New TV Deal Could Earn Cubs Additional $100 Million in Annual Revenue

As our own Evan Altman wrote yesterday, the Cubs confirmed their intentions to start their own television network at the conclusion of the 2019 season. The switch is expected to significantly increase team revenues and my estimates have that increase at about $90-100 million a year.

The Cubs current broadcast rights call for them to bring around $70 million in cable revenue, plus another $14 million from terrestrial stations, next season. The most recent club to negotiate a new TV deal was the Tampa Bay Rays, who reportedly negotiated a 15-year deal averaging $82 million per year this past January. That represents a 134 percent increase on their previous $35 million deal. If the Cubs leverage a similar increase on the cable portion alone, the new deal would bring in roughly $163 million a year.

Two other clubs, the Dodgers and Phillies, also negotiated new TV deals in the recent past. The Dodgers, who play in the massive LA media market, inked a 25-year deal for $8.35 billion that pays them $204 million per year. The Phillies’ deal is for the same length, but their smaller market means they are getting $100 million per year, plus a share of ad revenue from a 25 percent stake in the regional sports network. All told, it probably works out to $120m per year.

The Chicago media market is about halfway between those two, suggesting a $160 million annual deal, right in line with my previous estimation. Extrapolated over the same amount of time as the Dodgers’ and Phillies’ pacts, the Cubs could have a $4 billion partnership that would increase their revenues by an average of $90 million a year. Since this is an average, the initial jump in 2020 would be smaller.

But the overall increase will actually be even larger. By starting their own regional sports network (RSN) the money the Cubs generate will be shielded from the revenue sharing pool, which requires each team to pay a portion of their baseball related revenues into a giant pot. Each team then removes an equal share of that pot, so wealthier teams, like the Cubs, pay in more than they are able to take out.

Contributions are based on a blended average of three numbers: 50 percent of the baseball revenues from the previous year and 25 percent of baseball revenues from each of the two prior years. The key word in the previous sentence is “baseball revenues,” which ad revenue from owning an RSN does not count toward. Thus, all of this new RSN money would be shielded from revenue sharing, a loophole the Yankees have used for years with YES network revenues.

Based on old data, I calculated that the Cubs lose somewhere in the neighborhood of 11-12 percent of their baseball revenue to this sharing process. That amounts to losing $9 million on the current $84 in media money, so the Cubs’ overall revenue will actually increase by that amount in addition to the extra income from the new deal.

There’s also the added bonus of stability in the form of a pact that could extend a quarter-century into the future. The Cubs’ current deal cobbles together coverage from three different entities and was only set for five years, so the increased certainty allows more freedom. What’s more, their 20 percent stake in NBC Sports Chicago represents their only current ownership interest in a broadcast partner, something that is sure to change with a new deal.

Any way you slice it, the Cubs are looking at a massive bump in average annual revenues that they’ll get to retain an even larger percentage of than they do now.

Related Articles

31 Comments

  1. But what does that mean for the Cubs as far as real dollars spent on payroll? Since the Cubs don’t plan on staying under the luxury cap past the next year I guess that helps. Can someone explain this a little better?

    1. It’s not really possible to explain because it depends solely on how much of it the Ricketts family chooses to allocate to payroll and/or overage penalties. It’s all fair game, just like the revenue from their various Wrigleyville business ventures, though whether and how much of it goes back into the team is something we’ll only know once it happens. Or doesn’t.

    2. Hi Robert, Evan correctly notes in his answer that the amount the Cubs will choose to spend is unknown to us.
      But if we assume that the Cubs spend the “traditional” 50% of all revenues on payroll, then that leaves $45m out of the original $90m. Next some of that money would go to pay luxury tax penalties. The luxury tax penalties are based on both how far over the cap a teams spends, and how many consecutive years the teams has been over the cap. You can see a chart summarizing the rules here (https://www.thecubreporter.com/12222017/selling-naming-rights-wrigley-would-add-45m-annual-payroll).
      The first year the Cubs are over the luxury tax, the $45 million would be divided up as $35.9m in new payroll with a tax of $9m. In the second year, that split would be $33.4m and $11.6m. Finally, in the third year and every year thereafter the split would be $29.3m in new payroll with a tax of $15.7. Notice how the splits all add up to $45 million in each year.
      These calculations are only accurate until 2021, when a new collective bargaining agreement, with new luxury tax rules, would be negotiated.

