What Does the Dodgers Lucrative TV Deal Mean?
Written by Brendan Gawlowski on November 26, 2012 @ 04:49AM      Jump To Comments

Getty Images A few weeks ago, I talked about the possibility that Andre Ethier could be a trade target for the Mariners. Ethier, you may remember, was a potential acquisition because the Dodgers were shopping him and his not insubstantial 5 year, $85 million contract. The gist was that, while the Dodgers were enjoying a money injection from Magic Johnson's purchase of the team and the promise of a lucrative television deal on the horizon, Ethier's contract wasn't cheap and that LA might move him in an attempt to re-distribute payroll. My assumption was that despite the Dodgers's newfound appetite for high salaried players, the team still operated within certain fiscal limits.

Bad assumption. The Dodgers were banking on a large TV payout and boy did they ever get it. The agreement had always promised to be one of baseball's largest (hell, even a panicking Frank McCourt nearly stumbled into a $3 billion pact), but I don't think anyone in LA's front office would have imagined Fox forking over $6-7 billion to broadcast Dodger games over the next twenty-five years. Needless to say, Ned Colletti can cease worrying about whether Ethier's deal is slightly over market value.

Jeff Passan of Yahoo Sports (who reported the story) calculated that if the deal is for $7 billion, Fox will be paying the Dodgers $1.73 million per regular season game over the next twenty-five years. To put that in perspective, the Braves (who get less revenue from TV money than any other team in baseball and are still locked into their agreement until the 2030's) will earn as much money from their deal in a season as the Dodgers will make in a typical homestand. Fox simply paid an absurd amount of money to broadcast Dodger games, an enormous infusion that could allow the franchise to surpass the Yankees as the sport's biggest spender. At least for now.

Before we get to how this affects the Mariners, let's back up a bit. Though the Dodgers now own baseball's priciest television agreement, they aren't the first club to receive an eyebrow-raising amount of money from a network. In 2011, the Rangers announced a deal worth $1.6 billion over 20 years. It was a contract that only the Yankees and Red Sox could top, and it was one that would have made them the financial kings of the division, had the LA Angels not swooped in for a $3 billion deal a year later. It isn't just the relatively big clubs that are cashing in either: Cincinnati's decision to pay Joey Votto $225 million is partially based on the expectation of a similar windfall when they negotiate their new television agreement. And even though the Mariners haven't impetuously lavished a mega contract on anyone yet, ownership is certainly looking toward the 2015 TV negotiations with greedy eyes.

The problem with these television deals is that they are perilously fragile arrangements. Essentially, regional sports networks (or RSN's, like Root, NESN, YES, etc.) are able to afford these massive contracts by charging cable distribution companies (Comcast, DirecTV, etc.) increasingly large amounts of money to broadcast games, a price ultimately subsidized by customers who find themselves paying more for their monthly cable. Occasionally, the cable companies decide that the games aren't worth the bill. Time Warner refused to carry San Diego games after the Padres tried to institute a 400% price increase over what they charged in 2011, and any Pac-12 fan with DirectTV knows all too well that the company basically made the same decision regarding the conference's new network.

The television arrangements work as long as situations like the Time Warner-Padres snafu remain anomalous. There is some reason to believe, however, that such instances may become the norm. As the price of cable rises, three things can happen, and two of them aren't good for MLB teams counting on television revenue streams.

In the dream scenario, customers (and keep in mind, this arrangement banks on subscription money from non-sports fans as well as die-hards) will continue to pay what they're charged ad infinitum, an endgame that allows teams to reasonably expect the RSN's to fulfill their financial obligations. I don't think I'm going out on a limb to suggest that, in a depressed economy and in a world with a plethora of on-screen entertainment options, this is a hazardous assumption.

In a more likely setting, cable customers increasingly become frustrated at the price of their TV bill and they slowly stop buying cable. Distribution outlets would then face two options: continue to lose customers or stop paying the RSN's. I'm far from a television expert, so I'll withhold from offering an opinion on which outcome is more likely. I think it goes without saying, however, that neither option is good for MLB teams.

It's the long run that's key here. None of this is likely to bubble over tomorrow. But these are twenty and twenty-five year deals we're talking about (contracts that, in some cases, won't even start for a few years) and there are reasons to believe that the media landscape will shift quite a bit over the life of these agreements. Beyond rising cable costs, increasingly sophisticated streaming technology (and the popularity of such feeds) could further erode the value of the agreements between teams and RSN's. There's a legitimate possibility that the real value of these television contracts tanks in the next ten years, at which point several RSN's would be left with a bill they can't possibly afford to pay.

These are important issues to consider when we talk about the impact that television deals will have on Seattle. In an effort to succinctly answer the broad question of 'how does the Dodger deal, and how do TV contracts in general, affect the Mariners?' I've broken it down into three component inquiries:

1. The Dodgers's TV deal is significantly higher than what most clubs, and particularly small market teams, can ever expect to receive. How does their contract (and other large deals from more direct competitors, like the Angels) affect Seattle's ability to compete?

The Mariners aren't a small market team, so they're not in a situation as desperate as, say, San Diego. (The poor Padres might be Tampa Bay West, trying to win against a team with more expensive players at every position around the diamond.) But as long as the stream from these deals keeps trickling in for large market clubs, the Mariners will obviously have a significant financial disadvantage. The playoffs remain a crapshoot, so once there, those advantages for big clubs are somewhat nullified.

But teams like the Dodgers, should they spend their money wisely, will greatly benefit from their expensive deals throughout the regular season. Beyond perpetual contention, which this kind of money basically ensures, these clubs should also receive additional financial and competitive benefits that come from winning 90+ games annually, further gulfing them from the rest of the league.

2. What will the Mariners TV contract look like in 2015?

It's really hard to say. Five years ago, the Angels's $3 billion agreement would have sounded absurd. The Mariners might receive a similarly outlandish deal or they might find that they came to the table after cable companies and RSN's seriously altered their business model. It's safe to say that it will greatly exceed the current 10 year, $450 million deal. Other teams around the league will soon enjoy similar arrangements though, so I think the contract will be more about keeping up with the Jones's than providing any kind of lasting competitive advantage.

3. You just spent five paragraphs warning about the dangers of these TV agreements. How should the Mariners exercise caution?

The important thing to avoid is overspending money that isn't here yet. Basically, I would advocate avoiding a Votto situation.

The Reds took a major gamble on the Votto extension. They're banking that they'll get a big TV deal and that the RSN offering the money will be able to pay throughout the life of the contract. They didn't exactly hedge on their assumption either. Even if the Reds, a team in one of baseball's smallest markets (the metro area populations of Dallas-Fort Worth and Los Angeles blow Cincinnati's out of the water), gets a $1 billion deal, they've already spent a huge chunk of that on one player. No, cable won't be their only revenue source, but they've already curtailed their financial flexibility years into the future, and without a guaranteed dollar amount from one of their most important pipelines.

If the Mariners want to avoid financially hamstringing themselves, it's imperative to smartly manage the cable money. They shouldn't assume that they'll reap the benefits of a massive deal until the agreement is signed. And once they have the deal, I think they'd be wise to avoid frontloading player contracts on the assumption that the back half of a twenty-five year TV arrangement will still be paying dividends.