Fascinating stuff in a piece on Tuesday from Simon Houpt of the Globe and Mail, as he follows ongoing CRTC license renewal hearings:
The traditional economics of broadcasting are disappearing, and only TV channels with multiple sources of revenue – from both advertising and subscriber fees – will be able to make money on sports in the future, according to Keith Pelley, president of Rogers Media.
The costs of sports rights “have escalated at a gargantuan rate,” Mr. Pelley told the Canadian Radio-television and Telecommunications Commission, which is weighing the renewals of 17 Rogers-owned TV services, including City network and Sportsnet. In the United States, rights costs “have doubled over the last 10 years. And it’s also happened in Canada.”
Mr. Pelley added that the conventional TV business is collapsing, amid a flood of programming and an exploding array of advertising choices for marketers, and that Canadian broadcasters’ reliance on U.S. programming is an unsustainable long-term strategy. “That’s why I feel so good we’ve acquired hockey. It allows us to reduce our reliance on U.S. programming, because I don’t believe, over the air, that’s where we’re going to make our money long-term,” he said.
The hockey broadcasts will allow City to cut its expenditure on U.S. programming by about 20 per cent, he added.
So, on one hand we’re being told that Rogers Media — the division that also controls the Blue Jays — needs to stem losses from an outdated traditional broadcast network with a too-small reach and, which Pelley later concedes, began trying to expand into a true coast-to-coast network “five to seven years too late.” (And, in that gloomy scenario for the division, it would almost make sense that everyone is being asked to tighten their belt.)
On the other hand, though, without saying so, Pelley is explaining to us just how astronomically valuable their no-bid Jays rights are. The value of those rights to the holders has doubled over ten years, he claims, yet when adjusted for inflation, the Jays were running bigger payrolls — thanks to commitments made at the end of the InBev era — in 2001 and 2002, than they were for all but one (2008) of the next ten seasons.
Much of the reason that the Jays even exceed that level again in 2013 was the fact that new revenue was on the horizon, with MLB’s new national TV deals about to begin pumping an additional $26-million into every team’s cash flow. Take that gift of $26-million away and the 2013 Jays still weren’t running as high an inflation-adjusted payroll as they were in 2002. (According to the Bank of Canada, the Jays 2002 payroll of $76,864,333 was worth $97.34-million in 2013 dollars. That year the club ran a big league payroll of $119.28-million. All figures per Cot’s.)
And yet the value of the TV rights — not subject in this two conglomerate town to actual forces of the market, as they’re kept entirely in house with Rogers — was in the process of doubling. Meanwhile the value of the franchise as a whole — which was purchased by Rogers for $120-million in 2000 — jumped to $950-million, according to a report last fall from Bloomberg.
That same report ranked the Jays as making the 22nd-most money off of TV rights out of the 30 MLB teams, despite the fact that the data from TV Basics ranks Toronto as the fourth-biggest market in the United States and Canada, and that the club’s games are televised nationally, pulling viewers from all over the country — who they gleefully market themselves to as “Canada’s team.”
In fact, Chris Zelkovich of Yahoo! reported last week that the Jays drew a “disappointing” 391,000 viewers for their Opening Day loss to Tampa. There are caveats, though. He explains that “the good news is that 1.9 million people tuned in for some of the game and 540,000 hung around long enough to ascertain that this game was pretty much over.” Meanwhile TV Media Insight cites a report indicating that the Yankees’ opening day game against the Astros on YES Network drew almost the exact same number, 392,000 viewers in the New York market.
Even if that’s an awkward, apples to oranges comparison — and it is: the Sportsnet number is national, while the YES number is specifically described as representing the New York market (though, on the other hand, the Yankees played at 7:10 PM on Tuesday, compared to 4:10 PM on Monday for the Jays, in a game that was all but over by the time most people returned home from work) — and even if the value of a Sportsnet viewer isn’t as high as that of a YES viewer because of the advertising dynamic of both regions and both teams, or if there is something in the way the numbers are measured that make them farther apart than they appear, it’s still a stunning contrast given that the Bloomberg figure for media rights revenue made by the Jays is significantly below that of the split-market Baltimore Orioles, and the small-market Clevelands.
More stunning: the Yankees, who Bloomberg ranks first in MLB in media rights revenue at $158-million per year, averaged just 244,000 viewers during the 2013 season — down from an average of 454,000 in 2007 — according to a New York Times report last October. Last weekend, according to another report from Zelkovich, the Jays on Sportsnet drew 664,000 (Sunday), 684,000 (Saturday), 896,000 (Friday).
