Academic journal article Nine

The Impact of Baseball's New Television Contracts

Academic journal article Nine

The Impact of Baseball's New Television Contracts

Article excerpt

Major League Baseball (MLB) was first televised on August 26, 1939, in a game between the Brooklyn Dodgers and the Cincinnati Reds. By 1949, the World Series was on television, and two years later the first coast-to-coast live broadcast appeared. In the 1950s, television grew to dominate the airwaves. Team owners, collectively and individually, took advantage of this growth by negotiating agreements for the sale of television rights to broadcast companies. Over the years, television revenues have provided generous financial rewards to MLB. Sales of national television rights since 1950 are shown in Table 1.

Although annual revenues to MLB teams have increased significantly, the highest team revenues from national sports agreements are in the National Football League (NFL). The NFL'S seven-year agreement from 1998--2005 is for a total of $17.6 billion, or about $73 million annually per team. Unlike football, baseball also receives television revenues from local agreements. There is a considerable variation in local television monies, with teams like the New York Yankees far eclipsing teams in small markets like Minnesota. This puts certain small-market teams at a severe competitive disadvantage, a point examined later in this paper.

As shown in Table 1, the 1990--93 agreements nearly doubled revenues to baseball. The deal, however, turned out badly for the networks, as CBS lost about $500 million and ESPN about $150 million. These were the largest amounts ever lost by networks on sports contracts, and they resulted in new contracts in 1994--95 that reduced national television revenues by about half. In these new contracts, MLB formed a joint venture with NBC and ABC, called the Baseball Network, which required MLB to sell commercial slots to sponsors. Not only was MLB ill-equipped to carry out this function, but cancellation of games due to the 1994-95 strike added to the shortfall.

The 1996--2000 national television agreements put baseball back in the pink with a sizable increase in rights fees. Underpinning much of this rise was the entry of the Fox network into the bidding. Owned by News Corp.'s Rupert Murdoch, who later bought the Los Angeles Dodgers, Fox has helped revitalize baseball's returns from television.

FOX AGREEMENT

NBC and Fox were the two major networks involved in the 1996-2000 agreement. As incumbents, they were given an exclusive opportunity to bid for an extension. Major League Baseball's chief operating officer, Paul Beeston, and spokesperson Rich Levin initially proposed that fees be tripled. Because this was too inflated to be acceptable, the bidding was opened up to other networks, with CBS expressing some interest. Walt Disney's ABC was already involved through its 80 percent ownership of ESPN, which had cable rights that had yet to expire. Both CBS and NBC were concerned over disruption to their regular fall prime-time programming that would result from presentation of the playoffs and World Series. Also, CBS had a golf-heavy summer lineup, and NBC had several NASCAR auto races scheduled.

This left Fox as a leading candidate to get a large share of any deal. Through its Fox Sports Net and FX cable affiliates, the network was well-positioned to take advantage of the shift toward local and regional broadcasting and the showing of more games on cable. It has been a part of Fox's strategy since 1994 to use sports as a battering ram to establish its identity and credibility as a major network. (1)

In September 2000, MLB accepted Fox's offer of a $2.5 billion package over six years. The deal gives Fox exclusive rights to the playoffs and the World Series, plus eighteen Saturday afternoon telecasts each year, during which it can air four different games regionally at the same time. At approximately $419 million per year, the contract provides for about a 45 percent increase from the previous payment for the same package. (2)

The contract is not without risk for Fox. …

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