John Kosner Spoke with Tom Dart of The Guardian About the RSN Crisis and MLB
Original Article: The Guardian, by Tom Dart, April 3rd, 2023
Local broadcasters are crucial for MLB. Now many are in trouble.
One of baseball’s largest broadcasters has filed for bankruptcy. But even with some revenue streams threatened, teams are rising in value
Tucker Carlson didn’t stand a chance. In the battle for eyeballs in St Louis, the Fox News provocateur could never own primetime like Albert Pujols.
St Louis Cardinals games during the beloved slugger’s farewell season last summer were watched by more than four times as many viewers in the MLB team’s home city as the next-most popular cable show, Tucker Carlson Tonight on Fox News.
That points to the enduring popularity of local broadcasts in baseball hotbeds – but with the new MLB season only a few days old there is off-field turmoil sparked by the bankruptcy of America’s leading regional sports network.
The product may well be more attractive this year thanks to the rules tweaks, but how many armchair fans will be watching? Broadcasting baseball is becoming more complex and contentious as the television industry is buffeted by turbulence in the streaming and cord-cutting era. The way viewers consume sports is changing, disrupting a business model that for decades turbocharged team revenues and player salaries.
Diamond Sports, which runs 19 regional networks under the Bally Sports brand, filed for bankruptcy in March, threatening the live game broadcasts of 42 major league teams – 14 from MLB, including the Cardinals, 16 from the NBA and 12 in the NHL – as well as $2bn in combined annual rights fees, about half of which goes to baseball.
What’s more, Warner Bros Discovery has been seeking to exit the regional sports network (RSN) arena and shut down its AT&T SportsNet channels, affecting seven teams, including the World Series champion Houston Astros.
The NBA and NHL regular seasons are about to end so they are less impacted and have plenty of time to work out a solution before the next campaign. And local deals are less critical to the bottom line in the NBA. Its $24bn national rights deals are up after the 2024-25 season and few analysts would be surprised if the league doubles its money next time.
While local rights represent about 15% of income for the NHL and NBA, MLB relies on local media for nearly a quarter of team revenues and its 162-game regular season make it a cornerstone for sports channels who can bank on the league for hours of live action nearly every day.
Typically, leagues manage national broadcast rights while franchises make deals for their regional markets. RSNs have long been viewed as desirable entities that can attract viewers to cable operators such as Xfinity and Spectrum, so they command high carriage fees – in excess of $7 a month per subscriber for the most-watched, the New York Yankees’ YES Network – which are passed on to customers in their monthly bills regardless of whether they can tell Mike Trout from a rainbow trout.
Being subsidised by 100% of cable subscribers even if only 2% of them watched the channel was a lucrative strategy for RSNs and teams alike, especially in big cities. But rising costs are a problem for traditional pay-TV companies as price-conscious customers leave in droves and expect more control over what they buy. In one common analogy, content consumption is moving from a set menu to à la carte – non-baseball fans reasonably don’t want to pay for games they don’t even watch. In 2021 the Dish TV president described the RSN model as “fundamentally broken” and Dish dropped all its RSNs.
That loss of leverage is quite a shift from 2000, when the Texas Rangers credited a local television pact with giving them the financial muscle to hand Alex Rodriguez a then-record contract worth $252m over 10 years. The ground has even budged dramatically since 2013, when the Los Angeles Dodgers signed a local deal worth $8bn over 25 years. A staggering sum – especially when you consider that for six years, only about half the households in Southern California were able to access the channel.
Diamond missed a $31m payment to the Arizona Diamondbacks in mid-March, Sportico reported – about half the team’s annual RSN income. Since the decades-long RSN bonanza boosted player salaries, it is fair to wonder if the on-field product will be affected if revenues decline. After the 2013 deal the Dodgers have boasted MLB’s highest opening-day payroll most years and have reached the playoffs every season.
But Diamond’s interest payments to creditors are a bigger problem than any declining interest from viewers. When Diamond was formed in 2019 as a subsidiary of the giant Sinclair Broadcast Group, it borrowed about $9bn to pay for networks previously owned by 21st Century Fox and Disney. That debt load proved to be too heavy, though for now at least it continues to air games.
Across the country, according to MLB, on the average regular season day, 2.3m fans watch baseball games on an RSN. Live sports remain prized by broadcasters since the audiences are declining more slowly than for other types of content. And there is more competition to drive up national rights at auctions, with tech companies such as Apple and Amazon potentially bidding against traditional networks.
