When Fox Sports recently purchased SportsTime Ohio and the rights to broadcast every non-nationally televised Indians game, many fans, including myself, thought this could help the Indians catch up with the competition. That dream appears to have lasted an entire month. The dream is dead and we have no one to thank but the Los Angeles Dodgers.
Yesterday, the Dodgers announced a new television rights contract that not only blows the competition out of the water, but quite possibly shakes up the current television rights contract archetype and equity stakes. This new deal is believed to be worth more than $7 billion over the course of the next 25 years and calls for the creation of a new Dodgers-centric television network. This new network, dubbed SportsNet LA, will be helmed by American Media Productions, a newly formed company created by the Dodgers ownership group.
Nothing about that seems out of the ordinary on the surface. All of those details fall in line with past television rights contracts with other big league clubs that have dabbled in and created their own television networks. However, the real issues lie beneath the surface and with the Dodgers relationship with Time Warner Cable in an attempt to avoid paying millions in revenue sharing.
In other words, the Dodgers’ new multibillion dollar television deal aims to line their pockets while simultaneously taking much needed money out of the pockets of the Indians and every other mid to small market team. Hey, but at least the Indians have that $40 million they got from Fox Sports Ohio.
As part of the Dodgers bankruptcy court proceedings, the fair market value of the organization’s television rights were set at $84 million per year, increasing 4% every year. For a high revenue team such as the Dodgers, 34% of those earnings are subject to the revenue sharing general fund. However, MLB agreed that if the Dodgers were to create their own television network they could keep all revenue generated beyond that $84-million per year so long as they took on significant risk associated in starting up and operating the channel.
That’s the key to this whole thing: Taking on significant risk. Thanks to Time Warner Cable the Dodgers are taking on exactly zero risk.
With the agreement set up between the Dodgers, American Media Productions, and Time Warner Cable, the following stipulations are in place:
- Time Warner will cover affiliate fees from distributors who refuse to carry SportsNet LA
- Time Warner will be responsible for all other programming that isn’t a Dodgers game
- Time Warner will handle all advertising and sales for the network
- Time Warner will pay a “network branding fee” to the Dodgers
- Time Warner will act as a partner and make guaranteed payments to the Dodgers
As you can see, the Dodgers are assuming absolutely no risk in this agreement. Time Warner is handling every programming and advertising decision as well as covering any and all fees that might be associated with getting the Dodgers into every home imaginable. For Time Warner it makes sense as they can claim stake to operating the Dodgers official television network. It’s all marketing ploy for them designed at boosting the bottom line and stock prices over the long run.
But for the Dodgers this makes no sense. As one of the five largest teams in baseball both in terms of annual revenues and reach of their fan base, one has to think the overall risk associated with starting up a dedicated television network would be relatively minimal. This isn’t the Indians looking to turn a row boat into a luxury yacht with STO. The Dodgers fall more in line with the Yankees and their network, YES.
Yes, this is “what Time Warner does” but the Dodgers couldn’t hire the right people to make this work without Time Warner? That is hard to believe. Why transfer all the risk to a third party and open themselves up to MLB investigation? There is a chance the powers that be could deem that this agreement with Time Warner doesn’t fit within the parameters of their bankruptcy agreement and thus force the Dodgers to pay any additional revenue on top of the $84-million per year into the general fund. Yes, that would help the Indians significantly. We should all be rooting for that.
But, what if this agreement is deemed acceptable? Then what? Other than storming MLB headquarters with pitchforks and torches, there’s not much any of us can do.
This could be a potential death knell for the Indians and other small market teams. Competitive balance would be nothing more than a pipe dream. The Indians and other small market teams have proven they do not have the resources or fan bases to establish television networks capable of producing addition hundreds of millions of dollars in untaxed (revenue sharing) revenue. Now the Dodgers have potentially put in place a 25 year agreement that, if agreed to by MLB, could skirt the revenue sharing guidelines put in place. And if it does? You can guarantee other large market teams won’t be far behind.
Can the Indians keep up in such an environment when large market teams are generating such massive revenues by taking advantage of loopholes? It’s doubtful.
In such an uncompetitive financial landscape, the Indians have to be smarter than their competition. They have to draft better, be ahead of the curve in player analysis, and even get a bit lucky. There’s also the well proven fact that just because teams have money doesn’t mean they’re going to spend wisely. Unfortunately, having money means you can pay to cover up mistakes, something not afforded to the likes of the Indians, Royals, Pirates and the like.
Major League Baseball can preach all about how they want competitive balance and a game in which any of its 30 teams can compete for a World Series title. They can claim that this is the golden age of the game and that the product has never been better. Let’s just hope they realize if they allow the rich to get richer yet again, baseball’s golden era may very well give way to baseball’s great depression.