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The Sports TV Bubble & The Cubs' Proposed TV Channel

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The Cubs are hoping for big TV money in 2020. Will they get it?

One of the things discussed at length here and elsewhere in the wake of the Cubs' eight-year, $184 million deal with Jason Heyward is the idea that, right around the time that Heyward can opt out of the contract, the Cubs will be getting an infusion of many millions (if not billions) of dollars from the Cubs Network they are hoping to launch in 2020.

The Cubs' current TV contracts, a mishmash that currently has them shown on four different Chicago TV channels, all expire after the 2019 season. At that time the team hopes to bring all the games to you on one channel, similar to what the Dodgers have done in Los Angeles with SportsNet LA.

Oh, wait. Maybe that's not such a good idea:

Time Warner Cable is expected to shoulder the burden of its bad deal to acquire TV rights to Los Angeles Dodgers games by writing down the value of the asset by up to $1 billion, sources say.

Time Warner Cable and Dodgers fans are facing a second season of silence from West Coast TV distributors who, so far, are balking at the price for carrying Time Warner Cable’s SportsNet LA, which carries the Dodgers games exclusively.

A $1 billion loss. That's decidedly not chump change. That New York Post article was written last March and nothing's really changed for Dodgers fans -- SportsNet LA is still not available to the bulk of the Los Angeles market, and as of a week or so ago, there hadn't been any agreement made with the majority of providers in that market for 2016 Dodgers games.

Last month, in the wide-ranging interview Cubs President of Business Operations Crane Kenney had with me and other Cubs bloggers, he said the team is going to go forward with the Cubs Network plan:

He seemed quite committed to having a Cubs network that would be compelling enough so that service providers in the Cubs' territory would want to carry it -- at the right subscriber cost. He also hinted that it might be available in other markets for everything except live games, so it's conceivable that a Cubs Channel could be available nationwide. If you're outside the Cubs' territory you'd still be able to watch the live games on MLB.tv or Extra Innings. Kenney didn't rule out the idea of partnering with an entity such as Comcast or DirecTV in creating a Cubs channel.

The last sentence is, I think, the most important. Time Warner went it alone with the Dodgers, but since that company doesn't have full coverage in the L.A. area, the current standoff resulted as other providers balked at paying the per-subscriber fee Time Warner was demanding.

If the Cubs partnered with Comcast (they already own 20 percent of CSN Chicago) or DirecTV, they likely wouldn't have this issue. If the Cubs don't partner with Comcast (for example), they risk what happened in parts of the New York market regarding the Yankees' YES Network in late November:

Last week, Comcast stopped carrying YES Network, a regional sports channel that is home to the New York Yankees and Brooklyn Nets and majority owned by 21st Century Fox. Comcast had been distributing the channel to roughly 900,000 homes in New Jersey, Connecticut and Pennsylvania.

Pay-TV providers have been willing to pay more to carry YES Network than any other regional sports network in the country—almost $5 a month per subscriber, according to SNL Kagan. So what changed? That depends on who you ask.

This dispute has yet to be resolved.

An even bigger and more important question is whether the cable rights bubble will burst by the time the Cubs want to put together their network. Many of you have noted in comments to various articles here that you're cutting the cable cord, and this nationwide trend could hurt TV sports rights deals going forward:

Vince Gennaro, the director of the graduate sports management program at Columbia University, said he wonders if the current deals between teams and cable services are sustainable. "These are major strategic issues that the consumer is going to have a large vote in," he said, adding that he is not sure that baseball’s regional networks have an accurate view of the threat they’re facing. "Are the networks reading the market right? Are they reading the consumer right?"

Baseball is reacting to the situation by trying to beef up its online streaming capabilities. Starting next season, 15 fan bases will be able to watch their team’s games online in-market and blackout-free.

"The media landscape is changing very, very rapidly," MLB commissioner Rob Manfred said last month. "It’s important for us to make certain our content is available on as many platforms as possible."

At this point, this service still requires a television subscription to the channel that pays for the rights to show the games locally. While MLB teams could someday stream them "over the top," or directly to customers, it’s not clear whether they will be able to make as much money. "There’s going to be some real pressure," Zimbalist said. "What we don’t know yet is to what degree the streaming market will replace that. My own hunch is it will fall short."

"Zimbalist" is Andrew Zimbalist, a sports economist at Smith College who has written a number of books about sports economics. The points he and Gennaro makes are salient: are the huge-dollar levels of current regional sports network deals going to keep increasing? And if they are replaced by online streaming, will the money that comes in continue to increase the way it has over the last decade or so? Would you be willing to pay a per-game fee for every game you watch? Even though that hasn't been specifically suggested, if teams are facing major losses due to the economic differences between current cable deals and online streaming, they could potentially go in that direction.

This Fangraphs article has a good history of the Cubs' recent TV deals and how the current ones are structured. Author Craig Edwards writes:

The Cubs do not appear in a hurry to make any further drastic increases in payroll.

That article was written November 16, before the signings of John Lackey, Ben Zobrist and Heyward. The link in that quote is to a CBS Chicago article from November 3 that presumed the Cubs would have about $120 million in payroll obligations for 2016. Obviously, that figure is going to be higher. Can the Cubs afford it? Maybe in 2016 they can, but without new TV money coming in until at least 2019 or 2020, they might be hard-pressed for increases going forward.

There's more "cautionary tale" in this article from the Daily Beast, which is primarily about national cable rights but issues the same "bubble bursting" warning and concludes:

The brazen economics of modern sports are being revealed and dismantled by the Internet, and the coming fumble-pile of desperate industry participants should make for some great viewing. That’ll be bad news for $30 million-a-year over-the-hill third basemen, the greater fools who pay them, and the unknowingly subsidized superfans who love them.

It's entirely possible that Kenney is correct, that the Cubs can launch a stand-alone network four offseasons from now and pocket many billions of dollars that would put the Cubs on a financial par with the top clubs in baseball. It seems to me, though, that things in the sports broadcast landscape are changing so rapidly that no one could possibly predict what it will look like as the calendar turns from 2019 to 2020. It's a big-money bet the Cubs (and really, all sports teams and leagues) are making. For our favorite team's sake, let's hope they're right.