It's a tumultuous time in Major League Baseball, both on and off the field. As the league seeks to improve its television product through a series of rule changes this season, behind the scenes TV execs, distributors and owners are grappling with a regional sports network model that's teetering on the brink.
Forbesrecently publishedAnnual reviews of the 30 MLB teams, an imprecise but valuable exercise in contextualizing the financial health of each franchise. This year,Forbesnumbers provided on theannual media rights feesthe franchises collect from the regional sports networks that broadcast their games, along with the average home audience that receives those games.
With the latest developmentsDiamond Sports GroupChapter 11 bankruptcy andDiscovered by Warner Bros.Announcing its intention to cease operationsAT&T SportsNetChannels face immediate uncertainty over 18 teams paying media rights fees.
As franchisees and owners alike ponder how best to position themselves in a post-RSN world, some teams that hold stakes in control of their RSN have adopted a direct-to-consumer alternative. Last year owned and operated by the Red SoxNESNinsertedNESN 360priced at $30/month, a DTC service that allows fans to watch the Red Sox and Bruins regular season games.
While these alternatives cost about two to three times what consumers pay for monthly streaming servicesNetflixÖDisney+, will bring teams nowhere near the financial gain they are accustomed to from traditional local rights deals, even with widespread adoption.
In this article, we examine the financials of the traditional RSN model and compare it to a hypothetical DTC model. Which teams will be most at stake if the RSN model collapses?
the traditional model
Most MLB fans are used to watching their home team on an RSN, which requires a cable subscription. The basic money transfer process is as follows: The viewer pays a cable operator, such as Comcast, for a set of television channels that contain an RSN. The cable operator, in turn, pays RSN a transmission fee entitling it to transmit the channel. RSN will use the money it earns from transporting and selling promotional material for its program to buy the rights to broadcast matches directly from the team.
This is the local eligibility fees each team earned compared to their total earnings in 2022, perForbes.
|equipment||Revenue (millions of US dollars)||Rights fee (USD million)||Rate as % of sales|
|Diamondbacks tun Arizona||276||68||24,64%|
|Orioles von Baltimore||264||61||23,11%|
|Boston Red Sox||513||97||18,91%|
|Chicago White Sox||276||60||21,74%|
|Colorado Rocky Mountains||286||57||19,93%|
|Royalty of Kansas City||260||45||17,31%|
|angels of angels||371||112||30,19%|
|Los Angeles Dodgers||581||196||33,73%|
|New Yorker Mets||374||88||23,53%|
|New York Yankees||657||143||21,77%|
|Parents from San Diego||324||47||14,51%|
|San Francisco Giants||421||92||21,85%|
|Seafarers from Seattle||363||100||27,55%|
|Saint Louis Cardinals||358||59||16,48%|
|Lid Bay Ray||248||56||22,58%|
|Ranger tun Texas||366||111||30,33%|
|citizens of Washington||356||61||17,13%|
It's important to note that some franchises have an interest in RSN, which broadcasts their games. For us, that means dates aren't always the same, as some teams basically pay themselves.
In general, local media rights account for a larger percentage of franchise revenues in large media markets. The four teams that accounted for more than 30% of total local media rights royalty revenue in 2022 — Los Angeles Dodgers, Los Angeles Angels, Philadelphia Phillies, and Texas Rangers — fit this pattern.
In contrast, smaller market teams earned a lower percentage of local media rights revenue. Two small teams, the Milwaukee Brewers (11.2%) and the San Diego Padres (14.5%), generated the lowest percentage of total local media rights revenue in 2022.
Intuitively that makes sense. Teams in large media markets negotiate higher RSN rights fees than teams in small media markets because more people are tuning in to their games, at least in theory. However, the viewer numbers do not confirm this.
again forForbesHere is each team's average national viewership for the games shown on their local RSN, compared to the revenue they collected through local media rights in 2022.
|equipment||Average Public HH (000)||Rights fee (USD million)|
|Diamondbacks tun Arizona||20||68|
|Orioles von Baltimore||29||61|
|Boston Red Sox||68||97|
|Chicago White Sox||58||60|
|Colorado Rocky Mountains||15||57|
|Royalty of Kansas City||37||45|
|angels of angels||47||112|
|Los Angeles Dodgers||120||196|
|New Yorker Mets||180||88|
|New York Yankees||231||143|
|Parents from San Diego||51||47|
|San Francisco Giants||64||92|
|Seafarers from Seattle||68||100|
|Saint Louis Cardinals||91||59|
|Lid Bay Ray||52||56|
|Ranger tun Texas||21||111|
|citizens of Washington||21||61|
You'll find that there isn't a direct 1:1 correlation between viewership and the local media rights fee that teams charge. For example, in 2022, the Texas Rangers only reached an average domestic audience of 21,000 (ranked fifth in MLB) but raked in $111 million in rights fees (fifth-highest in MLB). It should be noted that the Rangers have none of theseBally Sports South West, the RSN that broadcasts their games, meaning that's the amount Rangers received on the open market.
