MLB 2023: the Year The RSNs Broke

Everything else
1

Hey we need an MLB 2023 thread with pitchers and catchers reporting in a few weeks…and the WBC…

…and also a big huge headache that’s looming this season for MLB that seems VERY under-reported given the potential for it to change the way baseball does business. Yes, it’s the collapse of Regional Sports Networks as we’ve (maybe) known them.

So let’s take a deep dive there.

Back in 2018 Disney agreed to acquire a BUNCH of FOX properties – the movie studio and its properties, its television program production company, and random networks (FX, FXX, and international cable/streaming/satellite stations in Europe, Asia, and Africa).

One other thing Disney got in the deal were the Fox Sports regional networks, like FoxSports Ohio or FoxSports Midwest, etc. The plan that Big Mouse had was to spin these RSN (“Regional Sports Networks”) into some kind of ESPN branding, since Disney already owns that network. A federal judge overseeing the purchase didn’t see it that way, and made the sale of FOX assets to Disney contingent on Disney selling the 22 FOX Sports RSNs within 90 days of the close of sale.

Which, Disney found a sucker sitting at the poker table in the form of Sinclair Broadcasting (everyone’s favorite purveyor of local TV news coverage), who paid $10.2 billion for the package of RSNs. Sinclair then got Ballys to sign on as a name sponsor and rebranded all the old Fox Sports regional networks as Bally Sports. (One popular misconception is that Bally’s owns these RSNs. They do not own them any more than PNC bank owns the ballpark in Pittsburgh, or AB InBev owns the ballpark in St. Louis. They ponied up a few million to be a title sponsor and not much else.)

Sinclair also inherited all the rights contracts for MLB, NBA and NHL teams that each of the RSNs held. Which is kind of the crux of the issue right now. And it’s an issue for the affected NBA and NHL teams too, for sure. But the big money contracts are with about 14 MLB teams:

Arizona Diamondbacks
Atlanta Braves
Cincinnati Reds
Cleveland Guardians
Detroit Tigers
Kansas City Royals
Los Angeles Angels
Miami Marlins
Milwaukee Brewers
Minnesota Twins
San Diego Padres
St. Louis Cardinals
Tampa Bay Rays
Texas Rangers

When Sinclair bought the RSNs for those teams, it didn’t take long for them to realize the mistake they’d made. Big providers like Youtube TV, Hulu TV, Dish, and others ended up dropping those RSNs completely. Carriage fees started to free-fall, as did the money the RSNs could ask in advertising dollars.

And so Sinclair spun off their RSNs as a subsidiary to be called Diamond Sports Group, and took a one time writedown of about $4.2 billion on their poorly considered purchase.

So OK, Diamond Sports Group (“DSG”) owns all those Regional Sports Networks. Cool cool cool. One problem: Diamond Sports Group as I type this is on the verge of bankruptcy.

And what that means…no one’s super completely sure about. For a while it looked like MLB might step in and purchase DSG for $3b. But then right before Christmas that deal fell apart.

And so now it appears that DSG likely will go completely belly-up sometime by the middle of the year if no one else rides in to buy them. And then it gets really tricky and painful for all involved.

Because first up are rights contracts between DSG and those various MLB teams. They owe about $600 million between now and 2030 to the Texas Rangers. They owe nearly $720 million to the Padres between now and 2032. They owe about $650 million each to the Royals and Cardinals to 2032 and 2035 respectively. There’s about a billion left in their contract for rights to the LA Angels.

And while MLB teams have a nice contract with FOX and with ESPN, those are absolutely nontrivial revenue streams. And they’re about to be completely voided when DSG goes belly-up. And they’re not going to be the only ones affected, either. By all accounts, the RSN model is failing across the board. NESN, YES Network, MASN…they’re all taking on water faster than they can bail.

So here we are. MLB is going to have about 3-10 months to figure out how to replace RSNs, and how to replace that revenue stream. And that’s also going to involve fixing the league’s stupid blackout rules for local broadcasts, among a plethora of other issues.

So yeah. Buckle up.

2

One piece I’m missing: why did all those providers decide to drop those networks?

Out here, Root Sports has both Mariners and Kraken. They do a hell of a job, so I hope they are doing alright.

3

I never thought anything could screw up the situation with the Nationals and MASN more than it already is screwed up, but I guess I was wrong.

4

Carriage fees. And with lower subscriber counts, ad revenue goes down. And very dumb blackout rules that essentially hamstring creating a full-on streaming network service for all games.

If you are an RSN of any flavor, you are not doing great. There are different levels of unhealthy financials, but I haven’t heard anyone – including the biggies like YES or NESN say any different about their long term prospects. What exists now isn’t sustainable.

The most likely path forward that I’ve seen is scrapping blackout restrictions, and MLB creates its own subscription streaming service for all 30 teams. But I have no idea how long it would take to get something like that up and fully running – but the infrastructure for it is there.

5

Because of the fees they owe the teams, yes?

6

Yep.

For instance, the Braves contract with Bally Sports South or whatever it is will escalate from about $60m per year to $83m per year within the decade. The Padres contract will go up to $73m in a year or two. It’s already close to that.

All of it seemed sustainable prior to about 2017 or 2018 or so. Then the warning signs crept in, but hey, FOX owned everything so no worries. The Sinclair bought them, and (much as it delights me) Sinclair ain’t doing great right now.

