giorgiovarlaro

July 15, 2012

Major League Baseball to see its True Value

Filed under: Major League Baseball — Giorgio Varlaro @ 4:02 pm

Supplied via Google Images

Most professional sports teams are private entities. Because of this it’s rare to find accurate annual profits where team values can be determined. Creative ways of finding this information have been proposed in research (comparing team value over time to the current market), but without the correct data the soundness of the research isn’t strong.

A big proponent in a teams’ value is television revenue. Before luxury seating became a staple in newly constructed stadiums and arenas, revenues from television contracts were a staple of a successful franchise. Marginal revenue gains increased from the millions to the billions thus leaving all competitors in the dust, searching for their chance at a lucrative television contract.

Major League Baseball (MLB), which collects an average of $711 million each year from ESPN, FOX and Turner, is searching for a competitive television contract for the 2013 season. Once completed, the contract will show MLB commissioner Bud Selig the true value of his commodity.

In trying to exploit networks appetites for ratings, the MLB wants to return baseball to NBC. NBC Sports Network (NBCSN) needs programming which is more powerful than its current marquee properties: the National Hockey League and Tour De France. Fox is also considering turning its Speed channel into an all-sports network, which would need more than motor racing to thrive.

One change baseball has proposed is an all-encompassing deal to one media giant for a game of the week, the All-Star Game and the postseason. It’s unlikely to happen because leagues prefer to satisfy multiple partners.

What the MLB does realize is NBC’s need for it. NBC is the fourth-ranked network, even though “Sunday Night Football” finished last season as the highest rated program in prime time. NBCSN cannot survive on only hockey, cycling, boxing, Mountain West Conference football, horse racing, soccer and elk hunting. Here’s where the MLB comes into play.

NBC’s Olympic coverage, which is slated to start on July 27th, is sure to dominate prime time coverage and receive record viewership, but after closing ceremonies what does the network have to offer television viewers?

With rights fees for professional and college sports soaring, let’s see what the MLB can attract. The National Football League signed a nine-year extension with FOX, NBC and CBS totaling $27 billion in 2011. NCAA basketball signed a 14-year deal with CBS and Turner Sports totaling $11 billion in 2010. Should Major League Baseball come close to these deals, reveals its importance to television viewers.

Website: http://www.nytimes.com/2012/07/03/sports/baseball/major-league-baseball-wants-more-money-from-tv-contracts.html?_r=2&ref=sports

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2 Comments »

  1. The financial aspect of these deals is very interesting, and I admit that I am not extremely well-versed in the subject. MLB’s problem is that it has fallen to a solid number 3 sport for American TV, as the NFL is more powerful than its ever been, and the NBA has taken a solid grasp of the number 2 spot. Baseball needs to examine how it can maintain and expand its current appeal, and locking in a TV deal to one network is not the answer. The last couple world series have seen very low ratings (the lack of the Yankees or Red Sox has a tendency to do that). The obvious exception is whenever something goes to a game 7, as the Cardinals/Rangers game 7 was highly viewed. What I find interesting is that the networks in the last 8-10 years have been switching more sporting events to cable networks instead of the big broadcast networks (Fox, NBC, CBS, ABC). Monday Night Football switched from ABC to ESPN, the big college football bowls switched from big networks to ESPN, and NBC I read loses money on Sunday Night Football, despite astronomical ratings, due to its contract with the NFL. NBC needs its ratings though, as its basically their only tentpole to advertise their other shows on (hard to advertise on their regular shows when no one watches them). Again, I don’t know how the various financial intricacies work out so sporting events lose money on the big networks sometimes, but its an interesting topic.

    Comment by Cory Smith — July 15, 2012 @ 10:16 pm | Reply

    • This is where competitive balance comes into play for Major League Baseball. To be more specific, competitive balance reflects the uncertainty of the outcome when consuming a professional sporting event. Hence, the more uncertain the outcome, the better the product. Can that be said in Major League Baseball? In my own opinion, not by a long shot. With this new television contract, it gives enthusiasts of sports the true value of the games in regards to the market (which is important information). Will it be covered by ESPN? Yes. Will competitive balance be mentioned as the reason for a less lucrative agreements than their competitors? Not likely. Due to this, it will be interesting how long Major League Baseball stays with it’s current business practices. Will a soft salary cap and luxury taxes keep this product interesting enough for viewers to stay in their seats for more than just a Game 7 of the Wold Series? Who knows!?!?!? What we can gather from this information is that Major League Baseball has far too many lingering questions which need to be answered. Knowing what not too do will be imperative for this sport to remain competitive.

      Comment by Giorgio Varlaro — July 16, 2012 @ 12:33 am | Reply


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