Part of what explains this discrepancy is the transportation fee. This is the fee cable operators pay RSN in exchange for the right to broadcast the channel to their subscribers. Historically, RSNs have charged some of the highest operator fees on the entire cable network. Why? Because for many, the main reason for getting a cable subscription is the ability to watch their local sports team.at all. Both the RSN and cable operators recognize this leverage and RSNs are paid accordingly.
However, not only do those who watch the local teams on their RSN have to be hit with a hefty carrier fee, but everyone with a cable subscription. This gives teams in large media markets a clear advantage. Dallas, for example, has just over 3 million homes with a television, while Milwaukee has around 900,000. Because RSNs in large markets earn multiples of the carriage fees of those in smaller markets, teams in large markets can charge a higher royalty regardless of target audience.
But the advantage that the big teams in the market are enjoying now may not materialize anytime soon.
The carry rate model is at the heart of the collapsing RSN model and the clock has struck midnight on sports TV's biggest scam. For years, non-sports viewers have simply subsidized the cost of watching live sports with a cable subscription. With more viewers cutting the cord and the cost of live sports rights rising, RSNs are feeling the pinch. Because RSNs pay more for rights, they charge a higher transport fee. Higher shipping costs mean more expensive cable bundles. And more expensive cable packages result in more people cutting the cable.
Who wins and who loses when everything is rolling at RSN?
A likely scenario in a post-RSN world is teams bringing their games directly to consumers. We've already seen some experiments with services like NESN 360.
The chart below shows how each MLB team would fare using a hypothetical DTC streaming service. For purposes of this article, let's assume that $30/month is the current price for a DTC service that gives viewers access to all of your local MLB games. We also expect this service to see widespread adoption, with 100% of the current average home audience subscribing to the service for 6 months (or roughly a full MLB season).
The chart below shows the revenue each team would earn in this hypothetical scenario and the percentage of revenue compared to the team's current royalty rate.
|equipment||Average Public HH (000)||Rights fee (USD million)||100% DTC Conversion (Million Dollars)||% of current price|
|Diamondbacks tun Arizona||20||68||3.6||5,29%|
|Orioles von Baltimore||29||61||5.2||8,52%|
|Boston Red Sox||68||97||12.2||12,58%|
|Chicago White Sox||58||60||10.4||17,33%|
|Colorado Rocky Mountains||15||57||2.7||4,74%|
|Royalty of Kansas City||37||45||6.7||14,89%|
|angels of angels||47||112||8.5||7,59%|
|Los Angeles Dodgers||120||196||21.6||11,02%|
|New Yorker Mets||180||88||32.4||36,82%|
|New York Yankees||231||143||41.6||29,09%|
|Parents from San Diego||51||47||9.2||19,57%|
|San Francisco Giants||64||92||11.5||12,50%|
|Seafarers from Seattle||68||100||12.2||12,20%|
|Saint Louis Cardinals||91||59||16.4||27,80%|
|Lid Bay Ray||52||56||9.4||16,79%|
|Ranger tun Texas||21||111||3.8||3,42%|
|citizens of Washington||21||61||3.8||6,23%|
As you can see, high-end teams can expect to earn 25-30% of their current media rights deal, while low-end teams can expect to earn only 3-5% of what they currently earn from media rights earn. Keep in mind that this is done with fairly generous parameters, assuming 100% of a team's current audience buys a streaming service at $30/month for 6 months.
Of course, teams should expect to earn only a fraction of what they earn from a DTC service on linear television.
In this scenario, there aren't as many winners and losers as there are losers and big losers. The teams with the most loyal fans will lose the least compared to the status quo. This includes not only teams from big markets like the Yankees and Mets, but also teams from smaller markets like St. Louis, Milwaukee, Minnesota and Cleveland.
Likewise, the big losers are market teams large and small with no loyal following. Teams like the Texas Rangers, beneficiaries of the traditional transportation fee model but without fan support, are the biggest losers in this scenario. It's not surprising to see that some of baseball's less popular teams, like the Miami Marlins and Oakland Athletics, would be hit harder than they already are.
In a way, a DTC model could make MLB more powerful. Because sales are less dependent on market size, there is a level playing field for franchises in smaller markets. It could also encourage teams to invest in talent as their earnings increasingly depend on fan satisfaction.
Of course, none of this is realparts listto the MLB score or an individual franchise for that matter. Because of this, we will see teams sticking with the RSN model until it is no longer viable. But sooner or later the RSN payouts will stop and it's up to the teams to find ways to recoup the lost earnings. Direct-to-consumer may be part of that equation, but it certainly won't be everything.
Editor's Note: The Toronto Blue Jays are excluded from this article because Nielsen does not collect data outside of the United States.