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The Cubs And WGN-TV: What's Next?

Local TV rights fees for baseball games have exploded in the last few years. The Cubs want in on this. Is it too late?

Again, it's trade-deadline day, but there is other Cubs news worth discussing, including this long piece by Ed Sherman in the Tribune about the Cubs' WGN-TV deal, which expires after 2022, though the Cubs, as Sherman points out, have exercised:

a clause to opt out after the 2014 season. At stake for the Cubs is a chance to cash in on exploding local TV rights fees. The Dodgers, Angels, Rangers and Mariners recently have signed long-term rights deals in the billions. Yes, billions.

Clearly, the Cubs are hoping to get in on some of those "billions." That'd be a big help in putting together a winning team, wouldn't you think?

You should read Sherman's entire article for all the various options; Sherman's summary and conclusion, with which I concur, is:

What's going to happen? The best bet is that the Cubs will do a short-term deal with WGN for five years through 2019, syncing up their entire package with the games they have on cable. The deal makes sense for WGN, giving the network some time to plan its next steps.  

Then it seems likely the Cubs will move exclusively to cable in 2020 either with their own network or on a second CSN.  

However, the situation is very fluid. Don't discount the possibility of an "out-of-the-box" deal that could go in many directions.

I've written before on this topic (and today put together this StoryStream with all the articles I've posted about the Cubs and WGN, including this one), and to me, as to Sherman, the situation appears "fluid." There is value to both the Cubs (66 years of tradition, the longest-running such relationship in baseball history) and WGN (the Cubs really make their national channel what it is, despite Sherman's claim that WGN could go the TBS way and produce their own entertainment, there's little evidence they want to go in that direction) in maintaining the connection.

Nevertheless, this is clearly all about money, and the Cubs are going to try to squeeze out every last dollar that they can from any new deal they make following 2014, whether it's with WGN or someone else.

However! (There always seems to be a "however" in situations like this, right?) You should read this excellent FanGraphs article on this subject, written by Wendy Thurm, who has covered this in detail for several months for them. Critical to Thurm's argument is this:

Baseball is live sports programming, 162 games a season. Just like with national sports broadcasts, advertisers want to have their products in front of a baseball-watching audience who can’t skip through the commercials. Regional sports networks want that expected ad revenue, so they bid billions for the right to broadcast the local team’s games for a long, long time.

But ad revenue is only a part of the equation. Regional sports networks charge a carriage fee to cable and satellite companies, just like ESPN does. And while RSNs don’t often have non-sports programming to bundle with their sports offerings, they have the leverage of being the only game in town for fans who want to watch the local sports teams.

Or do they?

Comcast launched CSN Houston last year in a joint venture with the Astros and the NBA’s Rockets. The Astros own 45% of the new network and will receive $80 million per year for 20 years. But three of Houston’s cable and satellite companies have refused to pay the $3.40 carriage fees CSN Houston wants to charge per customer. That’s left 60% of the Houston area without access to Astros and Rockets games. In San Diego, 40% of cable and satellite customers don’t have access to Padres games because Time Warner Cable has refused to carry pay the carriage fee Fox Sports San Diego charges.

The San Diego situation, in particular, is a mess. The article goes on to point out that the "hyper-inflated prices", as Thurm puts it, that teams like the Dodgers have received for local TV rights, are in part because currently, cable packages are "bundled":

Disney owns ABC, Disney Network and ESPN. If a cable or satellite operator wants to offer ESPN to its customers, it must purchase and pay for all Disney-related programming, and vice versa. The cable or satellite company then has no choice but to offer ESPN and Disney Network as a bundle, even if some customers only want ESPN and others only want Disney.

Thurm's article mentions legislation introduced by Arizona Sen. John McCain which could change all this, "unbundle" TV groups like this and let people pay "a la carte" for individual channels that they want without paying for the rest.

Couple this with the fact that many people are "cutting the cord" and getting rid of cable altogether and watching channels and movies they want on mobile devices, and you can see that it's possible that the local TV sports rights "bubble" might burst... right at the time the Cubs are trying to take advantage of it.

Thurm's article contains an updated chart on what teams are getting for local TV rights, well worth perusing. You can see that the Cubs are well behind not only the Dodgers, but the Angels, Rangers, Mariners and even the Padres and Astros in per-year money from local television.

Can the Cubs get in before the bubble bursts? That's the key question the Cubs are trying to answer before they extend or change any deals.