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Daily coverage of the Mariners during the season and all year long.

February 7, 2012 at 10:39 AM

Looking at the future: a Mariners, NBA, NHL sports network?

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Plenty of buzz around the city about the possibility of an NHL and NBA team coming here within the next couple of years.
That potential arrival of two new sports franchises will also coincide with the Mariners getting their opt-out clause on their current TV deal with ROOT Sports in 2015. As we have seen in the past, you don’t just start negotiating such deals on Dec. 31, 2014. The groundwork will have to be laid well in advance.
So, what do the Mariners do? Well, first off, they aren’t about to tell you, silly. That much hasn’t changed.
But with the value of local media deals soaring in baseball, it’s fair to assume the Mariners will at least explore the possibility of forming their own regional sports network (RSN). After all, the teams in their own division have done just that with varying results and Seattle will have to try to keep up.
The Houston Astros, who join the AL West next year, went ahead and formed their own network with the NBA’s Houston Rockets. The value of that business was deemed so high that it enabled one of the worst on-field performers in baseball the past few years to be sold recently for $610 million. And remember, there was a $70 million discount on top of that because the Astros are moving to the AL.
So, one of the worst teams in all of sport is now valued in the market at close to $700 million.
Then, you have the Texas Rangers, who were in bankruptcy court when they sold for $593 million in 2010. The reason their price was that high was because the Rangers had looked in to forming their own RSN with the NBA’s Dallas Mavericks. Local RSN Fox Sports Southwest was so alarmed by that threat that they upped their rights fees and struck a deal with the Rangers that covers 20 years and will pay anywhere from $1.6 billion to $3 billion depending on which reports you believe. Not only that, but Fox Sports paid the Rangers a $180 million up-front fee, which is how they can now afford $100 million plus to bring over Yu Darvish from Japan.
We’ve already talked about the $3 billion package secured by Angels owner Arte Moreno that enabled him to sign Albert Pujols as well as buy up any small Caribbean island he wants.
So now, what happens with the Mariners?


Well, their TV future can go a multitude of ways. They can try to leverage a better deal from ROOT Sports, owned by DirecTV. This can be done by threatening to move over to Comcast.
It can also be done by threatening to form their own network, which would, in essence, create yet another player locally.
There are pros and cons to such a move, namely the infrastructure required to set such a network up. In Houston, the Astros partnered with Comcast to form their network and were given a 38 percent ownership stake, while the Rockets got 38 percent and Comcast 24 percent.
Owning a network is a major cash cow for any team. Even in Cleveland, with attendance half of what it was in the 1990s and the local economy suffering, the Indians have been able to significantly increase payroll because of help from the RSN that they own.
In MLB, teams are required to submit a portion of their local TV rights into a revenue sharing pile. When a team owns its own RSN (in essence, sells its broadcast rights to itself) the revenue-share media rights money is determined based on market size and what MLB considers to be fair market value.
But that’s it. So, if a team-owned RSN pulls in $200 million per year, but MLB has determined fair market value of a team’s media rights to be $50 million, the extra $150 million goes untouched.
Nice little game if you can get a piece of the action.
The value of any RSN is going to be determined by its live programming, namely because this is where the biggest advertising dollars come from. Advertisers know that sports teams have captive, devoted audiences who are unlikely to record games and view them later — thus allowing them to fast forward through the ads. Think about that for a minute. Back in the days of VCRs, I used to record sports events, tell my friends and family to shut up about the scores, then watch them when I had time while skimming through the endless commercials. Nowadays, keeping a score secret is almost impossible, given smart phones, the internet and the fact that everybody on the planet is connected somehow and can know what the other person is doing half a planet away within seconds.
So, live programming rules more than ever.
And until somebody figures out a way to skim through ads while watching live games, media rights should keep being valuable.
For one thing, cable TV companies are paying a fortune for these team rights in order to keep their subscriber base from defecting to the internet, where companies like HULU enable them to watch their favorite shows in HD quality.
So, in theory, the more teams you can lock up for your network, the more valuable it can potentially be because it increases your live programming. And the more professional teams you get, the better. Not everybody in Oregon and Idaho is going to be a Washington Huskies fan. But pro teams do tend to cross over state lines, which can help turn your local little network into a much bigger regional player.
And once that happens, it matters less that — according to MLB definitions — you might be playing in the 11th or 12th biggest media market in the country. Maybe the reality of your network stretches to such an expanded territory that you become a top-five player nationally while still being able to claim “mid-market” status in public.
Anyhow, I’m getting ahead of myself. Seattle doesn’t have a hockey or basketball team yet.
But if they do come, it will be fascinating to see what happens with the RSN market here.
Maybe the hockey and basketball teams strike their own network deal. After all, while lots of programming is great, a three-team network means one more team to split the profits with in the end. I don’t have access to numbers crunchers who can tell me whether it’s better for the M’s to go in with their potential new neighbors, or to avoid it.
But whether they do or they don’t, the market looks like it’s about to get more crowded. There could be a new three-team super player on the horizon, or just increased competition locally for the hearts and minds of networks and their viewers.
Competition is rarely a bad thing. Either way, the Mariners stand to make a whole lot more money in just a couple of years from their media rights. And they’ll need it, because beginning next season, three of their four division competitors will have already taken their media rights games to the next level.

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