Monday, December 7, 2015

Why the Rays' Stadium Campaigning - and Stalling on TV Negotiations - May Cost Them Millions

The Tampa Bay Rays are going to make a lot of money when they finally renegotiate their television contract after next season

The team could have started enjoying some of those new revenues years ago had they just signed an extension with their television partners the same way they did with Evan Longoria.  But because a bundle of new money doesn't exactly help the their stadium campaign, the Rays have waited.

However, according to a fascinating read in The Daily Beast, if the Rays wait too long, they could cost themselves a lot of money.  An excerpt:
Your favorite sports team is massively overvalued right now. It’s not that you ought to be losing sleep over Jerry Jones’s or Mark Cuban’s finances—they were rich before and will be rich after. But the popping and cracking noises emanating from the key support beam in our Temple of Athletics—the TV sports business—foreshadow wild disruptions ahead for the world of sports.

Like the
barking dogs that sense an earth tremor before we do, ESPN’s annus horribilis is a harbinger of the Internet’s coming disintermediation of America’s half-trillion dollar sports industry. Just since mid-summer, the Disney-owned 800-pound linebacker of sports TV announced falling subscriber counts and weak ad revenues that led to a devastating media stock price rout. The network has elected to let some of its highest-profile talent go, has announced a round of significant rank-and-file layoffs, and then last month shuttered its prestigious sports journalism site.

Then, last week, ESPN’s SEC filing revealed a bombshell: The company had lost 7 million subscribers over the last two years.
The resulting fearsome sports arms race now is estimated by longtime cable TV and sports industry executive Leo Hindery to cost each cable household $35 to $40 per month. And, again, that’s whether those households watch sports or not.
The article then cites a stat you'll want to underline - according to a study of sports rights fees by accounting firm PWC, TV revenues will overtake game tickets as the largest source of revenue for sports franchises by 2018.
[T]hat sports bubble is about to pop.

The transparency, direct access, and choice that consumers have come to love in the “over-the-top” world of Netflix and Hulu is the mortal enemy of the cable industry.

There’s no easy fix for the networks. One possible solution for Disney—selling ESPN as a separate stand-alone or “over-the-top” service—holds potentially disastrous economics, with one Wall Street analyst suggesting that to maintain its current margins, ESPN alone would have to sell for more than $36 per month. That pricing would cause a death spiral for the network, if the survey data is accurate. The math simply doesn’t work.

Business, of course, only allows for mathematical impossibilities for so long before clunking the enterprise loudly to earth. So ESPN, the very nexus of celebrity sportscasters and athletes, the coolest network on the planet for true fans and the funder of franchise owner private jets across the nation, is in a budget-cutting frenzy. As are, rest assured, its competitors.
Every participant in the sports economy—franchise owners, athletes, programming networks, cable companies, and even the fans themselves—have benefitted from this broadband version of the hide-the-ball trick. That big fat $100 average household cable bill that everyone pays has served as a siphoning conduit of cash forcibly flowing from fan and uninterested non-fan alike.

The brazen economics of modern sports are being revealed and dismantled by the Internet, and the coming fumble-pile of desperate industry participants should make for some great viewing. That’ll be bad news for
$30 million-a-year over-the-hill third basemen, the greater fools who pay them, and the unknowingly subsidized superfans who love them.
If the Rays don't wind up getting the huge television deal they've been banking on, they'll have no one to blame but their own business office, which has chosen not to strike a new deal until the final year of their current deal.

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1 comment:

  1. I'm not surprised. Anyone could've seen this coming.. people are not going to continue to pay higher and higher prices for networks like ESPN.. ESPN killed itself by giving ridiculous money for MLB, NBA, NFL, etc..