No, WSJ, Baseball Revenues Don't HAVE To Come Down Due To Cord-Cutting

from the new-baseball-business-models dept

As a Techdirt reader, the business of professional baseball is not required reading. That said, for many reasons, the baseball business aligns nicely with many of the topics we discuss here, and baseball in general is probably the math-iest of sports. That’s why it seems necessary to push back on this Chicken Little piece at the Wall Street Journal, which claims that the laughably large baseball contracts players are signing today are doomed to drop precipitously because of cord-cutting.

At first blush, the premise here might even seem reasonable.

But there is one question looming over the sport, even as it indulges in another no-holds-barred cashapalooza. Salaries in baseball have been rising without fail ever since the advent of free agency in 1975. But for the first time, there are real warnings from responsible people that the party may be coming to an end.

As more people downgrade their cable service for smaller bundles of channels, or “cut the cord” by disconnecting from cable in favor of online streaming services, or just decline to ever subscribe, the economics of baseball will take a hit. MLB teams will no longer be able to ask cable services to pay a premium for the right to show their games. If they can’t find other sources of revenue to make up for this, it’s hard to imagine salaries to escalate at this rate in perpetuity.

The qualifier built into the premise is the premise’s undoing. “If they can’t find other sources of revenue” with regards to broadcast contracts, amounts to, more generally, “If baseball doesn’t make as much money they won’t pay the players as much.” Well, yes, obviously. The problem is that no professional sport has positioned itself as well for cord-cutting as has Major League Baseball. As we’ve discussed at length in the past, MLB’s Advanced Media product is the gold standard in sports streaming, so much so that other sports leagues are actually piggy-backing off of the MLB.TV product for use in their own sports. In addition, while the WSJ presents all this as some kind of surprise doomsday on the near horizon, MLB has been prepping for this for some time. We’ve already seen the league and its teams embrace streaming options with the current broadcast partners, as well as look to end the old blackout rules that would hamper streaming availability. What the WSJ piece attempts to paint is a picture in which it sees the doom coming, but MLB does not and is blithely handing out huge player contracts unwittingly. Baseball has done nothing to demonstrate that kind of ignorance, though, and in fact has done everything to demonstrate instead its willingness to be out in front of cord-cutting.

Vince Gennaro, the director of the graduate sports management program at Columbia University, said he wonders if the current deals between teams and cable services are sustainable. “These are major strategic issues that the consumer is going to have a large vote in,” he said, adding that he is not sure that baseball’s regional networks have an accurate view of the threat they’re facing. “Are the networks reading the market right? Are they reading the consumer right?”

Valid questions, but not when it comes to MLB revenue and player contracts. There is nothing in the cord-cutting trend to indicate that baseball viewership is going away. And the viewers are all that matters for revenue purposes. In fact, the cord-cutting trend has quickened as sports streaming becomes more widely available. That would seem to indicate that fans are simply trading television broadcasts for streams which, while it may hurt the local broadcast partners, presents no reason why it should hurt revenue overall, thereby affecting player contracts.

In the end, the article does a lot of hand-wringing over the questions it itself is asking, and yet the league and teams are moving forward confidently. That should tell you everything you need to know about whether or not the league is prepared for cord-cutting.

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Companies: mlb

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Comments on “No, WSJ, Baseball Revenues Don't HAVE To Come Down Due To Cord-Cutting”

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Anonymous Coward says:

In the end, the article does a lot of hand-wringing over the questions it itself is asking, and yet the league and teams are moving forward confidently. That should tell you everything you need to know about whether or not the league is prepared for cord-cutting.

Yeah, because major industries never get blindsided by disruptive technology causing a sea change that they never saw coming even though they should have. It’s not like that’s a major theme of the blogs here or anything…

(Yes, the explanation given about MLB.TV is a good one, but the conclusion really isn’t and it doesnnt fit well with the rest of the article.)

madasahatter (profile) says:

Re: Re: Re:

Being blindsided and having a murky crystal ball are two different animals. The first means a refusal to pay attention to emerging trends and their effects on your business model. The second implies a level of competence in the leadership that they realize they will need to adapt and are trying to adapt. In the second, there is a good chance the crystal ball was a little too murky. MLB is correct in that they will need to partially cannibalize their current revenue streams with newer ones.

Of the major sports, I suspect MLB is probably the best positioned. They are not as dependent on a big national contracts and their games broadcasting has always had a strong local component. The NBA and NHL are probably in decent shape because their broadcasting tended to follow MLB’s model. The NFL could be in the worst shape because they tended to centralize the broadcasting into a national package.

