The Phillies May Be About to Get PAID

This is something I’ve written quite a bit about over the past two years– the Phillies’ looming local TV deal.

Their current deal with CSN doesn’t expire until after the 2015 season, but Howard Megdal of Sports On Earth is reporting that a new deal may be finalized in the next month or so [a guy named Megdal reporting on mega deals is awesome!]:

According to a source with knowledge of the talks, the deal is expected to be completed within the next 30 days. That’s going to matter a great deal for how the team operates this winter.

The Phillies currently receive $35 million per season from Comcast, which is chump change compared to other big market teams. The Red Sox and Yankees get $60 million and $90 million, respectively, and have a significant ownership stake in their local network. The Mariners get $115 million and have a more than 50% ownership stake in their network. And then there are the Angels and Dodgers… who are getting silly money– $150 million (with 25% ownership stake) and $340 million, respectively. [These figures according to Wendy Thurn of FanGraphs.]

The Good Phight used a lot of words and math to estimate what the Phillies’ deal might look like based on the current market. Their conclusion:

If you look to the 2013 area of the X-axis you’ll see two entries, the Mariner’s new contract at $115m annually, and the monstrous Dodgers contract at nearly $350m annually. The best fit line threads those two, coming in just under $200m in annual rights fees. That’s a good starting point. Simply adjusting for market size (Seattle = 61.7% of Philadelphia’s population, LA = 190% of Philadelphia’s population) you get a Phillies TV contract falling between $183-186m annually. Now, again, this is a terrible estimate and the error bars are huge. Adjust as you see fit. (For example, if you think that only 2/3rds of LA-area baseball fans will watch the Dodgers with the 1/3rd dedicated to the Angels while 100% of Philadelphia area baseball fans will watch the Phillies, then you can do this: ((5,613,460 x .67)/ 2,949,310), giving the LA Dodgers an effective media market only 28% larger than that of Philadelphia. If you think, therefore, that the Dodgers’ TV contract is going to be commensurately 28% larger than the Phillies’ contract you’d expect the Phillies to get nearly $275m annually.)

The above calculations do not account for population growth rates in those markets, equity stakes in the broadcasting networks, commercial revenue ownership, multiple teams in the LA market, and other variables. But it’s something, although probably low if one considers the Philadelphia being the largest single-team media market in the country. The Phils are certainly closer to the Dodgers than the Mariners in terms of market penetration and fan bases.

Basically, it’s very difficult to pinpoint a figure because there are so many factors to consider besides market size and ratings. New York and LA have two teams, so, in theory, their markets are split, making it hard to draw any conclusions from those deals (though I suspect that, in negotiations, teams like to pretend that people are people and they are potential viewers regardless of rooting interest). And most of the major market teams all have an ownership stake in their network, meaning that their per-season figure is greater than the listed rights fee. You can assume that the Phillies will get a higher fee based upon the fact that they don’t have any ownership stake in CSN. The Phils also have the passionate fan base and largest single-team market thing working in their favor.

But figure, based on The Good Phight’s projection, that the Phils get somewhere between $180 million and $275 million annually. That’s a significant increase from the $35 million they have been getting. Plus there’s the additional $27 million per season in national TV deals that every team will get starting this upcoming season.

This all means that, at some point in the next two years, the Phillies will be getting as much as, if not more, than their entire payroll in additional revenue. All of a sudden, the attendance and ratings drops don’t seem to matter much.

But does that mean they’ll start spending more?

Maybe.

Since 2010, the Phils have seemingly been operating under the assumption that they have a lot of money coming. They spent (in millions) $138, $165, $172 and $159 over the past four seasons– always staying under the luxury tax threshold. In 2014, that threshold will be $189 million, and, according to Megdal, the Phillies have no plans to go over it, regardless of whether they have a new deal or not:

While the Phillies aren’t likely to blow past that $189 million luxury tax threshold, the line serving as de facto salary cap for every team east of Los Angeles, that still gives the Phillies plenty of room to get involved in the bidding on players like Jacoby Ellsbury and Shin-Soo Choo in the outfield, or even rotation pieces like Tim Lincecum.

