In December, nearly a year and a half after filing for bankruptcy, the Los Angeles Dodgers shelled out $147 million to Zack Greinke in a landmark deal – the second largest contract ever given to a pitcher. The move capped off a season in which the Dodgers new ownership group rescued the Boston Red Sox from the bloated contracts of Adrian Gonzalez, Carl Crawford and Josh Beckett and left the baseball world wondering if the balance of monetary power had shifted from the east to the west coast.
“Yankees West,” as some would call the spending spree, isn’t exactly reflective of a responsive ownership group willing to do whatever it takes to appease a fan base hungry for a winner. Rather, it is further proof that lucrative television contracts have given baseball owners the financial stability to spend like never before.
On Jan. 28, the Dodgers and Time Warner Cable announced they would launch a new regional sports network for the 2014 season.
Under the working name SportsNet LA, the agreement is worth a reported $7-8 billion over 20 years. The network will provide in-depth coverage of the Dodgers, mirroring the same regional sports network blueprint laid out by the New York Yankees, Boston Red Sox and New York Mets. The staggering figure is sure to catch the attention of the baseball world as television networks are now lining up to attract the biggest free agents in sports – Major League Baseball clubs.
If you follow the money trail it will lead you to Southern California. The Los Angeles Angels of Anaheim cashed in after their television contract expired in 2010 by signing a reported $3 billion contract with Fox Sports over the next 20 years. In the two years since signing the deal, the Angels managed to scoop up three of the biggest free agents on the market; sluggers Albert Pujols and Josh Hamilton for a combined $423 million and pitcher CJ Wilson for an additional $77.5 million.
The big spending isn’t limited to the city of angels. The Texas Rangers signed a similar deal with Fox Sports Southwest in 2010, which would make the club $3 billion over the course of a 20-year contract starting in 2015. The Rangers also filed for bankruptcy before a new ownership group, led by Hall of Famer Nolan Ryan, purchased the club. With the new television money, a team like the Rangers, once a basement dweller, now has the available assets to significantly increase payroll.
Before the Angels and Rangers signed their massive contracts, the clubs that owned stakes in their own networks had the clear advantage in producing television revenue. The Yankees, Red Sox, Mets and Baltimore Orioles (now shared with the Washington Nationals) were generally more profitable than other MLB clubs because they launched their own regional sports networks. The Mets and Red Sox reportedly take in more than $60 million per year from Sportsnet New York and New England Sports Network, respectively – more than double the amount most MLB clubs take in.
Based on the precedent set by the Rangers and Angels, a number of clubs in large markets, including the Philadelphia Phillies, Arizona Diamondbacks and Colorado Rockies, will cash in on their soon to be expiring television contracts. The Dodgers agreement with Time Warner Cable is the most lucrative contract of any regional sports network and clubs in major markets like New York and Boston will undoubtedly seek out increased revenue from cable providers.
But at what point will the television providers cut off the steady flow of new sports networks in favor of resisting increasing fees for subscribers?
In August, DirecTV added a $3 monthly surcharge to new customers in markets that have more than one regional sports network. That was just the beginning. According to reports from Multichannel News, DirecTV will expand the charge to existing customers in the spring. Verizon FiOS, a DirecTV competitor, also implemented similar a fee for regional sports networks in California, Texas and Florida and plans to expand the fee to the remaining states sometime in March.
What initially looked like an easy homerun for clubs looking to get into the regional sports network market might not be yielding the same financial rewards in the near future as rising costs for cable providers could lead to a more selective process. DirecTV has recently decided not to carry the PAC-12 conference affiliates and Comcast Sports Network Houston, a network venture between the Houston Astros and the Houston Rockets. The sports media market continues to flood as new college athletic conference deals, new MLB contracts and new sports television projects from Fox, NBC and CBS enter an already crowded landscape.
If the cable providers ultimately decide to push back, it might come at the cost of slowing down MLB’s soaring revenue stream. For the foreseeable future, “Yankees West” and the rest of the large-market clubs can spend away, knowing that their presence on the small screen is allowing their high-priced talent to make big plays.
*Ohio University student Steven Givarz contributed additional research on this story