Phillies

Is the Phillies’ TV Deal with CSN Bigger Than Expected? Smaller? What is it?

By Kyle Scott

Published: Jan 3rd, 2014 · 6:10 PM EST

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It’s a 25-year investment in the Comcast Megaconglomerate. It’s the gift that keeps on giving.

From Matt Gelb, writing on Philly.com, where the paywalls have no names:

The two sides, according to two sources, agreed to a massive 25-year contract Thursday worth more than $2.5 billion that will provide Comcast SportsNet with invaluable live summer programming and the Phillies with another substantial revenue source.

The Phillies will acquire an equity stake in Comcast SportsNet, one of the nation’s most successful regional sports networks, Montgomery said. The advertising revenue, which was split favorably for the Phillies, will be adjusted in exchange for a higher rights-fee payment. The major financial components of the new deal will activate in 2016, Montgomery said.

The average annual rights fee over the duration of the contract is $100 million, but the annual fee will begin at a smaller number and grow each year, according to a source.

Several takeaways here:

1) The 25-year deal sounds like it will kick in after the 2015 season, taking the Phils through 2040 with Comcast.

2) $2.5 billion is a lot of money, but it’s nowhere near previous estimates. In October, The Good Phight wrote what I thought was the definitive Phillies TV deal estimations piece of late-2013 (a truly crowded competition), when they cited other local TV deals around Major League Baseball and guessed at what the Phillies might receive once their current deal with CSN, which is reported to have paid them around $35 million (plus an advertising revenue share) each year. TGP estimated that a new deal would be somewhere between $180 million-$275 million per season. That $180 million figure would’ve meant $4.5 billion over 25 years. 2.5 is a lot… less. It’s $100 million per season, and:

3) It starts even lower than that.

There is, of course, an equity stake in Comcast SportsNet – which is surely worth quite a bit – so it’s hard to judge just how good or bad the deal is for the Phillies.

But I have a theory as to why the Phils got a smaller-than-expected rights fee and instead had to settle for having some “skin in the game.”

As we’ve written, the TV landscape in changing. In Houston, cable providers are pushing back on carriage fees (the hidden per-subscriber cost for channels like CSN and ESPN), meaning that 60% of the city can’t watch Astros games (ratings have dipped from 12 people to, well, none) and hinting at a very uncertain future for a business model that is dependent on bundled cable packages. And when you factor in the growth and adoption of streaming services, and eventually (presumably) a la carte TV programming, regionals sports networks, like CSN, might not generate as much low-hanging revenue in the near future, or will have to charge substantially more to those choosing to subscribe. Therefore, CSN and its NBC overlords were probably more hesitant to write a $200 million-per year check without the Phillies shouldering some of the risk. In other words: If carriage fees go away and regional sports networks no longer automatically, somewhat insidiously, make money from every subscriber, then the Phillies will take some of that hit.

To me, the Phillies’ contract with CSN was up two years too late. In, say, 2011 or 2012, when concerns about the changing cable and TV space were less clear (if you’re judging by other sports TV deals), the Phillies probably would’ve gotten more guaranteed money up front (and that’s not even factoring in their rapid decline in ratings and attendance over the past two years, which couldn’t have helped things).

$2.5 billion plus an equity stake in a regional sports network is still a very good thing for any team. But I think it’s less than expected. Although it’s probably not surprising.