Less than a day before Game 5 of the American League Championship Series in Anaheim last month, a large number of Yankees fans in New York were in danger of not being able to watch their beloved pinstripes on local TV.
News Corp. was minutes away from pulling its Fox channels, Fox 5 and WWOR-MYT, from Cablevision’s systems over a retransmission consent dispute, according to several sources.
Fox was threatening to pull its channels at midnight on Oct. 22, about 20 hours before the key Game 5 was slated to begin on the network.
If it had done so, Cablevision’s 3 million subscribers in the greater New York market would not have been able to watch the game, creating a situation that would have enraged local Yankees fans and caused a major PR issue for the network, the cable operator and even the team.
But the crisis was averted late that Wednesday night when the two signed a one-year extension to keep the Fox networks on Cablevision’s systems. Game 5 hit the air and drew a whopping 20.8 rating in the New York market, underscoring the power that televised sports play in these types of negotiations.
The dispute marks the underpinnings of one of the most important stories developing in sports media, but one that isn’t talked about or publicized like so many others.
The debate over retransmission rights — where broadcasters want cable operators to pay cash to carry their local stations — will be one of the most closely watched issues over the next year, as the two sides try to determine how high the monthly “retrans fee” should be.
It’s not a stretch to suggest that the long-term future of broadcast networks as pivotal players in televised sports is at stake. If broadcasters somehow don’t add dollars to their coffers, the likelihood of big payouts during the next round of major sports TV negotiations from 2011 to 2013, which include the NFL, MLB and NHL, seems remote.
Retransmission consent battles are not new. In 2000, Time Warner Cable famously dropped ABC in New York City during the broadcast sweeps period because of a retransmission consent dispute.
But as the economy has wreaked havoc on the TV advertising market, these disputes have taken on a new urgency for broadcasters. They need new revenue streams. It’s pretty simple: Broadcasters don’t have the dual revenue streams of ESPN and rely mainly on advertising revenue, which is clearly not growing.
In the New York market alone, ad sales are down 35 percent year over year, and next year they are projected to be flat, according to one veteran New York television executive.
To counter that decline, which is affecting stations all over the country, Fox and CBS have said they plan to start charging cable operators to carry their stations. Some reports have News Corp. charging cable operators 50 cents per subscriber per month for its locally owned and operated Fox stations, and 25 cents for its MyNetworkTV affiliates, local broadcast stations that Fox also owns.
For Cablevision, with its 3 million subscribers, that could result in a monthly payout of $2.25 million for Fox. By comparison, Cablevision pays ESPN around $12 million per month for its flagship channel alone. That’s what broadcasters are up against, and why they feel the need to be paid cash for their stations.
“It’s not rocket science,” Chase Carey, News Corp.’s deputy chairman, said at an industry conference last month. “It doesn’t make sense that broadcast is only ad supported. It competes against other channels that are dual revenue businesses, while a network like Fox sits there with truly the best programming in sports and entertainment.”
| Turnkey Sports Poll | ||||
| The following are results of the Turnkey Sports Poll taken in October. The survey covered more than 1,100 senior-level sports industry executives spanning professional and college sports. | ||||
 In the next five years of sports property television rights negotiations, which channel/media company will be . . . | ||||
| CBS | ESPN/ABC | Fox | NBC | |
| … the most aggressive at obtaining rights to additional sporting events? | 1.42% | 54.96% | 8.51% | 5.32% |
| … most likely to shed rights? | 15.96% | 3.90% | 7.09% | 25.89% |
| Turner (TBS/TNT) | Versus | Other | No response/ Not sure | |
| 3.90% | 15.25% | 1.77% | 8.87% | |
| 13.83% | 9.57% | 1.06% | 22.70% | |
| What will be the trend in sports television rights fees over the next five years? (Results compared to April 2004 poll) | ||||
Oct. 2009 | April 2004 | |||
| Remain flat | 40.64% | 36.81% | ||
| Trend up | 36.40% | 31.29% | ||
| Trend down | 20.49% | 31.29% | ||
| No response/Not sure | 2.47% | 0.61% | ||
| Source: Turnkey Sports & Entertainment in conjunction with SportsBusiness Journal. Turnkey Intelligence specializes in research, measurement and lead generation for brands and properties. Visit www.turnkeyse.com. | ||||
The battles are only just beginning. While the Cablevision fight was averted, another major dispute is brewing with New York’s other main cable operator, Time Warner Cable, whose contracts to carry all Fox channels — cable and broadcast — expire at the end of the year.