The bankruptcy hearings will likely be crazy complicated, too. Sinclair spun off their RSN business as Diamond Sports Group, so when DSG goes belly-up, expect Sinclair to do a big “Not it” on that. But one of the reasons I’ve seen for the collapse of MLB potentially buying DSG is a renewed belief that creditors (of which MLB is one) feel like they’re likely to get a better deal in bankruptcy court than they would by buying the DSG outright.

7

Obviously, MLB wants their games televised. But I could certainly see them trying to use the situation to usurp more control or a bigger percentage.

Anyway, thank you for taking the time to run down the whole sequence of events.

8

I agree but I would also add on that they also trended to splintering out to have fewer sports aggregated on the channel too. When the Cubs were on Comcast/NBC Sports with the Bulls/White Sox/Blackhawks then it made a lot of sense as a channel. But when they split the Cubs off into The Marquee Network there’s just nothing other than 162 baseball games and then a trillion hours of the worst low value garbage. They were so confident that they would be able to demand huge carriage fees but the reality was that no one in Chicago wanted to watch 16 hours a day of Ryan Dempster being High School improv level unfunny. Couple that with the team being bad and there is just no plan B.

9

Hey, now; I’ve found RSNs also provide the amazing experience of random mediocre game replays from decades past, aging golf “pros” showing how to swing a club, AND an occasional low-stakes poker tournament if you’re lucky!

10

The Braves will likely be the big winners if the contracts get voided. They got ripped off by AOL over a decade ago with a horrid TV deal , and they’ve been trying to get out of it ever since.

If it’s voided, they’ll be able to renegotiate.

11

Turns out the Braves deal was terrible on the front end, but on the back end it’s one of the best TV deals in the league right now, especially when matched versus ratings.

The Braves may not be any kind of winner in this, and maybe got screwed over worse than anyone, because the big money years in their TV deal were the ones just coming up in the next 7 years of that contract. From the AJC back in 2021:

The Braves currently receive slightly more than $80 million per year from Sinclair Broadcast Group’s Bally Sports for local TV rights, but that will surpass $100 million in 2023 and approach $120 million in 2027, the final season of the Braves’ 20-year TV contract.

The problem with the Braves TV deal was that over the entire course of the contract, it was pretty meh. But once they got through the first 3-4 years, it escalates to make it super valuable.

12

The RSNs were basically MLB teams’ gold mine for the past 15-20 years. Can’t imagine any replacement is going to be as lucrative.

MLB Streaming is some of the best in the world; lots of companies teamed up with them, including HBO, because their tech is so good.

Wonder if Apple decides to jump in?

13

There may be some short term pain here for fans and teams but in the long term MLB being able to pick up the streaming rights and be a thoughtful steward is a good thing. And y’know, if we get to watch Sinclair circle the drain all the better.

I hope all those teams contracted with Sinclair are getting paid at the beginning of the season!

14

Two phrases that should never appear in the same sentence.

15

On MLB owning an RSN replacement, I feel really good about that now, at least from the fan’s perspective. They know that the single biggest issue right now that frustrates fans who’d potentially buy in on that for streaming is the blackout rules, and last week at the Cardinals annual winter warmup, their owner (who might be the most influential owner in the league on this – he has the commissioner’s ear) stressed that getting rid of “antiquated” (his word) blackout rules had to be the number one priority for where MLB goes from here.

16

I’ve also always thought that FOX’s ownership of the RSNs gave them leverage when negotiating carriage fees with Youtube TV, Hulu Live, Comcast, Charter, etc. Since FOX also owned that lucrative news network and assorted other channels (FX, FXX, FoxSports One, Big Ten Network, etc.) that it gave them a bargaining chip to play some hardball to keep their RSNs on every major provider.

Sinclair has no such leverage, really – especially with services that don’t specifically offer local TV, or if they do, don’t really have it as a front-and-center product inducement.

17

Comcast definitely cut back a bit after the pandemic, but them having Phils, Flyers and Sixers has definitely been better for them overall.

Lots of people don’t know, but a big part of Comcast’s growth came from acquiring all the sports team rights here in Philly by buying PRISM from Spectacor/Ed Snider, who basically created the channel to show Flyers home games locally and get direct payment for it.

All that stuff was the model for what is now the CSN family of sports networks.

No idea how this stuff would affect those contracts though.

18

The intention of those is really to protect the smaller market teams, right (see below)? But these days, the pie being sliced up has changed dramatically. My guess is that there will be some resistance from some long-standing owners, but if you convince them this will lead to more profit, they will come on board.

Regardless, I’d love to see it happen, so that the NFL would follow suit. I do see a possible problem, though I think it is easily solved. Home markets should continue to be a thing and you should be able to stream games inside your home market for free.

Actually, now that I think about it, blackout rules are to protect the broadcast networks. They need eyeballs to sell ads, just like those RSNs. They have also paid huge amounts of money for broadcast rights. So how do you keep the broadcast partners happy if removing blackout restrictions? Do they get to broadcast all their games nation-wide? Then they would need multiple channels to do that and we have gotten cable companies involved. Hmmm…

19

As an NBA fan who thinks blackouts are dumb af, I hunger for the death of the RSNs. NBA League Pass is far, far from perfect, but it going universal is far superior to the current dumbshit setup.

20

Since we have some Mariners fans here, what do you folks think of Aaron Goldsmith?

The Cardinals sadly need a new lead play by play guy, and apparently Goldsmith (who grew up a Cardinals fan, apparently) is one of the two finalists for the gig.