So, yeah, with a new TV deal, the Phillies can feel free to spend around $30 million more per season. But that’s, like, one superstar– it’s not franchise altering spending. And it also doesn’t mean that Ruben Amaro will know what the fuck to do with the money. I can see him blowing $30 million on Roy Halladay, Carlos Ruiz and a setup man (I’m only half joking). Though perhaps the Phillies will get involved in the Masahiro Tanaka sweepstakes:

According to George A. King III of the New York Post, the Yankees are going to be “serious players” for the 24-year-old right-hander this winter as they attempt to fill holes in their starting rotation. The team has done their homework here, as they sent assistant general manager Billy Eppler and scout Don Wakamatsu to watch him extensively this season. It’s safe to say they liked what they saw, as Tanaka went 22-0 with a 1.23 ERA during the regular season for the Tohoku Rakuten Golden Eagles of Japan’s Pacific League.

Again, maybe.

They’re going to get more money, if not now, then soon. But they’ll still stay under the luxury tax threshold and they’ll still have to spend it wisely.

So, why might a deal get done now? And with whom will it be?

Well, there’s a lot going on in the TV industry. We’ve already written about the unbundling of cable TV packages. Networks like ESPN and CSN get carriage fees from every cable subscriber who gets their channel, even though every subscriber doesn’t watch sports. [There’s a fight in Houston between the Astros and CSN Houston over that matter– CSN can’t reach agreements with local cable companies.] There’s a very real possibility that, eventually, cable subscribers will have a la carte choice of their channels (or, worse, they’ll just stop subscribing and start watching Netflix, which just leaped ahead of HBO in subscribers). This all means that, eventually, regional sports networks will spend less on rights fees. If you’re the Phillies, you want to get a deal done before that happens. Obviously.

And there are other things that will affect the industry in unknown ways. The NBA is about to reach an agreement to live stream games to local markets. If you have MLB.tv or another similar service, then you’re well aware of the local blackout rules that restrict you from watching local teams through any means other than your local cable provider. A shift in this paradigm could change the market.

There’s also a class-action lawsuit being brought by two Philly lawyers against sports leagues, teams and cable companies which just cleared its first major hurdle. It contends that, by forcing sports fans to pay for expensive cable packages, the leagues and cable companies have basically formed an illegal cartel. From a great article on Philly.com last week:

Sports teams should be allowed to sell their games to sports fans in any TV market. This would bring down the price of sports content on the Internet and cable for tens of millions of consumers, Diver said.

A goal of Diver’s suit would be to allow a sports fan to strike a relationship with a favorite team or teams without having to buy a cable package or a league package of unwanted games. Another goal would be to dismantle the restrictions on how teams distribute their games on pay-TV systems.

The leagues and other defendants have lined up powerful firms to defend their practices and called the suit’s claims meritless.

That would certainly impact local sports rights fees.

So now you see why it is in the Phillies’ best interest not to wait. The TV landscape is changing, rapidly. Today, Apple might announce an update to Apple TV that could further disrupt the industry. This winter, Amazon is throwing its hat into the ring. Next year, Netflix may announce that they’ve taken over the world and are going to harvest your babies to power their yet-unannounced live-streaming capabilities. We really don’t know where it’s headed. But for now, live sports are cable TV’s lone barrier from total destruction. Networks willing to pay, and teams, like the Phillies, are eager to take the money while it’s still available.

We can assume that, if a deal were to get done this early, it would be with CSN. But FOX Sports has thrown its name into the ring. So we’ll keep an eye on what happens this winter.

Recommended reading on the matter:

Sports On Earth on the deal

The Good Phight on the size of the deal

Philly lawyers bringing class-action lawsuit against leagues and cable companies

28 Comments

  1. What I know about the business side of sports is beyond pitiful, but I’m gonna guess that Comcast will ultimately win the Phillies Sweepstakes. With the Sixers already in the toilet and the Flyers about to join them, the Phightins are the most important sports programming commodity to the Roberts boys, even if the team is slip-sliding into mediocirty, and they won’t give that up to FOX without one hell of a fight.

  2. Kyle what is your annual salary? Have you signed up for Obamacare yet? Any new job openings at CB? What format would you like the golf tournament to be…I was thinking scramble?

    -Carmen

  3. Now RAJ can give Ruiz a 5 yr, $10mil contract to block more prospects. He’ll have e’nuf left over to sign a coupla’ 38 yr old middle relievers!

