Major League Baseball's cable TV problem
Tuesday, 20 April 2010 23:12
BY EVAN WEINER
It is not very often that anything that comes out of talk radio is worth a follow up discussion but a rare nugget of information came out of the Colin Cowherd show on New York's WEPN on Monday morning.
Cowherd was in a discussion with ESPN baseball reporter Tim Kirkjian about the economics of Major League Baseball and how that the discrepancy between "haves" (the Yankees) and "have nots" (Kansas City, Baltimore, Cleveland) was widening. Kirkjian agreed with the host and said Major League Baseball is trying to increase revenue sharing between the "haves" and have nots" but Major League Baseball would never have a salary cap because of the players union.
But, Kirkjian assured Cowherd that the owners and players will address the issue during the negotiations for the next Collective Bargaining Agreement which will begin presumably sometime in 2011 as the existing players/owners accord ends in December 2011.
There are a number of owners, men who live and die in their "real" businesses as free market capitalists, who would like to see more revenue sharing or wealth redistribution from the big market teams (i.e. the Yankees) to the game's financially weaker franchises (the soon to be renamed Florida Marlins, Pittsburgh, Kansas City, Milwaukee and others) to level the financial playing field and allow teams like Cincinnati to bid on big ticket free agents.
The owners want more Major League Baseball socialism and that would start by forcing the Yankees franchise to pay an even larger percentage of "luxury" tax on the team's payroll than the Steinbrenner family does presently and those extra revenues would be sent to the most neediest in Major League Baseball.
Here is the rub with Major League Baseball financial parity plan. If baseball fans only were paying for a regional sports channel's bills like the YES Network or SNY, then Major League Baseball financial woes should be taken care of with baseball fans' money.
But, a lot of the dollars the Steinbrenner Yankees generate comes from people who have no interest in either the Yankees or Major League Baseball - about 95 percent of the subscribers - yet they have to pay for the channel anyway because of the 1984 Cable TV Act.
That leads to the following question.
Is it fair that cable money — which comes from non-interested subscribers from New Jersey, New York and Connecticut that should be going to the Yankees (and for that matter the Mets) and should stay in New Jersey, New York and Connecticut — ends up in the pocket of say the owners of the Florida Marlins, Kansas City Royals or the Baltimore Orioles?
The question of cable TV wealth distribution can be is easily answered.
In 1984, Congress passed the Cable TV Act, which was signed into law by President Ronald Reagan and assured the survival of ESPN, the Weather Channel, MTV, WTBS and CNN. Multiple System Operators (MSOs) were able to sign deals with cable networks and then bunch the networks together in a package and sell the package as one to cable subscribers.
Consumers had no say in what networks were thrown into the basic expanded tier but if they wanted a special channel, say CNN or CNN Headline News, they would also have to take ESPN, the Weather Channel and MTV. The legislation gave cable consumers three options. They could take the entire package, basic and basic expanded, just basic ... or quit cable.
ESPN would not be the business as it is today without federal government intervention.
Major League Baseball teams were slowly moving games to cable TV in the 1970s and by the 1980s, all sorts of regional sports networks were popping up nationally.
The Boston Red Sox became a more than just a New England franchise because of exposure on WSBK, Channel 38. The Mets and Yankees were also up on the "bird" as both teams were seen beyond the New York area on WOR and WPIX. The Chicago Cubs became a national team when the Cubs ownership, the Tribune Company, went national with WGN and Ted Turner had his Atlanta Braves on WTBS.
Those teams started pocketing extra revenue and MSOs snapped up the stations has the games brought more subscribers.
(Major League Baseball denied the sale of the Texas Rangers from Eddie Chiles to Edwin Gaylord in 1986 and in 1988 because Gaylord planned to put Rangers games on KTVT, Channel 11 because there were too many games on national cable TV with the Braves, Mets, Yankees, Red Sox and Cubs. Eventually Major League Baseball Commissioner Peter Ueberroth worked with George W. Bush and put together an ownership group that would buy the Rangers in 1989. Major League Baseball has never figured out how to deal with television.)
It was George Steinbrenner who changed the game when he signed a 12-year deal worth nearly $500 million with Charles Dolan's Madison Square Garden Network in 1988. Dolan's network went from about 2.3 million to 7.5 million subscribers thanks to the Yankees deal and gave MSG a summer's worth of programming. Steinbrenner was able to use that money to spend on players and player development.
That cable TV deal put the Steinbrenner Yankees into a different economic class than the rest of Major League Baseball and MLB officials have spent the better part of two decades trying to devise a scheme that would somehow penalize first George Steinbrenner and his partners and now the Steinbrenner family for being in the right place at the right time and agreeing to the MSG deal.
Steinbrenner's Yankees lived up to the MSG agreement and then the team decided it would be so much better to own a network than have a rights deal with MSG. The result was the YES Network and virtually every cable TV subscriber in the tri-state area is paying for the YES Network whether they watch it or not because the YES Network made it to the basic expanded tier. There was one holdout for a while – Charles Dolan's Cablevision – but eventually YES was added to Dolan's MSOs.
Steinbrenner was just following a path blazed by Gulf and Western, an owner of Madison Square Garden back in the early 1970s. Gulf and Western established a hybrid sports and entertainment channel, the MSG Network in the formative days of cable TV networks.
Dolan started SportsChannel after the MSG Network debuted. There were other networks as well. In Philadelphia, there was PRISM, also a sports-entertainment hybrid and an entity that gave the Philadelphia Phillies some additional money in 1979 to sign Pete Rose. The Z-Channel in Los Angeles also played around with a sports-entertainment format.
The cable TV-sports teams nexus slowly took shape in the mid 1980s with virtually all of the teams in Major League Baseball, the National Hockey League and the National Basketball hooking up with small cable networks that planned to grown expediently. In some cases that happened and in other cases, the regional cable TV network struggled and was swallowed up by another entity.
Steinbrenner's Yankees just cashed checks in the heavily populated New York City area while the owners of the Montreal Expos failed. The Steinbrenners, the Wilpon Mets and Arte Moreno's Los Angeles Angels of Anaheim are raking in cable TV cash.
Philadelphia, Boston and Seattle are doing quite well and neither of the Chicago teams is hurting financially from their cable TV deals. Kansas City, Cincinnati and Milwaukee are not sharing in the wealth.
In the next collective bargaining negotiations, the "have nots" will go after the Yankees' TV money and for those who are unaware of just where their cable TV fees go, it might be worth checking with their local municipalities and find out if there are any clauses in the municipality-MSO contract that addresses the issue of whether local subscribers be distributed in other areas.
Cowherd and Kirkjian never did tackle the cable TV revenue issue. Nobody ever does, nobody ever thinks about it in Major League Baseball because they are entitled to that money under United States laws. The negotiators probably have no idea why they get the cable TV money they just know it is there.
Major League Baseball wants "parity" which really means socialism where are the teams are on an even financial playing field. The small market teams have been after Yankees TV money for two decades and the only legitimate argument those teams have is that they are half the TV show and that you cannot have a game which has only one team.
It is understandable that those teams want to share stadium revenues from attendance but there is something wrong when the owners of the lesser revenue markets want Yankees cable TV money when that money is coming from people who are totally unaware that they cable TV fees are being sent to owners in a different area under the guise of revenue sharing. That money should stay in the metropolitan area.
Evan Weiner is an author, columnist, radio-TV commentator and lecturer on "The Politics of Sports Business" and can be reached at firstname.lastname@example.org