The Dodgers reported deal with Time Warner Cable for their broadcast rights beginning in 2014 is the reason that the Guggenheim Baseball Management spent the most money ever for an American sports franchise—$2.2 billion. The deal is yet to be finalized, but it will have a dramatic effect on the sports viewing landscape in LA and nationally.
The deal is rumored to be in the $7 billion range, and if it includes the Dodgers own channel without TWC owning a stake in the channel, the 2 parties should be able to circumvent Fox Sports’ right to match any offer. With this pay day around the corner, Mark Walters and Stan Kasten could look cool and collected while paying $2.2 billion for the franchise, plus taking on the contracts of Adrian Gonzales, Carl Crawford, Josh Beckett, and Zack Greinke.
At some point the bubble has to burst though, doesn’t it? The amount of cash flow seems to good to be true. Local TV rights are valued so highly now because they are some of the only programs that are viewed live. And in the case of baseball there are 162 times that the local broadcast rights are lucrative in that specific market—at minimum. That’s a big difference between the NFL’s 16 regular season games. Whether it’s MLB quantity or NFL quantity, local broadcast rights are off the charts.
But with more lockouts fans, however unlikely, could eventually get cynical and stop following. With the economy not turning back up, many fans won’t have enough resources to continue being fans. They can’t afford the time or effort. There are scenarios where, for the first time, franchises lose value. If this deal backfires on the Guggenheim partners or Dodgers at some point, this will be the end of the franchise and their local TV rights stunningly high values.
This is a crushing blow to Fox Sports who has had the broadcast rights to the Dodgers since 1997, and specifically on Prime Ticket since 2006. TWC won the rights for the Galaxy, Sparks, and the big fish the Lakers for $3 billion. The addition to cable bills for this one channel left many providers holding out for months.
Now with the Dodgers reportedly making the switch to TWC as well, Fox Sports West/Prime Ticket won’t have a hard time filling up 2 channels worth of content, but they will have a hard time filling those two channels with viewers if the paradigm of watching your favorite, and the most popular local teams in LA is now switched over to Time Warner Cable SportsNet broadcasting in El Segundo, from the regular broadcast team.
Fox Sports were pioneer in the local cable broadcast industry in LA. Until this year they were the only 2 local cable sports channels. With TWC’s 2 new channels, the PAC 12 Networks, and the proposed new channel(s) local cable sports channels will likely triple in LA. All of these channels have high value, but if you segment all of their advertising cache and success by 6, they are going to have a lot less value than each competitor is paying for in teams’ broadcast rights.
This is not the bemoaning of a mom and pop store closing. Fox Sports is not a non-profit, nor is it KCAL airing Lakers games locally on the public airwaves. It is a competitor that appears to have lost the last 2 (big) battles. But the proposed landmark deal is fine today because teams’ value continue to grow, and so do their TV rights fees. And then their digital rights fees will grow. But sports media is taking a big gamble that the growing bubble doesn’t burst.