Specialist
Former EVP at Texas Rangers Baseball Club
Agenda
- Operating environments for MLB (Major League Baseball) teams and RSNs (regional sports networks) such as Diamond Sports Group (NASDAQ: SBGI) – digital and linear rights valuation evolution
- Dynamics between teams and leagues relating to D2C prospects and implications for team profitability
- Audience size and monetisation potential improvement prospects
- Outlook for 2022 and beyond – downside risks and wildcards
Questions
1.
A big dynamic is that the media rights sit in this broader sphere of baseball industry revenues, where there are leagues, teams, networks and other players. How do the MLB [Major League Baseball] and other professional sports leagues make money and how has that evolved? Obviously, there are national rights that are divided across all 30 teams, local rights you can monetise independently, ballpark revenues and licensing and sponsorship opportunities. What is the revenue mix across opportunities and how has that evolved recently?
2.
You mentioned for 15-20 of MLB teams, ticketing revenues will be the largest revenue bucket. Does that
mean those RSN [regional sports network] team payments are sub-30% or sub-20% of the typical revenues for
those types of franchises? Are RSN team payments the vast majority of revenue for teams that that are less
popular and have difficulty driving much ticket price accretion?
3.
Is the concert dynamic isolated to teams residing in NFL cities and is that something you think scales to double-digit percentage of revenue contribution for any team in any given year, given how crowded the baseball season slate is?
4.
How should we balance the revenue rate against the high payroll teams also have to spend? How cashstrapped are teams usually once payroll is stripped out of those revenues?
5.
Keeping in mind Diamond Sports Group, a debt vehicle through which Sinclair purchased all its RSNs, highly levered, debts trading way down, the teams like to talk about liquidity through 12 months, which perhaps gets them to Q3 2022. If rights per team hover around USD 100m-150m per year and they shut off payments to players or reject contracts, how would you think about team solvency, given your point around teams are perhaps operating in the red in any given season?
6.
It seems Fox Sports has historically been a key partner to the MLB in particular, and MLB commissioner Rob Manfred has been coming out with a lot of contentious public posturing towards the RSNs. Did anything change in terms of the quality of media partner when we think about Fox Sports Networks being purchased by Sinclair in 2019?
7.
To what extent is Sinclair inevitably the best strategic partner option for the MLB and the teams, keeping in mind those distribution challenges? Isn’t it a reality that Sinclair is perhaps paying above market price for these rights and that any net-new partner’s bid would be orders of magnitude below what Sinclair has been willing to pay the MLB and the teams?
8.
What might the restructuring of media rights be if players such as Sinclair reduce the linear payments they have been paying and change the structure of the rights, in terms of exclusivity or national vs in-market? What would be the result of taking Sinclair out of the rights equation? For example, the New York Post had an article where that exact thought was put forward, that the MLB would aim to reduce the rights to allow itself to distribute games on MLB.TV? What scenarios do you consider possible?
9.
It seems you think there’s the potential, that there is this trade-off between maximising reach, which is
inclusive of a declining linear TV ecosystem, and simply pivoting into digital and D2C offerings, given the subscale reach that exists there. Might concurrent non-exclusive distribution – both linear and digital – be a
feasible idea? What does a non-exclusive dynamic do to rights fees on both sides of the coin?
10.
Is it possible for anyone other than the NFL to divvy up rights non-exclusively to grow the rights fee pie? Or is there likely a cannibalisation effect to kick in as the MLB aims to divvy them up, but in a non-exclusive way?
11.
Most sub-scale subscription products typically cap out at five million subscribers. Given the likely need to own as many rights as possible, but then also allow flexibility with à la carte subscription, is it most likely that it will be one or two digital partners to do exclusive OTT [over-the-top] initiatives, so much as them being sold all the way down at the team level, where teams can choose their own distribution partner as they go? Do you think a predominant amount of the digital rights will go to this new stakeholder? If so, who might be promising players there?
12.
Do you think there would be consumer confusion if these rights get divvied up too much, where it’s hard to
gauge where any given game is going to be distributed, given the MLB is so locally driven?
13.
What are the puts and takes of four MLB teams and the entire NHL slate choosing Sinclair as their D2C stream rights holder while the remaining MLB teams and the entire NBA are still without D2C rights? It seems one could be the rights haven’t expired and they won’t be negotiated ahead of time. Another could be Rob Manfred’s public comments leading to this holding up of the teams to consider Sinclair. What are the drivers behind Sinclair not having the rest of the rights that sit within its RSN portfolio?
14.
You mentioned that perhaps neither side of the coin has figured out exactly what digital rights are worth. What might that be a function of? What were linear rights negotiations driven on to get to that annual average value rate that was agreed upon, and what is different in a digital sphere? What factors are different to consider in a more digital world to assess what might lead to ranges of digital rights values?
15.
Who are the frontrunners both the teams and leagues want when thinking of that net-new media partner that’s delivering D2C content? What media partners would actually have a serious interest in pursuing that sort of partnership?
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