UPDATE: Not so fast. The deal didn’t get done and now Time Warner Cable is hot and heavy into the negotiating mix. Fox is pissed, to say the least.
EXCLUSIVE: It seems strangely logical that the highest-priced sports team in the world is about to score the richest TV deal ever in pro sports history. Insiders tell me that Fox Sports is close to clinching the exclusive TV rights for the Los Angeles Dodgers by paying between $6 billion and $7 billion over 25 years to put the team on its regional sports network in Southern California and of course its national Fox Broadcasting Company. Fox already shows the games on its Prime Ticket local cable channel but also has Fox Sports West here.
The previous agreement expires at the end of next season, and saw Fox Sports paying only about $40 million per season for the Dodgers TV rights. There was speculation the final price would just go north of $150 million per season. This new deal soars to $280 million per season (the average for the life of the contract). The huge outlay by News Corp demonstrates the increasing value of sports to its bottom line, while the huge payday for Guggenheim offsets the record-setting $2.15 billion price paid for the Dodgers.
But the sheer greed of Guggenheim’s ask on this new deal is staggering, especially when you consider it will all get passed down to the cable systems, advertisers, and ultimately consumers. The alternative for Guggenheim included higher ticket prices which would serve to only further alienate fans. Plus the new owners claim to need the money to bribe talented players to come to the mediocre Dodgers. And then there’s the sad fact that Major League Baseball teams are shifting from broadcast TV to cable networks – so fewer games will be available on free TV. Fox Sports expects to broadcast only one or two Major League Baseball games a week for the national audience next season.
Guggenheim and Fox Sports began preliminary talks in May. Then Fox Sports Media Group Co-President/COO Randy Freer enjoyed a 45-day exclusive negotiating window with Guggenheim Baseball Management’s Todd Boehly, the president of private equity firm Guggenheim Partners who was negotiating solo for the Dodgers owners. (Those owners also include former Los Angeles Lakers star turned mega-investor Magic Johnson, former Atlanta Braves and Washington Nationals president Stan Kasten and Mandalay Entertainment CEO Peter Guber.) Those talks began October 15th and are set to expire on November 30th. My insiders think, barring any unforeseen obstacles, the Fox-Dodgers deal could clinch by Tuesday. If it doesn’t get done by the 30th deadline, Boehly will have blown the negotiations bigtime.
I’m told a deal came “very close” to being done about a week ago “and then it went a little bit south”. To rattle Guggenheim’s cages, Fox Sports delivered an ultimatum that a deal had to be done by the end of this month or else it would stop negotiating. (Terms like “It’s dead” and “We’re out” were used.) The Fox Sports gambit worked. Because it would have left Guggenheim in a terrible situation without multiple bidders and with little leverage for next-in-line Time Warner Cable since CBS, Comcast/NBC, ABC/ESPN and even the MSG Network (controlled by the owners of Cablevision) never materialized. Of course, Guggenheim could have opted for the Dodgers to start its own network, as the Mets and Yankees have done. But big rewards come with big risks.
Also, in the middle of the run-up to negotiations in early October, Guggenheim’s Boehly bought Dick Clark Productions and put on the table a “programming element” involving Fox Broadcasting Network and DCP. Specifically, it called for DCP to have “more inventory” i.e. more shows airing on Fox Networks, sources tell me. I’m told the provision has been “in and out and in” the deal over recent weeks but appears to be ‘in’ right now.
Freer really knows this business – he ran the Fox regional sports networks for nearly half a decade – and knows not to overpay. He’s not when you consider that the Dodgers will play 162 games when the season starts in April. And yet TV rights to the Lakers who play 82 games just sold to Time Warner Cable for $3B over 20 years. And Fox just paid $3B for 49% of the YES Network which owns TV rights to the New York Yankees for 20 years. Considering that Fox also has the right to own 80% of YES (and will surely exercise that option), then $6B-$7B for this Dodgers deal sounds about about right given the hyper-inflated finances of sports TV rights. In the era of DVR, Hulu, Netflix and other ways to watch TV, sports viewers (overwhelmingly male) watch live and therefore don’t always skip through ads.
This makes sports programming increasingly valuable. It also helps Rupert Murdoch move yet another step closer to that national sports channel which is his long-term play to rival ESPN – and as a result extract higher fees from cable and satellite companies. The deal also satisfies investor curiosity about what News Corp has planned for its $10B cash stockpiled last year to buy the remaining stake in British Sky Broadcasting – until that deal was scuttled because of Rupe’s tabloid phone hacking scandal.
I understand that News Corp Deputy Chief Operating Officer James Murdoch, who was key to the company’s YES Network bid, “helped a little” with the Dodgers deal. The scion is a big believer in the power of sports programming and in his newly expanded job James oversees News Corp’s television business, including its regional sports channels. Plus, News Corp is preparing to split off its troubled publishing assets into a separate publicly traded company from its entertainment giant which will continue to grow through acquisitions particularly in its regional sports and cable television businesses.
Fox Sports making this latest deal was both offensive and defensive. It’s not just ESPN whose the main rival. The last thing Fox Sports wants is to see Time Warner Cable snap up bigger pieces of local sports networks or national sports teams after it snagged the Lakers TV rights deal away from Fox for its new channel SportsNet. Indeed Time Warner Cable has stated publicly that “we absolutely plan to become competitive” in TV rights now that it’s launched both an English- and Spanish-language sports telecast.
Of course, it has to rile News Corp that it once owned the Dodgers from 1998 to 2004 after paying a mere $350 million for the team from the O’Malley family. Eventually, mismanagement took a $50 million a year toll on the team and owner, which then sold the Dodgers for $430 million to Frank McCourt, who earlier this year sold it to Guggenheim. At one time McCourt offered News Corp the team’s TV rights for a bargain basement price. Now, as one newspaper pundit put it, “someone in News Corp’s accounting department with a long memory will probably be rolling his eyes”.
Whatever happens, TV rights prices won’t come down anytime soon unless ‘a la carte’ cable gets some semblance of traction in the courts or Congress and not just with consumers. And if that does ever happen, “the strong will survive, the weak will go,” one Big Media bigwig told me today very matter-of-factly.