In late December 2008, Time Warner Cable signed a one-year extension for several of Fox’s cable channels, including FX, and regional sports networks Prime Ticket, Fox Sports West, Southwest, South and Florida (see SportsBusiness Journal, Jan. 12). Those deals, along with all of Fox’s other broadcast and cable channels, expire at the end of next month.
Could these signals actually be pulled from Time Warner Cable, which is in more than 13 million
And those same executives expect News Corp. to base much of its leverage on Fox’s slate of NFL playoff games, not to mention Fox’s highly rated “American Idol” and “24” series, both of which return in January. Imagine the scene in Gotham if, for example, Time Warner Cable isn’t able to show a Giants playoff game on Fox.
The need for broadcasters to push harder for a dual revenue stream was highlighted last year when ESPN outbid Fox by $100 million for rights to the Bowl Championship Series. Thanks to the amount of money cable and satellite operators pay ESPN each month (more than $4 per subscriber), ESPN already has a huge advantage over its rivals. Cable operators also pay ESPN additional license fees for its other networks, ESPN2, ESPNews, ESPNU and even the broadband channel ESPN360.
Without retransmission consent revenue, broadcasters would not be able to match ESPN’s bids for most sports rights. This is especially relevant over the next five years, as TV deals are expiring with the NHL (2011), NFL and MLB (2013) and NASCAR and MLS (2014).
Broadcasters say they need retransmission dollars to stay competitive in the sports rights marketplace. But they are quick to point out that even without the extra cash flow, they have some inherent advantages over their cable competitors.
The one most frequently mentioned is the breadth of their offerings, which reach 115 million homes, compared with ESPN’s 99 million.
That gap has been narrowing over the past decade and is expected to continue shrinking. But most leagues still place a high value on reaching those extra 16 million homes.
“I anticipate that in the next five years, the premier events that are currently on network television will remain on network television,” said Sean McManus, president of CBS News and CBS Sports. “I think the leagues still understand the value of having them on network television and how important it is to their viewership and their fans.”
 Network sports DEALS | |||
| Property | Length | Estimated total value | Final season contract |
 | |||
| NFL | 8 years | $5.76 billion | 2013 |
| MLB | 7 years | $1.8 billion | 2013 |
| NASCAR | 8 years | $1.76 billion | 2014 |
| Bowl Championship Series* | 4 years | $330 million-$340 million | 2010 |
 | |||
| NBA | 6 years | $4.6 billion** | 2015-16 |
| SEC (all sports) | 15 years | $2.25 billion | 2023 |
| NASCAR | 8 years | $2.16 billion | 2014 |
| Big Ten | 10 years | $900 million-$1.0 billion | 2017 |
| Bowl Championship Series*** | 4 years | $495 million | 2014 |
| Big 12 | 8 years | $480 million | 2014 |
| Rose Bowl presented by Citi | 8 years | $300 million | 2014 |
| ACC football | 7 years | $258 million | 2010 |
| ACC basketball | 10 years | $300 million | 2010-11 |
| Pac-10 football | 5 years | $229 million | 2011 |
| Big East football | 6 years | $200 million | 2012 |
| MLS | 8 years | $64 million | 2014 |
| IndyCar | 4 years | $60 million-$65 million | 2012 |
| Belmont Stakes | 5 years | $20 million | 2010 |
 | |||
| NCAA men’s basketball tournament | 11 years | $6 billion | 2012-13 |
| NFL | 8 years | $4.96 billion | 2013 |
| PGA Tour | 6 years | $2.95 billion** | 2012 |
| SEC basketball and football | 15 years | $825 million | 2023 |
| Big Ten basketball | 10 years | $200 million | 2015-16 |
| USTA U.S. Open | 4 years | $145 million | 2011 |
| The Masters | 1 year | $3 million/year | Year-to-year |
 | |||
| NFL | 8 years | $4.82 billion | 2013 |
| Olympics | Winter and Summer Games | $4.3 billion | 2012 |
| PGA | 6 years | $2.95 billion** | 2012 |
| Wimbledon | 4 years | $52 million | 2011 |
| Notre Dame football | 5 years | $50 million | 2015 |
| NHL | 2 years | ^ | 2010-11 |
| Kentucky Derby and Belmont Stakes | 5 years | NA | 2010 |
| USGA U.S. Open | 9 years | NA | 2014 |
| U.S. Figure Skating | 6 years | NA | 2014 |
| Note: ABC contracts may share cable rights with ESPN channels, NBC with TBS/TNT and CBS with USA Network. * Excluding Rose Bowl presented by Citi. ESPN/ABC Sports assumes rights following Jan. 2010 Championship Game ** Part of a shared deal with other networks. *** Network assumes rights from Fox following January 2010 championship game ^ Deal is a revenue-sharing agreement and does not carry any rights fees. Source: SportsBusiness Journal research | |||
NBC executives echoed McManus’ sentiment, saying that the bigger leagues make sure that they maintain a broadcast presence so they can reach more people.
