TV money inflates sports bubble
It has often been said that God has a sense of humor, and the great Biblical irony today is at a time when the sports industry sometimes appears to have reached its saturation point, the bubble is being sustained by elements of the very entity the players, coaches, executives and many fans say they despise: the media.
Passion always keeps the bubble from bursting completely. Sport is still at its core a passion purchase, the industry having perfected the illusion that it is an essential part of life. People care, and while the business of caring can overcome antipathy over strikes and lockouts, losing seasons and losses of innocence, PEDs and ticket increases, passion itself isn't enough. The public has a finite amount of money in its wallet. The defining headlines since 2007 have been acutely financial. In a time of high unemployment, low job creation, few new markets and retrenchment, oddly, there still seemed to be money for sports. A closer look at the bubble itself reveals a largely stagnant industry -- except for skyrocketing media rights to broadcast sports on television, iPads and cell phones.
The Los Angeles Dodgers were sold for a record $2.15 billion, a dollar amount that confounded some financial experts, but not one. Last year, before a Clippers-Mavericks game, Mark Cuban, then considered a possible player in the Dodgers sale, told me that in the Los Angeles market, media rights would be the prime determinant of the sale. Two billion dollars later, the fulcrum of the acquisition, it turned out, was not the prime real estate of Chavez Ravine or the legend of the Dodgers name, but Cuban's prophecy: its lucrative media rights, which later transformed into a pending $7 billion deal with Time Warner Cable.
The Los Angeles Angels committed $240 million (over 10 years) to Albert Pujols and $77.5 million (five years) to C.J. Wilson in 2011, plus another $125 million (five years) to Josh Hamilton in December -- not because Arte Moreno discovered oil under second base, but because of the sports business equivalent: a $3 billion, 20-year local television deal with Fox Sports West.
The Texas Rangers, which were once considered so far second to football that even consecutive pennants did not quite confirm Dallas as a "baseball town," are now set up for years of prosperity because of their regional television deal worth as much as $3 billion over two decades.
"Everyone keeps saying it can't last forever, and it probably can't," said Chuck Greenberg, the former Texas Rangers CEO largely responsible for brokering the Rangers' mega TV deal that altered the direction of the franchise. "But it is difficult to see what is going to cause the bubble to burst."
Even though its lineup has shifted dramatically, the new conference splitting from the Big East Catholic schools will reportedly be paid $130 million over six years by ESPN for the rights to football and basketball games starting in the 2014-15 season. And ESPN and the Mountain West are reportedly working on a deal for basketball and football games, which may increase the conference's media deal (combined with CBS Sports' payout) to $116 million.
Not to be left out, the Los Angeles Lakers could earn as much as $5 billion from their Time Warner television deal over the next quarter century.
God's sense of humor, it seems, is well intact, for the distribution of product through the media, as well as consistent distribution of sports -- MLB Advanced Media is so diverse and lucrative that it provides underlying technology to websites from newspapers to music and entertainment -- is the lifeblood of the game even as the outer membranes of the bubble have strained.
By the old measures -- attendance, local growth potential, national growth potential -- the bubble most likely would have burst years ago. Since 2007, all of the four major North American team sports have seen attendance drop or remain generally flat. The NFL and NBA have seen attendance fluctuate very little (not counting the drop off caused by the NBA's lockout-shortened season), while MLB's attendance dropped by 4 million since 2007, and the NHL's attendance by 1 million (after a spike in 2011).
During that time, the NBA has carried at least one half-dozen franchises a year that play with home stadiums that are 20 percent empty. This season, seven NBA teams -- Atlanta, Milwaukee, Cleveland, Sacramento, Washington, Detroit and Charlotte -- are all playing in houses under 80 percent capacity.
In baseball, 13 of 30 teams played last season at less than 65 percent capacity. In football, the sport that demands a sellout for a game to be televised in a local market, eight teams played to less than 90 percent capacity.
