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hand we’re being told that Rogers Media — the division that also controls the Blue Jays — needs to stem losses from an outdated traditional broadcast network with a too-small reach and, which Pelley later concedes, began trying to expand into a true coast-to-coast network “five to seven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.”