The Rundown: Potential Value of Cubs Network, KC ‘No Chance’ at Alex Gordon

Top Of The First

As the Chicago Cubs move closer to establishing a dedicated regional sports network, there are whispers throughout both baseball and the television industry that a possibility exists that the team may be on the outside looking in if and when the alleged cable bubble bursts.

Let’s clarify that we are actually talking about in terms of the sports rights bubble. At what point, if ever, do broadcasters stop paying insane dollars for local broadcast rights? Let’s discuss.

Television’s Dirty Little Secret

Truth? Broadcasters and advertisers know you do not watch commercials. But the advertisers still pay the going rate to produce and air sponsored messages because live sports is the only form of deliverable content where commercials are not discarded — generally speaking — by the viewer.

As long as advertising rates remain in line with the cost to broadcast live sports, there should be little danger that the cost to carry those broadcasts will be priced out of the market. I know ESPN continues too lament that sports is becoming too expensive, that consumers are bailing on the network, and that the new generation of cord-cutters are hurting their bottom line. ESPN costs the average consumer $6.61 per month — yes, you really do pay for every single channel your provider forces you to take in tethered bundles, whether you watch or not — despite the loss of over 7 million viewers over the last four years.  ESPN claims that as a stand-alone channel they would need to charge in excess of $30 per month to remain profitable.

Still, ESPN and Turner Sports just agreed last year on a nine-year, $24 billion media-rights deal with the NBA that would be impossible without robust advertising rates that are ever escalating. Baseball’s $1.5 billion per year deal across three broadcasting networks that runs through 2021 pales in comparison. Look for the NBA deal to be the starting point for the next MLB television contract.

And how much do advertisers pay? As an example, a 30-second spot during last year’s MLB All-Star Game cost a little more than $500,000 dollars per airing.

About That Cubs Network — What Would That be Worth?

Last week I attended a seminar on the future of streaming television and how it will affect the way we watch television, particularly live, televised sports. I’ve touched on this before here at Cubs Insider and, in fact, I even mentioned that the Cubs would be smart to start their own network — and leverage a percentage of those advertising rates — months ahead of Crane Kenny’s announcement that the organization would do just that.

While there are certainly a growing number of critics hedging bets on when the sports rights bubble is going to burst, a look at the recent deal between Comcast SportsNet and the Philadelphia Phillies worth a total of $5 billion over 25 years may be a better barometer of where regional broadcast contracts are headed. Such a deal seems like an ideal framework regarding the Cubs future network:

• The Phillies get $100 million in annual rights fees starting this season
• Additionally, the team gets a 25% stake in CSN Philadelphia
• The Phillies share in a portion of advertising revenues
• Comcast and the Phillies will be co-monetizing in-market digital streaming rights.

It is important to note that under the recent collective bargaining agreement, teams must share 34% of local television revenues with the league, split evenly among all 30 teams. It is also important to further note that teams that have equity in their networks generate additional revenue from carriage fees which are not subject to revenue sharing under the current MLB collective bargaining agreement.

There is still the challenge of delivering streaming broadcasts in non-local markets, another revenue source to consider going forward, but the prevailing attitude is that MLB will have alleviated that issue by the time the Cubs launch their network. MLB is experimenting with local streaming in select markets this season.

So what is a Cubs Network worth potentially? That question was actually posed at the seminar I attended. The industry as a whole believes that it could be that the regional sports networks deals negotiated prior to this season will be considered floor values by the time the Cubs announce the terms of their deal and that by the year 2020 many of the recently-signed deals may seem undervalued.

Considering the Dodgers’ deal with Time-Warner, which netted $8.35 billion over 25 years for the franchise but seems somewhat messy and poorly negotiated, and the Phillies’ deal, the Cubs’ rights package should fall somewhere safely in between as far as guaranteed money is concerned, probably in the neighborhood of $6.5 to $7.5 billion. I’d look for the Cubs to sacrifice some guaranteed money in exchange for a larger equity stake in the RSN as well as a better-than-market-rate percentage of advertising revenues. The team currently has a 20% stake in Comcast with their deal but shares none of the station’s advertising dollars.

Of course, the next CBA could change how those monies are allocated to the rest of the league. The prevailing attitude seems to indicate that baseball, as robust as it has ever been financially, will do little to alter the sports rights landscape in the next negotiation. In other words, if it ain’t broke, don’t fix it. But I suppose anything is possible.

Fact, Fiction, Truth Or Rumor

The Miami Marlins continue to insist that SP Jose Fernandez is not available and that the team would instead like to build a rotation with the young hurler as the centerpiece Still, it seems that the Marlins and Dodgers have a dedicated two-way line with the Dodgers front office when it comes to rumored negotiations between the two teams regarding Fernandez.

The Kansas City Royals have been told that they have “no chance” to re-sign OF Alex Gordon as things currently stand. Gordon is seeking a five-year deal in excess of $20M in AAV. The Royals latest offer was allegedly between $12M and $13M AAV over four years. The Royals options outside of Gordon include Alex Rios, Gerrardo Parra, Denard Span or Austin Jackson.

The Cardinals did not sign SP Mike Leake with intentions of trading another starter for outfield help. Leake was signed without the forfeiture of a draft pick, and the Cardinals received two compensatory round picks when the Cubs signed John Lackey and Jason Heyward. Teams generally view late first-round picks as worth between $5 million and $8 million, according to major-league sources. So, Leake’s net cost might be more in the $72 million to $75 million range, at least before adding his own hidden benefit, a full no-trade clause.

Speaking of St. Louis, the Cardinals seem to be embracing their status of alleged NL Central underdogs this season based on remarks by Manager Mike Matheny and SP Adam Wainwright regarding the defections of Heyward and Lackey. If you’re interested, here is the team’s Christmas Wish List, which includes OF Alex Gordon, hope for a decent year from their rotation, and a healthy Yadier Molina. I’m guessing we’re all hoping they get coal instead.

The Pittsburgh Pirates signed C John Jaso to be the  left-handed half of a first-base platoon with Mike Morse. Jaso’s deal is for two years at $4m per season.

The Cubs released INF Brendan Ryan, acquired from the Yankees in the Starlin Castro deal, and re-claimed left-handed relief pitcher Edgar Olmos, who was recently designated by the Baltimore Orioles. The Cubs also signed relief pitchers Brandon Gomes, Stephen Fife, Scott Barnes and Luis Cruz, as well as outfielders Juan Perez and Kelly Dugan. All were given minor league deals.

The Dodgers are pursuing starting pitchers Kenta Maeda and Scott Kazmir, per Ken Rosenthal of FOX Sports.

Toronto Blue Jays SP Marcus Stroman wants Blue Jays fans to boo David Price this season.

Bottom Of The Ninth

I’m out until Monday so that I can spend Christmas with friends and family unless something urgent breaks. Wishing you all peace and love this holiday weekend. May your gatherings with friends and family be full of blessings and seasonal tidings.