The infusion of unprecedented television revenue into baseball has changed the economics of the game dramatically over the past decade. The Los Angeles Dodgers are the latest team to cash in, securing the largest broadcast rights contract in the history of baseball. With an annual payout of $250 million, the Dodgers’ deal is nearly twice as lucrative as that of the Angels, who received the next-biggest media payout.
The dramatic changes to the economic landscape of baseball have mostly affected small to mid-market teams, like the Rangers, who have used an increase in revenue to expand their payroll. Texas had been in the middle of the pack in salary, but was able to negotiate a $3 billion dollar contract with Fox Sports after the Astros announced their new regional network in 2010.
As the only Major League team in Texas under contract with a network, the organization held all of the leverage with Fox, leading to one of the top TV deals in the game at the time. Since then, the Rangers have more than doubled their payroll and have reached the playoffs twice. They have used the additional dough to sign their homegrown players to contract extensions, most notably Derek Holland, Matt Harrison and Elvis Andrus. It is unlikely Texas would have been able to retain all of these players prior to their extension with Fox.
The Angels quickly responded to the Rangers newfound wealth with a television deal of their own. Los Angeles receives approximately $147 million in revenue from this contract each season. Unlike Texas, the Halos have used their new income to sign prominent free agents.
Albert Pujols signed a 10-year, $240 million dollar contract at the Winter Meetings in 2011. Josh Hamilton followed with a five-year, $125 million contract the next offseason. The only high-profile pitcher the Angels have signed since their deal was struck was C.J. Wilson in 2011.
There has never been a more noteworthy television contract in the history of sports than the Dodgers colossal deal with Time Warner. Los Angeles wasted little time spending the dividends, striking a deal with the Red Sox for Adrian Gonzalez, Carl Crawford, Josh Beckett and Nick Punto. The move added $258 million to the Dodgers payroll, and gave the Red Sox financial flexibility in the process.
The trade helped the Dodgers reach the National League Championship Series last season, and it didn’t make a dent in the team’s financial flexibility. The club signed Zack Greinke (the top starter on the market last year) to a $147 million deal just four months after the trade with Boston. That’s a gargantuan increase of $405 million in salary for five players.
The Yankees used to be the big spender on the block, but Ned Colletti is making George Steinbrenner look downright frugal.
Other teams have not been as fortunate with their television contracts. When the Astros launched their regional sports network with the Houston Rockets and Comcast, the club was supposed to receive approximately $80 million a year in revenue.
Houston received all of the money owed in the month of April, but Comcast failed to pay anything in May and June. At the end of the season, the Astros had only received 30% of the revenue owed to them, which was catastrophic for an organization that struggled at the gate after another 100-loss season.
To make matters worse, Comcast only serves approximately 42% of the Houston market, leaving the majority of fans unable to watch their team play. The fan base had already displayed animosity to the Astros new ownership group, and this latest development didn’t help.
Houston was forced to attempt termination of the contract, prompting Comcast to file for Chapter 11 bankruptcy protection. The Astros have won the first battle in district court, securing permission from Judge Marvin Isgur to find another carrier for the 20-year deal.
The long-term effects of the botched deal are potentially dire for the financial health of the organization. The Astros are building one of the best farm systems in baseball. Sure, Houston may lose 100 games again next year, but they are well ahead of schedule overhauling the system. Should they continue this success, Houston will be ready to compete in the AL West in as little as two years.
A lack of significant attendance makes every dime of the Astros’ television revenue that much more important. How are the Astros going to expand their payroll as they progress closer to contention? How will they be able to afford arbitration raises or augment their roster with free agents in order to compete in the AL West?
Despite all of the things the Astros are doing correctly in their rebuilding process, the dispute with Comcast threatens the long-term viability of the franchise. If they receive the full $80 million a year, the Astros will be a top-five team in television revenue. If Comcast receives bankruptcy protection, the Astros may be fighting the Tampa Bay Rays for bargain bin free agents.
With no salary cap and the ability of organizations to negotiate their own TV deals, the economics of the game have changed forever. The Dodgers may have the top revenue contract for now, but this league has always been about exceeding even the most absurd of deals.
The Dodgers were able to capitalize on one of the strongest brands in sports to negotiate their broadcast rights agreement, but another organization will surpass them in the future.
In a game ruled by the almighty dollar, the television contract has fed the proverbial belly of greed.