And the Media division of Rogers clearly knows the value of such things, it’s president just having boasted about the $5.2-billion rights deal with the NHL that the company says it needs in order to save money.
I mean… do they wonder why Jays fans feel a fucking disconnect?
Again: the company boasts about how it will save money in the overall by paying $5.2-billion to the NHL, yet the Jays are caught in an endless cost-benefit loop where the benefit to ownership is so astronomically huge that any investment beyond the minimum simply doesn’t add up for them. Three times now they’ve shown that they’re willing to open the purse strings at precisely the point when they’ve felt that continuing their preferred pattern of inexplicable stinginess and false hope could actually do long-term damage to the brand. And every single time they’ve ultimately pulled back and left their GM to his own devices, saddled by bad deals made when the money looked like it was flowing, and an inadequate roster that he’s in too difficult a position to make meaningful change to. The effect is that it forces the GM to cross his fingers and go with what he’s got, the ultimate obvious failure of which providing the impetus for a new narrative: that Ash must go, that Ricciardi must go, that Anthopoulos must go, and that the club must start again from scratch — particularly when it comes to payroll, because obviously you don’t need a high payroll when your objective is to rebuild, and to trade expensive veteran talent for cheap promises of youth. In other words: more money for corporate coiffeurs! [Note: at Rogers they pay through the nose for fancy haircuts.]
Sure, that’s an awfully cynical way to look at it, but what the hell else are we left with at this point? What the hell else can we possibly think when a club is denied the ability to spend to better itself, and in so doing is forced to pass on wide open opportunities to put themselves in a much better position to break the cycle of mediocrity and disappointment? How can we be if not impossibly cynical?
And the worst thing is, it’s not even inexplicable or devious behaviour from Rogers. They’re doing exactly what you’d expect that kind of shameless, mammoth, greed belching company to do. In fact, the without-fail increase in equity and the ability to provide extraordinarily valuable content for extraordinarily cheap to their army of networks are precisely two of the reasons that the company bought the team in the first place — all the statues and pretensions to community service in the world aren’t going to make us blind to that. The fact that they are now able to use it to help prop up their stake in an industry they’ve suddenly realized has been on the verge of collapse for at least a half-decade would seem to be a nice bonus to the endeavor, and not one we’d expect ownership to decline using to their other properties’ advantage.
But boasting about how they’re going to subsidize other ventures, the demise of which they admit they’ve been too inept to see coming, off the back of this exact type of content, which only holds such tremendous value because of our loyalty to the Jays and our love of the sport of baseball? Doing that while not financially doing right by the team is offensive.
They can talk all they want about running the tenth highest payroll in the game (in the fourth largest single-city TV market, with a national reach that no other team can dream of), but we can see how stagnant it really has been. We can remember how they’ve been encouraged to pad the big league payroll thanks to MLB’s latest CBA and its spending limits on the draft and international amateur bonuses. We can see that the league has told them to behave like the big market club that they are, shutting off the revenue sharing tap and not considering them for additional “competitive balance” draft picks. We can see the viewership numbers, skewed as they may be, in comparison to the club getting the most out of its media rights.
We can see that they themselves admit to how quickly the value of the property has grown, we can see the impact that last year’s excitement had on attendance (more than 2.5-million through the turnstiles for the first time since 1997) and on TV ratings (a record 1.4-million viewers on Opening Day), and yet somewhere in the cost-benefit analysis the Jays still lose.
The benefit would seem, especially though their own admission, to be simply so high that additional cost — even after the levels to which excitement about the team can push attendance and ratings have been unequivocally demonstrated — is almost never justified.
The next group to run the Jays’ front office will need to understand this better than the previous ones have, and will need to have the balls to sidestep the “ownership directive” mandating spending that will ultimately come, and have the strength to continue building the club slowly, no matter how sick they get of that particular phase of the job — two subjects spoken about by J.P. Ricciardi in Blue Jays In Focus, which I wrote about yesterday, and two areas in which it seems his successor has followed his same path to failure. As long as ownership remains the same, the job of a Jays GM isn’t merely to win inside Major League Baseball, but to win within the Rogers corporation as well. Given all that, it’s not surprising that so far the person capable of both has proven elusive. And the shittiest thing of all is, Rogers probably likes it that way.
In the mean time, everybody cross your fingers.
Image via Toro.