSN fee, allowing for continued financial flexibility for free agents and other expenses. He said the money will come from the league’s central account. However, this arrangement is only for one year and there’s a good reason for that. Diamond Sports may jettison more teams this year and the AT&T channels could be gone next year. MLB could be responsible for running anywhere from eight to 10 teams by 2024. I’m sure the league’s central account is flush, but it won’t be much longer if eight to 10 teams are sucking money out of it.
The NBA and NHL have been relatively quiet about this ongoing concern, but they face the same crisis and the league commissioners are working behind the scenes to find the best solution.
The regional sports network crisis means less money for sports leagues and there are no easy solutions. It’s hard to envision any scenario where a team that loses a RSN deal is not affected adversely, sooner than later. That’s why chatter about $500 million contracts for stars such as the Padres’ Juan Soto and the Angels’ Shohei Ohtani seems a bit oblivious to the oncoming reality.
Rich, hope that helps. Happy viewing and stay safe!
Have a question about new TV technologies? Send it to The TV Answer Man at email@example.com Please include your first name and hometown in your message.
— Phillip Swann