With every major league relying heavily on broadcasting rights, two developments indicate some hiccups in that economy, with ESPN layoffs and huge losses at the 21 Sinclair Broadcasting regional sports networks (RSNs).
ESPN controls national rights for MLB, the NFL and the NBA. The 21 RSNs are heavily invested in MLB, NHL and NBA local rights. In addition, Sinclair is involved with YES Network (in partnership with the New York Yankees and Amazon) and Marquee Network (in partnership with the Chicago Cubs) under the Diamond Sports Group LLCs.
Yesterday Sinclair Broadcasting wrote down the value of the 21 RSNs by $4.23 billion, or about half of what was paid to Disney — $9.6 billion in August 2019 — for the former Fox Sports RSNs acquired as part of Disney’s larger acquisitions of Fox media assets. Many of those assets were rolled into Disney’s streaming services, including Hulu and Disney+.
But apparently Sinclair did not insist on a provision that Hulu to continue carrying the RSNs, and recently it was announced Hulu was dropping Sinclair Broadcast Group’s Fox regional sports networks in its live television service, as Disney-owned Hulu joined Google-owned YouTube in curtailing the popular networks.
Earlier this year we wrote that the takeover of the RSNs by Sinclair gave MLB teams an opening to shape their own streaming futures, but only the Yankees and Amazon chose to take some games to streaming, and even then it was on a very limited basis. The Marquee Network debuted in 2020 as a very traditional sports-cable network. Still, Sinclair officials defended the write-off in the face of large losses and a changing landscape of cord cutters and cable services, per The Street:
Chief Executive Chris Ripley said during the call that subscriber losses for the sports channels have been “higher than what we expected,” Bloomberg reported.
However, Ripley added that the company sees growth for the networks outside the traditional pay-TV business, including through legalized sports betting and a direct-to-consumer offering that would bypass cable TV distributors.
But here’s the thing: while pro teams certainly love the cash generated from their TV rights, this is a broadcasting arrangement that gives a third or even fourth party control of the customer experience. If you’re running an MLB team, you should be wondering why you’re letting some one else control the fan experience at a time when sports betting or ticket sales or enhanced experiences can be incorporated into a new team/fan relationship. Yes, it’s less risky to sell the rights and pocket the cash–but big risks can lead to some pretty big rewards.
One interesting tidbit in The Street story:
The company also said it had given the owners of Major League Baseball’s Kansas City Royals an ownership stake in Fox Sports Kansas City as part of a recent renegotiation of rights fees. And it said it was willing to negotiate repurchases or new terms with bondholders of its sports channels division.
Early in the process of the RSN sales process it was rumored that MLB was interested in buying them. Perhaps MLB types will take another look at ownership should devaluation of the RSNs continues.
Meanwhile, the cutbacks at ESPN add up to 500 or so employees, or around 10 percent of the total workforce. About 300 employees were laid off, with 200 open positions will not be filled. With COVID-19 delaying and compressing the NBA and MLB seasons, the broadcast giants saw plenty of programming scrapped, though overall the pandemic actually helped ESPN’s bottom line–no sports, no rights payments:
“The speed at which change is occurring requires great urgency, and we must now deliver on serving sports fans in a myriad of new ways,” [Jimmy] Pitaro wrote in the memo, a copy of which was seen by The Wall Street Journal.
The reorganization will affect people who produce games for ESPN on the road, the person said, in addition to some on-camera talent whose contracts won’t be renewed. ESPN paid less for production costs during the pandemic, in part because it produced more games from network headquarters in Bristol, Conn.
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