The Dark Side Of Booming Local TV Deals.Warning: Spoiler! (Click to show)
Bud Selig has been giddy watching baseball teams attract bigger and bigger local television deals. More local TV revenue to a team means more money for the league to spread via revenue sharing and greater competitive balance. And Bug Selig sure loves competitive balance. On a recent visit to PNC Park, Major League Baseball’s commissioner told Pittsburgh Pirates broadcasters that he got “goosebumps” watching the Reds and Pirates square off in last year’s postseason.
But big local TV contracts aren’t all Skittles and puppies. Certainly not for fans who are forced to pay higher and higher cable and satellite TV bills to watch their home team. Nor for cable and satellite TV customers who don’t care about baseball but have to pay the higher prices as part of their bundled programming.
It turns out that big local TV contracts aren’t always good news for teams either. That has turned Selig’s mood quite sour.
When a regional sports network agrees to pay millions of dollars to an MLB team, that RSN has two principal ways to recoup that investment: (1) sell ads during the game broadcasts; (2) charge a carriage fee to the cable and satellite operators in the region who want to carry the RSN. But what happens when the cable and satellite companies balk at the carriage fees?
The San Diego Padres were the first to find out the answer to that question. When FoxSports San Diego launched before the 2012 season, the RSN was available in only 40% of the San Diego TV market because DISH, AT&T U-verse and Time Warner Cable hadn’t agreed the carriage fee FS San Diego sought to charge. DISH and AT&T came on board before the 2013 season, but TWC held out until this year.
The FS San Diego situation was irksome, but mostly to the Padres and their fans. It didn’t garner much attention from Selig or national baseball writers (although we covered the issue extensively) and it didn’t take long to resolve.
That hasn’t been the case in Houston. Comcast SportsNet Houston launched in October 2012 and, since then, has been seen only by Comcast cable customers. The new RSN – a joint venture among the Houston Astros, Houston Rockets and Comcast Sports Group — couldn’t come to agreement on carriage fees with any other cable or satellite company in the region. With the RSN bleeding cash, Comcast forced the venture into bankruptcy court last September, where the parties have been fighting ever since. Astros owner Jim Crane also sued Comcast and former team owner Drayton McLane for fraud in the sale of the team. That did not make Bud Selig happy at all.
The bankruptcy process has dragged on, as they often do. The Astros and Rockets have worked feverishly to find a new broadcast partner to buy out Comcast’s interest, and there was news yesterday that such a deal could be close. When and if a deal gets done, though, the Astros will have played at least two seasons with little in the way of TV revenue and without anyone watching their games on TV. Sure, the Astros haven’t had much of a product worth watching the last few years, but their ratings are clearly a reflection of how few Houstonians have access to the games.
That brings us to the Los Angeles Dodgers. As I explained before the season started:
SportsNet LA launched in February with around-the-clock Dodgers programming, but only customers with TWC or Bright House can view the network in their homes.Every other cable and satellite operator in the Los Angeles market has balked at the network’s carriage fee demand. And TWC hardly counts as an arms-length agreement, as it is the Dodgers’ broadcast partner in SportsNet LA. Indeed, TWC will essentially pay itself the carriage fee for SportsNet LA, and then pay the Dodgers their monthly rights fee as part of the 25-year, $8.3 billion megadeal.
No deal’s been reached. A vast majority of Dodgers fans in LA missed Josh Beckett’s no-hitter, Clayton Kershaw’s no-hitter and every Yasiel Puig bat flip — unless they watched with a friend or at a bar with TWC. Even Vin Scully is without Dodgers’ broadcasts when he’s at home during the team’s long road trips.
Now members of Congress and the Federal Communications Commission have stepped in and urged the parties to reach a deal as quickly as possible. A local congressman suggested TWC and DirecTV agree to binding arbitration on the outstanding issues: the carriage fee; length of contract; and whether SportsNetLA would be bundled to every customer, or offered a la carte. TWC is prepared to take the dispute to arbitration and Bud Selig recently chimed in with his support for that plan.
MLB statement regarding the Los Angeles Dodgers: pic.twitter.com/UlPxpEPZDT
— MLB Public Relations (@MLB_PR) July 29, 2014
DirecTV hasn’t budged and sports media experts don’t expect that it will. Which means the team in the second-largest TV market in the country, with the largest player payroll in the league, won’t be seen by its local fans as it battles for the National League West title. Bud Selig isn’t happy.