Also, the NFL has another vulnerability which is its season has very few regular season games compared to other sports. The revenue per game must be very high compared to the other sports. If the rights per season are 16,000,000 the per game for the NFL is 1,000,000 will for the NHL and NBA it is $200,000 and for MLB it is $100,000 (round numbers).

Anonymous Coward says:

Re: Re:

Exactly. I have many problems with much of the article, but this line is the kicker:

If they can’t find other sources of revenue to make up for this, it’s hard to imagine salaries to escalate at this rate in perpetuity.

Wtf. NO salary can escalate at any rate (greater than zero) in perpetuity! And why should they? I’d be thrilled if the day of the obscenely overpaid sports player was over.

Anonymous Coward says:

Ask me if I care. Under the present scheme, whether you are a sports fan or not, every one pays the vig. People are cutting the cord as much over prices as any other single reason. Not being given the choice of a la carte, they have taken it into their own hands to pay for what they want and drop the monthly high priced tab for what they don’t want. Cable had 15 years to satisfy the market demands and their solution was to constantly up the cost of these services.

Whoever says:

There may be some truth in the claim

Think of all those people who currently pay (via) their cable bill for sports that they never watch. When they cut the cord, they won’t be signing up for alternative ways to watch MLB.

Sports revenues are currently like a tax on cable fees. People have no choice but to pay them.

The question is, are the cord cutters who do want to watch MLB prepared to pay the real cost (unsubsidised by those who don’t watch)?

D says:

Re: There may be some truth in the claim


MLB teams have been signing huge multi year deals with local sports networks, predicated on the fact that most subscribers can’t opt out of the channel. These new contracts are fueling even higher player salaries. A great example is the Anaheim Angels. In 2011 they signed a TV deal worth 3 billion over 20 years. They currently have several $100 Million+ contracts on the books thanks to that guaranteed revenue, including Albert Pujols, Mike Trout and Josh Hamilton (who isn’t even on be team anymore, but the Angels are still paying him).

They’re the clearest sign that all of this will come crashing down soon. If no one subscribes to the channel, no one watches the games, no one advertises, and there is no money to pay the $3 Billion bill. Something has to give.

Online steaming isn’t going to save this. One could argue that these TV deals where never worth this much (they aren’t) but now that teams are flush with cash they are committing to player contracts as of the money is guaranteed to keep coming.

the network economy says:

Re: There may be some truth in the claim

You are apparently the only one who gets it. Sports were subsidized because consumers had no real alternative. We do now and folks like me who could care less for the the league and enjoy going to an occasional game in person for the experience have cut the cord (or will) and have no intention of subscribing to or any other version there of… Sports fans better get ready to shoulder 100% of the burden of there athletes compensation in the near future, today it is highly subsidized. the unbundeling movement will disrupt in so many ways this is just the tip of the iceberg.

JBDragon (profile) says:

Re: There may be some truth in the claim

That’s the thing. I’ve heard in the past that only 4% of Comcast users watch the Sports Channels, yet it’s the most expensive channel and everyone is subsidizing it!!! What would happen if people actually had a choice. Would you want to sign up for ESPN and Fox Sports and the others or say screw it and instead of 100% of everyone paying it’s only the 4% that are now paying. Would their Sport package fee now cost them $50 a month just for that, plus the normal cable bill for all the other channels?

I cut the cord. I have no interest to sign up to SlingTV so I can get live ESPN & ESPN2. I get enough Sports from the Broadcast channels I get for free with a Antenna. I’m not going to pay for SlingTV, or for MLB.TV or NFL.TV or anything else Sport related. To me, people making MILLIONS playing a kids game is silly. Tax payers subsidizing a Stadium and so forth is just wrong!

I just really don’t care about sports of any kind.

Anonymous Coward says:

Tech issues aside, the priorities that our society has with regards to who is paid what just make me cynical about the inherent goodness of human nature.

Veterans risk life and limb in petroleum wars for insulated billionaires and end up homeless. Tom Brady throws a deflated ball, or Alex Rodriguez hits one with his artificially inflated arms, and both are paid the GDP of a midsize country.

Firefighters risk their lives to save others and make barely enough to make end’s meet. Kim Kardashian squirts something out of her, uh, extinguisher and is paid a seven-figure sum.

It’s scenarios like this that turn me into a misanthropic Scrooge around the holidays, albeit without the equivalent finances. Like Freddie Mercury and David Bowie in “Under Pressure” I end up “turn[ing] away from it all, like a blind man, coming up with nothing till we’re slashed and torn.”

And to the Scrooges who made all of this happen I say bah humbug to you.

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