05/11/2012
The Money in Live Sports
I’ve been meaning to do a bit on money and sports after articles in USA TODAY by Bob Nightengale and Nick Summers of Newsweek going back a few months.
For example, in the offseason, the Los Angeles Angels shelled out $240 million for slugger Albert Pujols over ten years and handed pitcher C.J. Wilson $77 million. [Pujols then proceeded to wait over 100 at-bats before hitting his first home run on May 6.] The Detroit Tigers handed slugger Prince Fielder a nine-year, $214 million deal.
How can teams do this? Television deals, specifically of the regional variety that have sprung up over the years.
The Angels, for example, have a 20-year, $3 billion+ deal with Fox Sports West. The Texas Rangers, who shelled out $111 million for Japanese hurler Yu Darvish this past winter (including a $51 million fee for the right to negotiate with him paid to his Japanese team), have a deal with Fox Sports Southwest that also pays them about $3 billion over 20 years. $150 million a year enables a club to cover a few salaries, that’s for sure; including Darvish’s deal, a record for a Japanese import.
Back to the Detroit Tigers and Fielder’s contract, they receive $40 million a year from Fox Sports Detroit, which could triple when a new deal is worked out before 2018.
The Red Sox own 80% of New England Sports Network, while the Yankees own 30% of the YES Network, which reportedly has annual revenue of $450 million with 318,000 households watching Yankee games last year.
The San Diego Padres, despite being in just the 26th-largest television market for baseball, are getting $75 million a year for 20 years with Fox Sports.
The Dodgers, Phillies, Mariners, Diamondbacks, and Nationals all have deals expiring or with reopener clauses by 2015.
Baseball says the added revenue leads to more parity, and indeed all but six of the 30 teams have made the postseason since 2002, with nine different teams winning the last 11 World Series. Commissioner Bud Selig likes to say that when he purchased the Milwaukee Brewers in 1970, he received only $600,000 in television rights.
So it’s all about live content and Americans love their sports.
Which leads us to ESPN, the sports network founded in 1979 that today takes in revenue of $8.5 billion a year. ESPN is the principal cash spigot of the Walt Disney Co., which owns 80% of the cable network. And ESPN has been cutting deals all over the place to get its share of live content.
Like re-upping with the NFL by 70% to $1.9 billion per season through 2021. $15.2 billion for a separate Monday Night Football extension. $2.4 billion for baseball; $7.4 billion for college and professional basketball in a deal with TNT.
The ESPN empire (including ESPN2, ESPN News, ESPN Classic, ESPNU, the largest sports radio network in America and a website with 52 million unique users a month) also pioneered cable-subscriber fees, which now average $4.69 per household per month, according to SNL Kagan. This is projected to rise to $5.50 per subscriber in 2013. The next costliest national network, TNT, takes in just $1.16 from as many homes.
So ESPN has this dual revenue stream – ads plus surcharges – but here’s the thing. You are being charged the surcharge whether you watch sports or not. One competitor calls ESPN’s fees “a tax on every American household.” Tens of millions who never watch ESPN are charged anyway. You can see how the surcharge is nearing a whopping $70 a year and is destined to go higher still. That’s a lot of money for millions of us. And the regional sports networks, like all the Fox channels noted above, now have charges of their own generally ranging from $1.00 to $3.50.
There is bound to be a revolt against these added fees at some point but in the meantime, enjoy the games!
Wall Street History will return in two weeks.
Brian Trumbore