“Yes, I think there are places where a network can compete and, in many cases, deliver significantly greater value than ESPN,” said NBC Sports President Ken Schanzer. “Leagues need broad exposure. They need exposure to the right audiences to grow their fan base and they need exposure in the right time periods.”
Even ESPN executives acknowledge the power that broadcast television has on some of its rights holders. John Skipper, ESPN executive vice president of content, said the company would have had trouble signing deals with the NBA and World Cup if it didn’t have broadcast windows through ABC.
“We are not abandoning ABC,” Skipper said. “We are, right now, not looking to move other product off of ABC. We like having those windows.”
It’s not just the leagues that place a value on broadcasters’ reach. McManus predicted that regulators almost certainly would step in if some marquee sporting events, like the Super Bowl, were to migrate to cable.
“It’s a fine balance between taking advantage of the cable model, which has a dual revenue stream, but also protecting the network model, which still has great value for the biggest sporting events in
But leagues need more than good will and immense reach. They want networks with deep pockets — ones that can afford to pay the most for their games.
McManus believes the TV deal CBS signed with the Southeastern Conference last summer provides a blueprint for how broadcasters can share TV packages with cable networks.
CBS paid an average of $55 million annually for a 15-year deal that includes a late Saturday afternoon window for a game of CBS’s choice, one prime-time game and two doubleheaders per year. ESPN paid $150 million per year for the rest of the conference’s rights.
“We found out in the SEC negotiation that there was room for ESPN and room for a really good network package,” McManus said. “There can be bigger and more valuable cable portions of a lot of these deals, but the network component is still a critical one for most leagues.”
But the key for broadcasters remains getting retransmission consent payments for their local stations. In fact, most cable operators say it’s almost inevitable that they will have to make these payments — they’re just negotiating to keep the fees as low as possible.
“Against today’s model of an ad-supported-only broadcast network, sports rates are a real challenge,” Carey said at that New York conference last month.
“Sports are going to continue to be a critical part of our story. We’re going to create great content and create a business model that lets us continue to grow and expand.”
http://www.sportsbusinessjournal.com/index.cfm?fuseaction=article.printArticle&articleId=64002
One of the fundamental principles of the National Football League is that every team should have a realistic shot at winning every time it steps on the field. This season, that's not the case.
The strongest teams, like the New England Patriots and New Orleans Saints, have looked unstoppable at times, while weak ones like the Detroit Lions seem exceptionally hapless. There have been six shutouts, the highest number since 1994, and 20 blowouts of 21 points or more, the second-highest number in the past 39 years. Even more troubling is that for the first time since the beginning of the modern NFL, seven teams have zeroes in their records, meaning they've either won or lost every game they've played.
According to team executives, agents and union officials, this season's results point to a larger truth about the league that has, until now, only been the subject of whispers. The engine the NFL uses to enforce parity—a cap on player salaries—has so many loopholes, they say, that it no longer prevents teams from spending drastically different amounts on talent. And while it's difficult to make a precise connection, there's evidence that this imbalance may be responsible for lackluster games.
"I don't know that the salary cap has made it a better league at all," says Bobby Beathard, the two-time Super Bowl winning general manager for the Washington Redskins. "It's a little bit of a mirage," says David Modell, the former president of the Baltimore Ravens.
The NFL says the salary cap works and that it has achieved its main purpose. "A handful of teams can't hoard all the talent," says spokesman Greg Aiello. He cites cases in which lowly teams have turned it around quickly. "That's why the Arizona Cardinals can go to the Super Bowl."
When it was first implemented in 1994, the NFL's salary cap was an exotic concept. In America, as in the rest of the world, the norm was that team owners with the most money could get an advantage by hoarding the best players. After the cap was announced, a spokesman said it would "create a level playing field for all the clubs."