When it comes to Selig, though, these carriage fee disputes pale in comparison to fight between the Washington Nationals and the Baltimore Orioles over the money flowing into the Mid-Atlantic Sports Network. I explained the origins of the dispute in a November 2012 post:
[MASN] was created as part of the deal that moved the Expos from Montreal to Washington, D.C. to become the Nationals. Orioles owner Peter Angelos opposed the move as an encroachment on the Orioles’ exclusive broadcast and commercial region. [This is different from the dispute between the Giants and the A's over the territorial rights to San Jose and Santa Clara County.] As part of the negotiated settlement between MLB (which then owned the Expos) and Angelos, MASN was created with the Orioles to own 90 percent and the Nationals to own ten percent. The deal also called for the Nationals to be paid $20 million/year in broadcast rights, although that figure would increase by $1 million every season. In 2011, MASN reportedly paid the Nationals $29 million in broadcast fees and $7 million for its now 13 percent share of the network.
The MASN agreement also includes a re-set provision by which the Nationals can re-negotiate the broadcast fee structure every five years. Early in 2012, the Nationals proposed that MASN pay between $100 million and $120 million per year in broadcast fees. The Orioles countered at $34 million per year. The two sides have been in protracted negotiations ever since. Commissioner Selig asked representatives from the Pirates, Rays, and Mets to mediate the dispute. A resolution was expected over the summer but never materialized and the parties reportedly remain far apart.
No resolution came and parties remained far apart, through 2013 and the first half of 2014.
On Wednesday, The Hollywood Reporter published detailed of a secret arbitration overseen by the representatives of the Pirates, Rays and Mets which ruled in favor of the Nationals at the end of June. That sent the Orioles to court in New York in an effort to undo the arbitration. The Nationals countered with their own suit to confirm the decision. Both cases were filed under seal.
Selig was furious.
According to The Hollywood Reporter, Selig sent a letter to the Nationals and the Orioles that included this passage:
“Both the Orioles and the Nationals have at various times made threats to institute litigation in connection with this dispute, despite my office’s extended, good-faith efforts to have this matter resolved by agreement. On a personal note, I owned a Club for decades and I can honestly say that under no circumstances would I have threatened, let alone commenced, litigation against Baseball. Please be advised that nothing in the Agreement authorizes the parties to file any lawsuit. … I want there to be no doubt that, if any party initiates any lawsuit, or fails to act in strict compliance with the procedures set forth in the Agreement concerning the [Revenue Sharing Definitions Committee of Major League Baseball]‘s decision, I will not hesitate to impose the strongest sanctions available to me under the Major League Constitution.”
No matter. Attorneys for the two teams and MASN have continued to launch attacks and counter-attacks. The Orioles think the MLB-sponsored panel was predisposed to rule for the Nationals because the league stands to gain financially the more the Nationals receive as a rights fee. For their part, the Nationals have threatened to terminate MASN’s license to broadcast their games if the panel’s ruling isn’t confirmed.
The MASN mess may shed some light on Selig’s unwillingness to make a final decision on the Oakland Athletics’ proposal to move to San Jose. He may fear that any resolution of the territory dispute between the A’s and the San Francisco Giants that involves the A’s compensating the Giants could lead to in-fighting for years down the road.
All these TV deal disputes bring to mind the adage “Be careful what you wish for.”
Red Sox Old Front Office Trades for Red Sox Player.Warning: Spoiler! (Click to show)
One of the nice things about having InstaGraphs is that there are some transactions that are maybe worth mentioning in passing, but probably aren’t worth full length write-ups. Now that we have a section dedicated to shorter, quick-hit type pieces, we can justify writing about things like the Cubs trading for Felix Doubront.
On the one hand, there are some things to like about Felix Doubront. He’s 26, left-handed, and has a career FIP- and xFIP- of 103, which are essentially league average for a starting pitcher. He’s also under team control through 2017, so unlike a lot of guys getting moved today, he’s not going to be a free agent for a while.
Of course, there are a lot of things to not like about Doubront as well. His career ERA- is 116, as he’s never been able to get his results to match his peripherals. And even those underlying numbers have gone the wrong way this year, as both his K% and GB% have gotten much worse. His 2014 xFIP- is 127, so for the last 60 innings or so, Doubront has been basically a replacement level arm. And while he’s under control for three more years, those are his arbitration years, so he’s going to cost some really money, especially if the Red Sox figure out how to him.