  2. That was a damned thorough run down, Mr. Wilensky.
    I have a question that has gnawed at me for years. What is the point in forcing viewers to watch broadcasts of opposing/reguonal teams via blackout?
    For example, though the Reds were in Chicago, not at home, via MLB Extra Innings, I could only watch the Reds broadcasts.
    Why? What advantage could they possibly get from that? It’s not like I’m going to buy stuff based on commercials.
    I live hours from Cincy in another state, just as I live hours from Chicago in another state.
    So, what’s the reasoning here?

    1. Good question! I would like to know why MLB, when showing a game on their cable channel, have no consistency on what broadcasters they will use. I think the home team broadcasters should always be used. Logic is not one of MLB’s strengths!

        1. Yes, I should have clarified that. It is a minor quibble, but if they were consistent, I would start streaming from the onset. Although I have had better results starting my stream this year versus last year, 40% of the time, MLB will start loading and then do nothing, which takes about 5 minutes to back out of and reboot. (it never happens on NETFLIX, so I don’t think it is my tv or cable provider).

    2. That is a great question. Let me give you a shortish answer. To begin the “they” in your answer is not MLB or even your local team. The ‘they” is probably a local cable channel.
      Most teams sell the rights to their games to cable channels or networks. These contracts pay the teams money, and in return the cable channel gets exclusive rights to broadcast the games in their markets. The size of the market was set based on negotiations between the various teams and resulted in the country being carved up into regions (that sometime overlapped). These regions are absurdly broad. I live in Charlotte, and the Reds, Nationals, Orioles, and Braves all get blacked out (including when playing the Cubs).
      So if you live in a region covered by the Reds broadcast area, you automatically get Reds broadcasters via streaming on extra innings, even if the Cubs are the home team. This is so you get the commercials from the Reds announcers. It does not matter that you are going to ignore those commercials. People paid money to ensure that you heard them, those contracts need to be respected.
      When many/most teams originally negotiated these TV deals, streaming did not yet exist. So obviously the original contracts made no mention of streaming rights. When streaming became a thing, the cable channels were concerned that people would stop paying for their cable channels and instead pay for streaming. The cable channels had contracts that granted exclusive broadcasting rights. While the cable channels did not own the rights to stream, they did have the contractual right to prevent streaming in their region. The blackouts are the cable channels way of preventing loss of customers to streaming.
      Then customers of MLB streaming sued arguing that they were being denied access to what they had paid for, etc. This resulted in a compromise this past season for watchers of MLB.tv. Viewers in a local market, who could prove they had paid for the local cable channel could instead stream the games using the other teams broadcasters. So if you live near Cincinnati (i.e. within the Reds region), but pay for the cable channel that broadcasts the Reds games, and pay for MLB.tv you would be allowed to stream a Cubs-Reds game and hear the Chicago announcers.
      Also, viewers with no blackouts on MLB.tv get to choose which set of announcers to hear. I don’t know how extra innings works, I assume the broadcasters are chosen based on some other formula.
      In the future, new TV contracts will start addressing streaming rights directly. Also, over time the blackout map will likely change. But for now, this is life. I hope that answers your questions.

    3. I’ve covered this topic in perhaps as much detail as anyone else out there, including the blackout restrictions that remain in place for streaming services like MLB.tv. I don’t say that to hype myself up, but to point out that I find the whole thing fascinating for a variety of reasons. Below is a piece from 3 years ago that includes MLB’s regional blackout map, which was initially drawn up to preserve the interests of local and regional terrestrial and cable networks.

      https://www.cubsinsider.com/2015/01/12/will-fans-blackout-areas-watch-cubs-2015/

      There’s a misnomer that viewing restrictions are meant to drive attendance, but that’s grown antiquated. Rather, the overriding idea is that they want people in a local area to watch the game on a channel that they presumably get because they’re in that team’s region. Hence you don’t get a game on MLB Network or ESPN if it’s also on a local Chicago station and you’re in a region considered “local.” Same goes for MLB.tv, since they want to preserve the advertising revenue interests of that local station.

      We all know those things are outdated due to the splintering of different cable providers and the Cubs’ particularly unique and troublesome broadcast partnerships, which include two very insular local stations that are only available immediately in Chicagoland. Many other stations in Cubs-centric pockets have picked up syndication rights, but it’s far from perfect.

      One area where I will absolutely toot my own horn is when it comes to MLB.tv, which I sort of helped to change. I’ve railed against that service for a while and I was actually quoted in a legal briefing filed against MLB.tv that resulted in them making some changes to their accessibility.

      https://www.cubsinsider.com/2017/05/11/cubs-insider-kinda-sorta-helped-make-mlb-tv-better/

      1. Thanks for directing me to this article. Great write up! Every year I tell myself I am not going to renew my subscription, but always do. If I knew how many Cub games were going to be shown for “free” on ESPN, FSN1, TBS and the MLB channel, I might keep the money in my pocket. The Cubs popularity (and great team) does seem to influence those outlets to show their games almost as much as the Yankees.