In 2022 MLB hit a new record of nearly $11bn in revenue across its 30 teams, thanks, as Forbes notes, to sponsorship and media deals. In-game betting is a likely growth sector and fresh way to monetise broadcasts as states slowly loosen their gambling laws. (Bally, after all, is a casino and online betting operator.)
According to Statista, in 2013 100.5m households in the US (out of a total of 122.5m) subscribed to traditional pay TV services, such as cable or satellite. By 2022, although the number of American households rose to 131.2m as the population grew, subscribers sank to 65.1m and are projected to fall to 47.8m in 2027.
“The old model was practically ideal for rights holders,” says John Kosner, a sports and digital media consultant and former ESPN executive. “It’s impossible right now to reach all sports fans, especially young ones, through traditional channels. Even if the RSNs sustain in a form that looks like it does today, you’re still not reaching a big chunk of your younger fanbase that way so that’s an additional concern for clubs.”
With a fanbase that skews relatively old, MLB needs to cater to an audience that is comfortable with the traditional subscription model while also appealing to younger viewers who have never known a time without smartphones and streaming and will probably never become cable or satellite TV customers.
Despite its fusty image the league is a pioneer in digital streaming. It launched MLB.TV, an out-of-market streaming service, back in 2002. But plenty of games on the platform are blacked out to preserve exclusivity for RSNs and national broadcasters.
A future template may resemble the new $2.5bn, 10-year deal Major League Soccer struck with Apple: regional broadcasts were axed in favour of a centralised streaming subscription service that makes every game available everywhere to everyone. A few matches are also shown on Fox Sports, giving MLS a degree of visibility to casual fans who can’t or won’t pay $14.99 a month for the Apple offering.
Sports media executives are keeping a close eye on how MLS Season Pass works out. It’s a simple, modern and streamlined approach and perhaps one that appeals to other leagues; MLB appears interested in taking control of local rights. But it’s not so easy to implement. Baseball is a far more valuable local property than soccer; RSN deals expire at different times and some remain profitable; the big clubs may insist on controlling their own content and squabble over revenue sharing; and it’s uncertain how the Diamond drama will play out.
So the end of RSNs is likely to be gradual and city-by-city, rather than swift and sweeping, as teams, leagues and media companies pursue whatever strategy they feel is most profitable. “The revenue is a linchpin to how the clubs operate, player salaries etc. There’s a difference between what one might like to do and what you feel you have to do in order to manage these leagues,” Kosner says.
The RSN-owning Yankees and Boston Red Sox have introduced direct-to-consumer subscription streaming services (priced around $20-30 a month). Rivals will be taking a keen interest in how many fans sign up and how on-field results affect subscriptions.
Who would want to be the Astros executive who decides the team can’t afford to re-sign José Altuve in 2025, for example, because the franchise that had a $73m-a-year rights deal moved its games to a streaming service that didn’t attract many customers? Or could the Astros spend whatever it takes to keep their star second baseman out of fear that his departure would prompt an exodus of month-to-month subscribers?
As Sports Media Watch details, some struggling teams, such as the Rangers, Oakland Athletics and Miami Marlins, benefit from RSN deals that look wildly generous given their modest viewing figures. They’d face huge cuts in revenue if forced to depend on streaming services where there’s a tighter relationship between level of income and size of fanbase.
In the short-to-medium term, it’s realistic to expect that RSNs and streaming services will air the same games, similar to how the same blockbuster films can be found in a variety of places, from old-school cable TV to Amazon Prime, at different price points.
“The ratings are quite good for regional sports networks compared to some TV. Certainly baseball has a strong regional sports audience so I think there’s no way that’s going away,” says Jon Lewis, founder of Sports Media Watch. “Maybe there is a centralised place where you can watch games out-of-market and in-market for the same price, at the same time those games are available over the air.”
Ultimately, the bubble is altering shape but is unlikely to burst. Forbes estimates that last year’s revenue growth means the average MLB team value is up 12% in 2023 to $2.32bn despite the RSN worries. In February the NBA’s mid-sized Phoenix Suns were sold (together with the Phoenix Mercury of the WNBA) for $4bn – by far the largest price in NBA history. Clearly, billionaires believe that major league teams remain shrewd investments.
“These franchises are like beachfront property. There are many, many wealthy people, there’s a limited number of the franchises so I believe that’s one big factor driving the appeal and the valuations,” Kosner says. “And second, I believe that the people in sports think that ultimately this is going to be figured out and that there are going to be new, profitable growth strategies at play because of the power of sports in its community, its differentiation from other forms of entertainment.”
Lewis agrees. “Look at the franchise values, they continue to rise,” he says. “Teams will always find a way to make more money.”