In some ways, Doubront is not that different from what Jake Arrieta was when the Cubs got him from the Orioles last year. The Cubs struck gold with Arrieta, and it’s understandable that they’d want to take another shot at grabbing a young pitcher from the scrap heap and seeing if they can turn him into something useful.
It probably doesn’t hurt that Theo Epstein, Jed Hoyer, and Jason McLeod were all part of the Red Sox when Doubront was acquired and developed, so they all saw him as the promising young pitcher he once looked like, rather than the going-the-wrong-way guy headed for a non-tender this off-season.
Not every Jake Arrieta works out, though, and Doubront probably won’t. For every 10 of these guys you throw at a wall, maybe one or two stick. But if you’re the Cubs, there’s little harm in trying.
On the Report of the Phillies Asking Price for Cole Hamels.Warning: Spoiler! (Click to show)
With the trade deadline 48 hours away, the Phillies have apparently made Cole Hamels available in trade talks. This is good news for Phillies fans, as Hamels will likely never have more value than he does right now. However, if Bob Nightengale’s sources are correct, the Phillies asking price for Hamels is insane.
Yet, according to one-ranking official directly involved with the talks, the Los Angeles Dodgers recently asked for Hamels. They were told the price would be three of their top prospects – center fielder Joc Pederson, shortstop Corey Seager and left-handed pitcher Julio Urias.
On their midseason Top 50, Baseball America ranked Urias as the #13 prospect in baseball, with Seager at #16 and Pederson at #18. MLB.com had them in the same basic area, with Seager at #17, Urias at #18, and Pederson at #19. Here, Marc Hulet had Seager at #6, Pederson at #18, and Urias as having “just missed” the top 25.
Needless to say, the consensus is that these are three of the ~20 or so best prospects in baseball. As Jeff Sullivan wrote yesterday, the more recent estimates of the value of prospects in this range is something like $30 to $40 million. Each. In other words, if all three were made free agents tomorrow, the estimates are that teams would spend something in that range to sign those guys, and when you look at what the unrestricted international free agents have signed for lately — $42 million for Yasiel Puig and Hyun-Jin Ryu, $68 million for Jose Abreu, $30 million for Aroldis Chapman — there’s plenty of evidence to support the claims, and they might even be on the low side.
But, just for fun, let’s say that each of the Dodgers’ prospects is worth something like $30 million. To receive all three, the Phillies would have to give up about $90 million in surplus value. As I noted in last week’s piece, Hamels has about $5 million in surplus value in his future contract, not counting the remainder of his 2014 production. Even if you get very aggressive with the value of a win down the stretch, you probably can’t justify more than $15 or $20 million in 2014 value for Hamels.
But, hey, let’s give him $20 million in surplus value for the rest of the year, just for fun. Wins are insanely valuable to contenders right now, and teams pay premiums to add pitching this time of year. And a team acquiring him should expect to get to the postseason, so they’re not just paying for the 11 or 12 regular season starts he has left, but that additional postseason boost as well.
But even with that accounted for, Hamels total surplus value still doesn’t even match up to the conservative estimate of the surplus value of one of the three Dodgers prospects.
To ask for all three and not think they are going to get laughed at, the Phillies would have to be selling a genetic clone of Mike Trout or something. The Phillies would do well to land one top 20 prospect for Hamels. Demanding three of them is just being ridiculous.
Nelson Cruz and HR/LD%.Warning: Spoiler! (Click to show)
Last Friday night, Nelson Cruz faced off against Felix Hernandez, and in the second inning this happened to a baseball:
According to the ESPN Home Run Tracker, the dinger had an apex of 41 feet. Apex is defined as “the highest point reached by the ball in flight above field level.” By the numbers, Cruz’s homer stands as the lowest homer of the 2014 season, that wasn’t of the inside-the-park variety. The last time there was a lower home run: June 25, 2011, when Carlos Peguero hit a homer with a 39-foot apex. Also, on May 16 of that same year, Peguero hit another homer with a 39-foot apex.
Technically, according to his FanGraphs player page, Cruz this year has 29 homers and 131 fly balls. Hence, he has a HR/FB of 22.1%. But some home runs are different from others, and this was an absolute, hands-down line drive. The difference that makes with regard to our understanding of Cruz, Hernandez, and the sport: not anything at all. But, holy crap, Nelson Cruz.