      2. A few things jump off of your post and into my living room…
        1st, “antiquated”…it is seriously troubling that MLB doesn’t recognize how their outdated parameters harm viewers. Consider: Many viewers are categorized as rural, meaning those so defined are without reliable streaming options. Cable doesn’t exist for this demographic, so they are reliant on satellite feeds for the most part, myself included.
        2nd, I didn’t see your actual coverage map in your piece. That may be an archive issue, but I really wanted to see that map.
        3rd, Mr. Wilensky stated that MLB force feeds us their choice of regional feeds to make us watch their commercials, without regard to our physical location on the planet or ability/desire to take advantage of same. This defines the word “antiquated”. It is absurd on it’s face for reasons that should be obvious to anyone with a pulse. A viewer living in West Virginia isn’t going see an in-game commercial for services or products in Cincinnati and jump in the car and drive there to shop. This will never, ever happen. Ever.
        4th, MLB.TV is not friendly. Subscribing is actually difficult (my wife and I tried) and again, internet services vary wildly in scope and availability.
        5th, your wise suggestion that viewers be given the choice to subscribe to a specific team’s feed has real merit, and I believe is the right thing to do for MLB fans across the entire spectrum. But what are the odds that such a common sense, revenue-generating plan would even be considered by the old guard?

        1. It’ll take a while to “fix” any of this. As for the map, I just checked again and it’s there down toward the end of the piece. It’s a big, color-coded look at each team’s “local” market.

          1. There is a link to it at the bottom, but clicking on it gives me a message that the picture I am trying to view is unavailable.
            I’ll try a desktop version, see if that works.
            By the way, that’s the best article I’ve ever read on MLB and their television deals and coverage.
            May I suggest you resurrect it in some way, perhaps post it as an ICYMI on Twitter with all appropriate timelines disclaimers? It’s a hot button issue for a lot of folks.

          2. Huh, you must be getting a cached version of it somehow. I went back and updated it just to be sure, so it should be fixed.

          3. Just curious. With all of your research into this, has MLB ever explained why we must sit through commercial breaks watching a game replay?

          4. I’m assuming it’s because they’re already charging a subscription fee and because they don’t want live mics on the broadcasts. There’s probably something in there about protecting the ads that are being shown on the standard broadcast too, which is to say that they can’t show separate ads on the stream and with the assumption that those watching aren’t local, showing local ads doesn’t make sense.

          5. I understand those reasonings for streaming a live game, but making viewers waste 30-40 minutes watching a game from May is MLB stupidity.

          6. Ah, yeah, you’re talking about a replay after the fact. No idea about that, unless it’s like watching an on-demand TV show through the cable provider or the channel’s separate app. Those frequently force you to watch an ad that you can’t fast-forward.

          7. I may be because the initial feed has dead-time built into the broadcast; i.e. they are digitally recording off the live broadcast in real time and they don’t stop the recorders during commercials. So to remove the breaks, MLB.tv would have to go in and alter the files to delete the dead-time (which would cost time and money) and deny them the ability to run commercials if they chose later.

          8. Money! Of course! What was I thinking…MLB actually trying to make their product better for consumers…how silly of me.

  3. ‘By starting their own regional sports network (RSN) the money the Cubs generate will be shielded from the revenue sharing pool, which requires each team to pay a portion of their baseball related revenues into a giant pot.‘

    I just do not see how the game of ML baseball wins here. I’m a lifelong Cubs fan, I love the Cubs beating up on the Sox. But I’d rather they do it on a level playing field.

    I also question how an RSN can succeed long term in this day and age.

    1. But why should the Sox or any other team benefit from money the Cubs earn from their own separate TV deal? Both teams have the same luxury tax figures, and the Sox and other teams without the same massive revenues will still share in the Cubs’ more immediate baseball-related money. And bear in mind that the Cardinals continue to get additional draft picks in the name of competitive balance.

      1. I agree with everything you say here. Especially the Cardinals. But it is a loophole. It just feels a little icky, to be the Yankees of the NL. (Along with the Dodgers).

      1. It will stream to those folks who subscribe to a local cable provider or a service like Hulu or YouTube TV, but this isn’t an over-the-top one-off deal. MLB controls the streaming rights and won’t allow the Cubs to offer Marquee outside their territory.

Leave a Reply

Your email address will not be published.

Back to top button
Close