Why it makes dollars, and sense, for MLB teams to bank on regional TV deals these days

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Two years ago, Dodgers outfielder Matt Kemp looked sharp in high-end fitted Lacoste Polo shirts, Armani sweat pants and Ray-Bans for a splashy GQ fashion spread.

This spring, he put on his serious face. Sporting a black power suit, Kemp is on the cover of Forbes magazine under the headline: “The New Moneyball.”

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The reason: Because the Dodgers are about to land one of the most lucrative regional TV sports rights deals in baseball history, the team’s clean-up hitter has rightfully cleaned up with contract recently extended to eight years and $160 million.

Yes, even with a team that was in bankruptcy court. And the Dodgers think they got a bargain.

Once upon a time, the simple act of building a new stadium gave Major League Baseball teams an influx of new money to improve their roster budgets and raise the hopes of the local fan base. The Miami Marlins see that happening this year, and the Oakland Athletics are trying to do the same.

But more and more these days, it’s all about staying in the ballpark for a new gynormous regional TV rights deal.

“Stadiums are part of the equation, but media rights have a greater portion of the space right now — this is the golden age of regional sports networks and of the media,” said Chris Bevilacqua, the head of his own New York-based company that invests and advises on media rights deals.

As the former chairman and CEO of Creative Artist Agency’s Sports Media Ventures, Bevilacqua was involved in constructing the Fox TV deals for the Texas Rangers and San Diego Padres, the Pac-12 Conference’s Fox/ESPN package, and, nine years ago, founded College Sports TV, now known as CBS Sports Network.

“There’s about $250 billion of infrastructure with this enormous store that has been built and that people shop in every day, and they need quality products on the shelves, and quality content.

“If you’re a sports rights holder today, every day is like Christmas. You have gigantic media companies making massive investments in all the different ways to consume the media, and there’s baseball, with 150 live local events every year – twice as many as the NBA or NHL have – sitting in a very enviable position.”


While some still can’t get their head around the Dodgers’ $2.15 billion winning bid by the Magic Johnson-led Guggenheim Baseball Partners LLC, they know there’ll be TV money down the road to make things seem less crazy in the big picture.

As soon as 2014, Guggenheim will either have a renegotiated deal with Fox Sports’ Prime Ticket or a new, improved offer from Time Warner Cable that can soften the sticker price of the team purchase tremendously.

“Live local sports is fundamentally the glue holding the pay TV business together, so that’s why the entrenched media companies have to battle it out to keep sports inside the pay TV ecosystem,” said Bevilacqua. “So as a result, RSN values and local sports rights are accelerating. You’re now just seeing the end result with the Dodgers, or Rangers, or Yankees, commanding more and more value.”

Some are already guessing that the Dodgers could see a $4 billion, or even $5 billion, deal in place soon, much on the level as Time Warner has committed to the Lakers starting this fall in a 20-year deal.

Those numbers will almost triple the average of about $38 million a year that the Dodgers generate currently from their current Prime Ticket deal, which expires after 2013.

Multi-billion-dollar regional TV deals can go a long way toward success.

It’s what allowed the Angels to lure Albert Pujols from St. Louis to Anaheim this past offseason. Fox Sports West, fearing the Angels might leave, created a 17-year, $2.5 billion deal to keep them grounded. That’s similar to the package it had ready for Frank McCourt to take and retain hold of the Dodgers before MLB commission Bud Selig squashed it. McCourt would have also reportedly owned a 35 percent share of Prime Ticket in that deal.

A new $3 billion equity stake with Fox Sports Southwest gave the Texas Rangers some flexibility in forking out $100 million for Japanese pitcher Yu Darvish.

The Houston Astros and San Diego Padres aren’t necessarily in major markets, but new rights deals they’ve become part of will provide them dividends soon. The Astros have a 45 percent share of a new regional sports network co-owned by Comcast and the NBA’s Rockets that will start in 2013.The Padres’ yet-to-be-approved $1.4 billion deal with the just-created Fox Sports San Diego got the team away from Cox Cable and created a new model for income.

But none of this is any secret formula.

Printing money with their 10-year-old YES Network deal, the Yankees can afford to pay Alex Rodriguez ($32 million), Derek Jeter ($25 million), CC Sabathia ($24 million) and Mark Teixera ($22.8 million). YES and the Yankees are worth about $1.8 billion today, nearly triple the value of when it launched in 2002, according to Forbes.

The rival Boston Red Sox, with an 80 percent stake in NESN, pushed their team value to the $1 billion stratosphere. SNY has also remained a primary source of income of the now struggling New York Mets, valued at $719 million.

Local TV deals don’t have to be shared like national TV deals with Fox and ESPN do. That’s how, with this format, teams in larger markets will always prosper.

The Dodgers and Angels continue to have talks over the years about launching their own TV channels. But these days, partnering with an existing regional network seems to be more practical as both parties share in the risk and rewards of the venture.

In the coming years, the Arizona Diamondback and Detroit Tigers are well positioned for increased TV funding. The Philadelphia Phillies, who will pay Cliff Lee and Ryan Howard about $21 million each this season, could be the next wave of even bigger spending, knowing their deal with Comcast SportsNet comes due in 2015, and local TV ratings have been steadily increasing the last nine years.

At that point, can the Dodgers, presumably entrenched in a long-term TV deal, do anything to combat it?

Right about then, Kemp will be up for a new contract, ready to spice up his wardrobe.

That’ll probably be just about the right time to start talking about a new downtown Dodger Stadium.

THE HOTTEST NEW REGIONAL TV DEALS:

Dodgers: Their contract with Prime Ticket ends after 2013, but negotiations will begin this November on whether to renew the deal or then listen to offers presented by Time Warner. If they receive anywhere close to the 17-year, $3 billion deal that Prime once offered Frank McCourt, the Guggenheim Baseball Partnership LLC might consider the benefits of having their own vision of a DodgerVision network.

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Angels: Fox Sports West’s 17-year, $2.5 billion extension included a 25 percent equity stake for owner Arte Moreno, starting in 2013, giving him an average of nearly $100 million a year of non-shared income – matching what the Dodgers hope to be receiving. Read more about Moreno’s new image as the “nicer Steinbrenner” in the April 1 edition of GQ (linked here).

Texas Rangers: Fox Sports Southwest gave Nolan Ryan’s new ownership group a 10 percent stake and about $80 million a season in fees for 20 years starting in 2015.

Houston Astros: New owner Jim Crane bought the team for $610 million last November, but with it came nearly half ownership of the new Comcast regional network that will start doing games in 2013.

San Diego Padres: The new Fox Sports San Diego channel, which will pick up a lot of programming from L.A.’s Prime Ticket (minus the Dodgers), provided a $1.4 billion influx for 20 years, beginning this summer. That’s an average of $50 million a year with a 20 percent share, boosting the value of the franchise to $458 million, according to Forbes.

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