The old ways to create revenue have also largely dried up. In the 1990s, both the NHL and MLB propped themselves up on expansion fees. That was the end of a 50-year splurge. In the postwar days, when St. Louis was the westernmost city in baseball, expansion marked both the hope of new markets and the threat for old ones to get in line, or once teams started jumping, risk becoming Brooklyn. Perennial losers such as the Washington Senators, Philadelphia Athletics and St. Louis Browns all eventually left town to seek new fortunes. Even winners like the Dodgers and Giants relocated because of greater financial potential. The Braves were on the cusp of winning when they left Boston in 1952, and then left Milwaukee for Atlanta in 1965 despite being a complete success.
Today in baseball, there are no more North American markets to move into, save for perhaps two: San Jose and Montreal, the former being blocked to the Oakland A's, the latter still smarting from baseball yanking its Expos to Washington and transforming them into the Nationals. For a time, Las Vegas, Portland, Sacramento and Charlotte were fashionable, but each market came with debilitating challenges and lost momentum. During a thriving economy a dozen years ago, baseball flirted with the idea of a split team in San Antonio and Monterrey, Mexico, but the idea dissolved as the economy tanked. Baseball has teams in Oakland and Tampa that are politically and economically stuck, and unlike the old days, even the most optimistic baseball executives believe there is nowhere else to go.
As recently as the late 1990s, baseball had even considered contracting (and commentators also have tossed out the idea for NHL and NBA teams mired in misery), an idea that even at the time seemed more of a threat to force cities to build new stadiums than a promise to downsize a bloated game. Following the 1994 strike, baseball, as well as the other sports, recognized the need to expand the revenue streams. Core fandom wasn't enough, and suddenly the austere Boston Celtics employed cheerleaders and stuntmen. For decades most baseball teams played night games on Friday, day games on Saturdays and Sundays. Today, the Saturday night home game is almost universal.
The rationale was twofold: The Fox television contract attempted to prohibit teams from broadcasting before or during its 4 p.m. national game, and baseball determined it was no longer competing for the sports dollar, but the entertainment dollar -- every dollar. Saturday nights were date nights, family nights, fun nights. Going to a ballgame was now competing with the movies, bowling and dinner for the casual fan.
The burgeoning technology and its hunger for games changed the conversation. What makes media rights so valuable to advertisers is live programming, and baseball is one of the great beneficiaries. For the past several years, advertisers have been vexed by technology -- namely digital video recorders -- that undermines their pitches. Compared to their viewing of prerecorded programs, consumers are less likely to watch a live event on a delay simply to fast-forward through commercials, making live sports extremely valuable to advertisers.
Baseball is of tremendous value because for three full months, the game is not competing with the regular seasons of any of the other sports. When he was with the Rangers, Greenberg was convinced the financial community underestimated baseball's potential value to programming. Since the Rangers deal was finalized at the end of 2010, sports media rights have become more valuable than ever to a 24/7 cable world with a desperate need for live programming. The growing digital streaming on mobile devices also has increased the value of those rights.
The bubble stays alive by the irrationality of fan passion and political fear and ego. The American economy is at a critical juncture. For the first time possibly ever, state and local municipalities have the advantage; they cannot be as easily threatened by team owners because there are no more cities to which a team can move. Yet the passion and connectivity of sports and the fear of being the politician who let the local team leave town is still often enough (though private owners have sometimes been forced to contribute more to stadium construction) for a broke town to put up the money for a new stadium. Atlanta, with an unemployment rate that hit 10 percent last year, announced last week it is closer to providing $200 million in taxes for a $1 billion new stadium for the Falcons to replace the Georgia Dome, which is all of 20 years old.
Concessions and parking, ticket prices and attendance once moved the needle, but media rights are now fueling leagues. The walls seem to be closing in as money grows tighter, and the media rights bubble exists because cable fees to carry sports channels such as ESPN are high and cable systems are required to carry the sports networks on basic tiers. A change in that dynamic would severely reduce the value of teams across the country.
In the meantime, the enemy powers the engine. With that in mind, maybe Nick Saban and Gregg Popovich should smile a bit more during those annoying in-game interviews. So should the players eager to rush back to the locker room without being stopped by a sideline reporter. At the dizzying rate prices rise due to programming value, media rights aren't the oxygen of the sports bubble, but closer to the helium.
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