Long snapper Andrew Economos of the Tampa Bay Buccaneers seeks relief from the heat during a 24-0 loss to the New York Giants in Week 3.
In embracing the cap, the NFL's owners not only agreed to spending limits, they agreed to a salary floor (about 85% of the cap) that would prevent them from cutting back to generate higher profits. The players agreed to limit their own compensation, but were assured of earning a set portion of all the league's revenue.
For fans, as well as television networks and advertisers, this model of competitive socialism—a cost-controlled league where anything could happen on any given Sunday—was a seductive proposition. When the New England Patriots won the 2002 Super Bowl just one season after being among the dregs of the league, the cap's mystique reached an all-time high.
A 1994 Cleveland Plain Dealer column called it "an ingenious work of art that should be copied by all sports." A 2002 article in the Australian said the NFL's uncertain outcome every year was "a testament to the benefits of a strictly enforced salary cap." A 2006 editorial in the Economist called for soccer's English Premier League to adopt the same system.
As this decade progressed, however, the cap's greatest flaw came to light—it was vulnerable to its own success. As the NFL's TV contracts doubled and the value of its franchises crept above $1 billion for the first time, the annual cap number—the limit teams had to abide by—began to grow by as much as 25% per season. Teams started to realize that if they overspent in one season, the growth in the cap number would cover their excesses in the next one.
By 2005, Michael Duberstein, the former head of research for the NFL player's union, said it was clear that clubs were spending a lot more for players than the cap should have theoretically allowed.
"If there was a player out there and you were at the top of the cap, I don't know of an instance where you couldn't get that player," says Red McCombs, the former owner of the Minnesota Vikings.
Another flaw in the cap system is its complexity. To give teams flexibility to cover for injuries and trades and to keep some of their star players, the cap wasn't based on the dollars teams actually deposited in the bank accounts of players that season. It also factored in other payments the team had made earlier or would have to make in the future.
To manage their payrolls, teams hired "capologists" to find new ways to interpret the rules and to push actual spending up or down based on the owners' wishes. Agents say teams looking to spend less—or more—than the minimum have found loopholes.
A person familiar with the finances of the Tampa Bay Buccaneers says that last season, the team signed two free-agents, running back Noah Herron and defensive end Patrick Chukwurah, for contracts that totalled $25 million. Under the rules of the salary cap, the Buccaneers were charged that full amount for the players. But to actually earn that money, each player had to, among other things, block six punts apiece—an exceedingly difficult prospect. In the end, neither player ended up taking a single snap. Mr. Herron was paid $157,000 and Mr. Chukwurah $71,000, although the team's salary-cap number reflected the full value of their contracts. Tampa Bay, which ranked among the lowest teams in spending last season, has lost all six of its games. Tampa Bay and NFL officials declined to comment.
On the other side of the ledger, teams that want to spend more than the cap allows have found ways to do so. This season, the Minnesota Vikings have surged to an unbeaten start after putting on one of the league's biggest spending sprees. According to people familiar with the numbers, the Vikings spent $7 million in cash over the cap last season to get free agents like defensive end Jared Allen. In the off-season, the team picked up quarterback Brett Favre for $12 million.
Last season, six teams spent less than the league's official salary minimum in actual dollars, while 13 teams spent above the maximum, according to a person familiar with the matter. This season, the spread between the league's biggest payroll and the smallest was a whopping $66 million, enough to cover Indianapolis quarterback Peyton Manning's salary six times over.
While it's not clear how much a team's actual spending translates to wins and losses, a person who has seen these figures says that some of the NFL's better teams, the Vikings, the New York Giants and last year's champions—the Pittsburgh Steelers—have been near the top of the pile in actual spending while two of its worst—the Kansas City Chiefs and the Tampa Bay Buccaneers, are at the bottom.
The NFL says the cap is strictly enforced, and that the teams are working within the rules. Mr. Aiello, the NFL spokesman, says the loopholes in the salary cap system were meant to give teams flexibility, all the money teams spend—or don't spend—is "all accounted for at some point."
As the league enters the last year of its collective-bargaining agreement with the players union, the salary cap's fate is uncertain. If the league's owners and the players don't agree on a new contract soon, the salary cap will disappear next season.
Some people think the league's competitive disparities will only increase. Others say they're willing to bet against that. Joe Mendes, who worked as a capologist for the Washington Redskins, says ultimately, money alone will never win a championship. It's "culture and personality of the franchise," that matters.
http://online.wsj.com/article/SB10001424052748704224004574489773943949070.html
