Bally Sports-branded RSNs, owned by Diamond Sports, broadcast local games for 16 NBA teams.USA today pictures
Diamond Sports Group, which holds the rights to 42 MLB, NBA and NHL teams across its 19 regional sports networks, appears weeks away from filing for bankruptcy protection. Warner Bros. Discovery, which has the rights to 10 professional teams on its four RSNs, is seeking to go out of business entirely and has begun negotiating with the teams to regain their local rights.
Times are tough in the RSN business, which has had a tremendous impact on teams that have depended on this ever-growing revenue stream for the last several decades.
Many MLB, NBA, and NHL teams have been told to expect their local media rights fees to be reduced by as much as 70% over the next few years as they try to find new ways to bring their games to their local fans to provide. This impending revenue slump is significant because most local media revenues are among the top two or three revenue generators for teams – they can range from as little as 10% of a team’s total revenue to as much as 60 or 70%.
But during this month’s NBA All-Star Game celebrations in Salt Lake City, league and team executives almost agreed they’re not going to be panicked by the RSNs’ crumbling business plans — at least not in the short term.
“[Even] Worst case scenario, our games will still be broadcast,” said Orlando Magic CEO Alex Martins, who is in the midst of a rights deal with Bally Sports Florida. “In terms of revenue, if it was a free fall and they had to stop making payments, we would have to work through that. But everything indicates that will not happen.”
The Magic have five years left on a 10-year rights deal that began with the 2016-17 season. This deal has an average annual value of $40 million, sources said.
So far, Bally Sports Florida has not asked the Magic to revise their deal to account for the RSNs’ crumbling business model. In fact, all league and team leaders contacted by SBJ over the past few weeks said they received full rights fees from their RSNs.
That sense of confidence was echoed by NBA Commissioner Adam Silver. That’s because the NBA’s regular season ends on April 9, just three weeks after Diamond is expected to file for bankruptcy protection.
Worst-case scenario, if Bally Sports decides to stop broadcasting local games for its 16 NBA teams once it goes bankrupt, the NBA will only have to struggle through those three weeks.
“For that period, if necessary, we will find a way to continue distributing these games,” Silver said during his annual press conference the day before the NBA All-Star Game.
Diamond Sports has informed the leagues and their teams that they intend to continue producing and distributing games as expected even after bankruptcy protection has taken effect.
“We hope our teams continue to receive their contractual payments,” said Noah Garden, MLB’s chief revenue officer. “If that’s not the case, we stand ready to support our clubs and ensure our fans can see their favorite teams. Baseball has always been the backbone of the RSN business.”
Teams will have a hard time not getting soaked in the declining RSN industry, at least initially. Warner Bros. Discovery is looking to exit the business it operates as Root Sports and AT&T SportsNet.Getty Images
The challenge, as the RSN business continues to decline, is to try to develop a new local sports rights model that could eventually replicate the revenue streams currently provided by the RSNs.
There is consensus that the streaming push to replace the RSN model alone will bring in only a fraction of the local media revenue currently coming from RSNs.
An NBA team president cited internal research that predicted RSN rights payouts would drop from $30 million a year to about $8 million if it self-transmitted its games through a direct-to-consumer -Service would provide.
During his press conference, Silver said he wasn’t concerned about recouping those RSN earnings in the long run, citing local over-the-air TV stations and national streaming services that could step in to fill the breach.
Some team leaders have already started talks with local broadcast groups like Scripps, Gray Television and Sinclair, although they still have a few years left on their RSN contracts. They view these conversations as a way to detach from the RSN should it implode sooner than expected.
Take for example the RSN operating in Phoenix – Bally Sports Arizona. Due to a combination of cable cutting and distribution deals, the RSN only reaches 40% of the Phoenix market. League and team officials expect that percentage to continue to fall.
The choice is not so easy. On the one hand, a local broadcast deal would immediately double the size of the teams’ target audience. On the other hand, local broadcasters don’t pay nearly as much for the rights as RSNs.
It’s the next few years — dubbed “the halfway point” by Silver — that inspire the most anxiety among team and league leaders.
“We’ve had extensive discussions with Diamond … about a potential reorganization and I’m pretty optimistic that we’ll be able to work something out with them,” Silver said. “But if we can’t do that, we’re going to make sure we have a system in place to deliver those games to the fans.”
A benefit of the NBA is the fact that its national media rights deals with ESPN and Turner are finalized after the 2024-25 season. The biggest media and technology companies have already begun jockeying for positions to take over the NBA’s domestic rights. Top executives from ESPN, Warner Bros. Discovery, Google, Amazon and Apple descended on Salt Lake City this month to attend the All-Star Game celebrations and meet with their NBA peers.
This kind of auction atmosphere makes it likely that the NBA will at least double the value of their current deal. This influx of national media revenues will do much to offset any shortfall in local media revenues.
The Magic’s Martins also expects many of his team’s local legal questions to be resolved during these national negotiations.
National partners could agree to stream all matches, with teams providing local announcers. This scenario would kill all blackouts.
Martins also cited a league-run and distributed streaming service as a possible solution.
“I just know it’s going to be different,” he said. “The model we’re used to is changing, and our job is to figure out how best to monetize it as those changes happen.
“There will be pain. There will be a rocky time. There may be a time when you need to accept a little less as you create a model that ultimately delivers more. In the long term, it will be as healthy as ever. It will just look different.”
Comments are closed.