According to Bruce Dowbiggin of the Globe and Mail, the Toronto Blue Jays received $36 million from Rogers Sportsnet in annual fees as their regional broadcaster last season. By comparing this figure to recent regional television deals in other markets and comparing the off season transactions of the franchises in those markets with the moves that the Toronto Blue Jays made, Mr. Dowbiggin connotes something devious in the disparity between these fees.
I use the term “connotes” because the title of the column is “How the Blue Jays dropped the ball,” and yet the wrongdoing that the byline refers to is never actually articulated. Instead, it’s inferred by the structure of Mr. Dowbiggin’s column which reads like a meandering undergraduate essay that likely could’ve benefitted from an additional conference or two with a teaching assistant.
Two very well written recent articles, one appearing in Baseball Prospectus, the other in USA Today, properly describe the changing financial landscape in parts of baseball. A sport, whose franchises have for years relied on gate receipts to finance its large payrolls, is now witnessing certain teams turning to the offerings of regional television networks to subsidize large free agent contracts. These two pieces cite the Los Angeles Angels of Anaheim signing Albert Pujols and the Texas Rangers bidding for the rights to Yu Darvish and agreeing to a contract with him as apt examples, with both organizations set to receive a large financial boost via long-term television deals.
It’s easy to see such deals and imagine that the television networks to be some sort of benefactor to the baseball team. After all, the broadcast partners are supplying franchises with an almost immediate increase in cash flow. However, television networks are a business as well. As Maury Brown describes for The Biz of Baseball, the recent spate of long term regional television contracts are seen as a means of making money for the networks.
Broadcast partners are gambling that by locking in deals over a long stretch, they will actually come out ahead. That means longer stretches as clubs come up for renewal. What may seem like a windfall now, could be actually less than expected in the future.
In this sense, the long term television contracts being signed right now are much like the long term free agent contracts that they subsidize. The value may be realized immediately by the team, but that dynamic will shift over the life of the deal, with the other party benefitting from the contract as it nears its end.
However, as television rights pertain to the Blue Jays, this makes little difference. They’re owned by the same entity that owns the network that broadcasts their games. Because of this situation, the league monitors the fees paid from the television entity to the baseball entity to ensure that the Blue Jays don’t take advantage of MLB’s revenue sharing policies by limiting their income.
Mr. Dowbiggin begrudgingly admits as much in his article:
According to sources, the Blue Jays roughly adhere to the formula provided by MLB in its TV payments to the club.
Also mentioning that “many MLB teams own all or a part of the network that broadcasts their games,” including the Yankees and Red Sox. But here’s the vital point that’s somewhat glossed over by Mr. Dowbiggin:
Market competition still guarantees those teams a windfall on their rights, while there is no competition for the Jays rights.
Despite this admission from Mr. Dowbiggin, the writer attempts to paint a picture of the Blue Jays market as being ripe for baseball, further implying that the current market should justify a larger price tag for Rogers Sportsnet.
The Greater Toronto market is the seventh largest in major-league baseball. However, under MLB criteria, all of Canada is protected Blue Jays territory, and on that basis Toronto arguably plays in the largest market by population and territory.
What’s not mentioned here is that parts of the East Coast are shared with the Boston Red Sox, Manitoba and Saskatchewan are shared with the Minnesota Twins, and Alberta and British Columbia are shared with the Seattle Mariners.
Even more important than examining what constitutes a team’s protective territory, is the unlikelihood of the Blue Jays receiving more than $36 million annually on the open market. Yes, the current price that Rogers Sportsnet pays for baseball content from the Blue Jays compares unfavourably with the new deals being signed, not only in Arlington and Anaheim, but also the coming agreements in San Diego, Los Angeles and Houston in the near future.
However, the disparity has far more to do with the lack of competitiveness for television rights in their regional market than it does the stinginess of Rogers. This is the entire purpose behind MLB monitoring the regional rights for teams and networks that have a synergetic relationship based on mutual ownership. Can Mr. Dowbiggin suggest with a straight face that there’s a network in Canada that would be willing to pay more than what the Toronto Maple Leafs earn through regional television rights?
Granted, only two thirds of the Maple Leafs games are broadcast regionally, and they too are dealing with similar ownership issues, but the annual cost that Rogers Sportsnet and TSN share for those rights would have to be multiplied by three before they would match what the regional FOX Sports networks have individually agreed to pay the Angels and Rangers.
Nonetheless, Mr. Dowbiggin argues the following:
In theory, by helping the team boost payroll to become more competitive, ratings, attendance and merchandise sales would all increase.
There exists a belief among many Blue Jays supporters that the team hasn’t done enough on the free agent market, and that their unwillingness to spend is hindering the team from being more competitive. Exploiting this sentiment is an easy way to rally those sharing this narrow view point and garner some page views, but it’s ultimately a misleading and inaccurate theory.
The strategy that Mr. Dowbiggin outlines above is one that puts the cart before the horse, and ignores the reality of the situation. Yes, the Rangers have what appears to be a lucrative television deal in place, but this isn’t a team that’s making wild investments in talent in order to build a winner. They’re already there. They’ve been to the World Series twice in the last two years. The Blue Jays are a combined four games above .500 over the last two seasons.
I’ve written about this before, but let’s revisit how Texas came to increase their payroll and actually use the money that they earned in their latest television deal. In 2008, the Rangers ranked 21st in payroll and 25th in attendance. In 2009, the team moved ahead into 19th in payroll and 18th in attendance. Then, in 2010, the team went all the way to the World Series on a payroll that ranked 28th in baseball, while drawing the 14th most amount of fans to its games. In 2011, the team returned to the World Series on a payroll that last year ranked 13th in the league, while drawing the 10th most amount of fans to its games.
Patience in using its money as a means of rewarding fans, rather than drawing fans has worked out well incredibly well for the Rangers, both on and off the field.
However, Mr. Dowbiggin remains concerned over the Blue Jays regional television income, giving the following foolish warning of a non-existant repercussion:
If they fall further behind their MLB competition in TV rights revenue, the Blue Jays will need to go to their corporate owners on a per-occasion basis to sign a superstar such as Jose Bautista or Roy Halladay.
Right, because Jerry DiPoto didn’t speak with Arte Moreno before offering Albert Pujols a ten year contract worth $240 million. Nor did Jon Daniels have any discussions with Nolan Ryan about spending $108 million to acquire Yu Darvish.
Imagining this to be the case is simply unrealistic.
The amount of money that Rogers Sportsnet pays for Blue Jays broadcast rights will have little impact on the team’s pursuit of free agents or extending the contracts of its current talent base in the future. Far more important is the team’s performance, which if successful, will lead to increased attendance and increased value in television rights. Let’s not forget how the Blue Jays came to hold MLB’s highest payroll when it won back to back World Series championships.
- 1985: 5th in attendance; 18th in payroll.
- 1986: 5th in attendance; 10th in payroll.
- 1987: 4th in attendance; 17th in payroll.
- 1988: 6th in attendance; 6th in payroll.
- 1989: 1st in attendance; 7th in payroll.
- 1990: 1st in attendance; 13th in payroll.
- 1991: 1st in attendance; 19th in payroll.
- 1992: 1st in attendance; 1st in payroll.
- 1993: 2nd in attendance; 1st in payroll.
Once again, the changing landscape in baseball as affected by regional television rights isn’t of the “one size fits all” variety. According to Maury Brown:
Increases in rights fees will continue as deals are renewed, but it will depend on the designated market size, performance of the team in the standings, ad revenues, ratings, etc.