Comcast will broadcast Philadelphia Phillies games for the next 27 years at a cost exceeding $2.5 billion, according to reports late last week. The Phillies’ prior deal with Comcast SportNet is set to expire after the 2015 season. The new deal will start in 2016 and run for 25 years.
According to reports, Comcast will pay the Phillies $2.5 billion over the course of 25 years for the broadcast rights, plus turn over a percentage of advertising revenue earned during game broadcasts. The Phillies also will receive a 25% equity stake in Comcast SportsNet Philadelphia, Comcast’s regional sports network in the Philadelphia area. The yearly cash payments will start at a figure below $100 million and increase 3% to 4% each year.
The structure of the Phillies’ new deal is most like the one the Los Angeles Angels inked with Fox Sports West before the 2012 season. Under that deal, FSW will pay the Angels in the neighborhood of $3 billion over 20 years for the right to broadcast Angels games. The team also received a 25% equity stake in the regional sports network.
The similarity between the Angels’ and Phillies’ TV deals is interesting, for several reasons. Philadelphia is the fourth-largest television market in the country, behind only New York, Los Angeles and Chicago. Even so, Los Angeles has nearly the double the TV-viewing households, as compared to Philadelphia (5,665,780 vs. 2,963,500).
But the Angels have logged some of the lowest TV ratings in Major League Baseball in the past five seasons. In 2009, the Angels pulled a 1.2 rating for their games, the equivalent of 66,000 households. The figure remained unchanged in the 2010 season and dropped to 1.14 in 2011. In 2012, the first season under the new deal with Fox Sports West — and the first with Albert Pujols in the lineup — the ratings dropped further, to 1.12. The Phillies, on the other hand, were television gold — at least until last season. In 2011, the Phillies captured a 9.0 TV rating, an average of 276,000 households per game, second only the New York Yankees. But the Phillies’ struggles on the field in 2013 brought those ratings back to earth. The team’s TV ratings plummeted 39% from the 2012 season average. Other big market teams like the Yankees, Mets, Cubs and White Sox also saw their local TV ratings drop significantly.
Comcast may be betting on the Phillies to improve their play on the field, and thus their ratings, but they’ve hedged their bet. As compared to the Angels, the Phillies will receive a lower guaranteed cash payment, on average, but have the benefit of a bigger upside with the slice of the advertising revenue pie. If TV ratings improve, ad rates will go up. When ad rates go up, there’s more ad revenue to share between Comcast and the Phillies.
The biggest financial benefit for the Phillies in the deal may turn out to be the team’s 25% equity stake in Comcast SportsNet Philadelphia. CSN Philly launched in 1997 and is the oldest of Comcast’s regional sports networks. The network is home not only to the Phillies, but also the NBA’s Philadelphia 76ers, the NHL’s Philadelphia Flyers and MLS’s Philadelphia Union, as well as several college basketball conferences. In other words, the network has year-round sports programming and is on solid financial footing.
Not only that, but the Phillies pocket all of the financial gain from their equity stake. The annual rights fee and the percentage of ad revenue are subject to MLB’s revenue sharing. The financial benefits from the equity stake in CSN Philly are not. That’s one reason I’m a bit more sanguine about the new deal for the Phillies than David Murphy of the Philadelphia Daily News. In a post published on Monday, Murphy estimated how much the Phillies are likely to receive each year, in real dollars, over the life of the contract, and how much they are likely to keep, assuming the league maintains the 34% revenue sharing formula. By Murphy’s calculations, the Phillies will keep only $1.65 billion over the course of the 25-year contract.
The Phillies now have a local TV contract on par with other MLB teams in big-city markets like the Angels, Rangers and Giants, as you can see from this chart I compiled last July. But those deals were negotiated several years ago, when the sports TV market appeared to have no ceiling. Now, RSNs must be concerned with recouping these long-term investments in an environment where cable and satellite operators are balking at paying the rates the RSNs want to charge to carry their network. In this post from last July, I explained the economic forces at work in creating the sports TV bubble and the factors that may result in a burst.
Indeed, there are reports that the new Dodgers-Time Warner Cable network is having trouble signing up cable and satellite operators. The new network, called SportsNetLA, is set to launch for the 2014 season. The deal reportedly is worth $8 billion over 25 years but you have to wonder whether the deal will last if TWC is left holding the bill for the carriage fees the pay-TV providers don’t want to pay.
The Phillies and Comcast may not have set a new standard for local sports TV deals, but they appear to have entered into a deal prepared to succeed in the changing economic landscape.
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