  4. Matt from Morton

    October 22, 2013 at 11:00 am

    This is one of your more well-written posts in awhile, Mr. Kyle. And this isn’t from one of your “I HATE EVERYTHING YOU DO BUT COME HERE TO BITCH AND MOAN” readers, either. ;)

  5. RAJ has to go all fucking in like he did in 2011…they must spend and spend big to get out of this black hole spiraling downhill since ’08 WS win!

    It all starts with a RH power bat through FA or trade (Stanton-pipe dream but suck me sideways that would rule)…look for Nelson Cruz
    Then resign Chooch on a 2 year deal or go after McCann, fuck it…I also wouldn’t be surprised if they go out and scoop up a solid bullpen piece and go after a decent 3rd/4th SP in FA (who knows about Gonzalez yet)
    I’d let Doc and Kendrick walk (love Doc-but he’s cooked) and solidify the bench with a Mike Morse and bring up Franco to man 3rd base out of ST, I just don’t think Asche (hot gf and all) is the answer and Franco brings another RH bat with pop.

    Lineup:

    Revere CF
    Utley 2B
    Cruz RF
    Howard 1B
    Brown LF
    Franco 3B
    Rollins SS
    Chooch C

  6. Bench

    Morse 1B/OF
    Ruf 1B/OF
    Infante INF
    Hernandez INF/CF
    Asche 3B
    Rupp C

    Starting Pitching

    Hamels
    Lee
    Josh Johnson
    Gonzalez
    Pettibone

  7. I agree they probably wouldn’t spend that much more on the major league roster, that’s not the reason I’m excited for this deal.

    What excites me is what they could possibly do in the farm system. I remember hearing the Phillies were bottom-of-the-barrel in spending in Latin America. Many teams have facilities built in many of those countries to bring in young, talented players and then sign them once they’ve groomed them. I would hope the Phillies would take a good deal of this money and start building the facilities all over the place down there, thereby giving themselves an in to many possible prospects.

    There’s a reason the farm system is so bleak, and it’s not because RAJ traded away prospects. It’s because they don’t spend the money other teams do. I’m hoping and praying this TV deal injects a lot of funds into the development system.

    • I can fux with this point, but they have recently been signing some pretty “high” end international young players as of late and the trend should continue….see Luis Encarnacion and Carlos Tocci

      • Oh yeah, they’re definitely going after the high-end talent, and I like that. But I want grassroots stuff. Facilities where they bring 13 year old kids in and develop them. I feel like you’re bound to find more talent this way than just waiting for the top-end prospects to be available.

        Diversify!

        • I agree…these kids may turn out to be duds, but you have to take the risk…

          also, why doesn’t Kyle start an open forum as to who us Sillies fans would want to sign via free agency or the trade route, it brings more people and their opinions (women excluded of course)

  8. I’m with Mickey…I’m glad they’re going to get this done early and get a shit ton more money, but I have ZERO faith in them to spend it wisely.

  9. What’s scarier then Rubin Amaro Jr. running your team?

    Rubin Amaro Jr. running your team with unlimited funds.

    We’ve got Michael Martinez yo, WATCH OUT!!!

    FACE

  10. Trade Dom Brown

  11. The ownership group will likely sell the team in the near future. I think they have been cool with jacking up the payroll in recent years b/c they know if they remain competitive until this tv deal is set, they’ll maximize what they get. After this deal goes through, the valuation of the franchise will go way up & they’ll probably sell & make a huge profit over their initial investment. We’ll probably have some Saudi oil prince running the Phillies in 2-3 years.

  12. go fuck yourself, Kyle

  13. Correct me if I’m wrong, but wouldn’t HOUSTON be “the largest single-(baseball) team media market in the country”?

  14. Mike Trout is arbitration eligible after next season. I say pick up a solid top of the lineup piece like Choo or Ellsbury then spend the big dollars long term to lock up Trout. He’s a Delaware Valley native so I wouldn’t be surprised if he took a paycut to play for Philly over the Yankees. After 2015, the Big Piece is gone and there’s lots of money to play with and rebuild.

  15. I wish Dom Brown had a brother he supported who could send out offensive tweets for him

  16. Two Words: Giancarlo Stanton

  17. If McCarthy and Wheels are paid a dollar a year it’s 99 cents too much.

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