Tuesday, April 03, 2012
Drinking The Kool-Aid On TV Contract Valuations
Baseball is changing, evolving into a massively moneyed game in which a group spends $2.15 billion for the Los Angeles Dodgers. Or the Cincinnati Reds, the team with the smallest television market in MLB, guarantees Joey Votto $251.5 million for the next 12 years. Or Matt Cain, he of the career 69-73 record, nets the biggest deal ever for a right-handed pitcher with $127.5 million over six seasons.Wait a minute. The Reds' TV deal is currently among the worst in the business at $10M/year through 2016, barely enough to pay for a free agent reliever and the signing bonus for a first-round draft pick. The Josh Bethel article above says the Reds have the smallest TV market in MLB, but some of the highest viewership, with 7.2% of the audience watching on average. Ratings from the first half of 2011 showed the team with a 7.82 share representing 71,800 households. That's about two-thirds the Dodgers' figure from 2009, when the team was drawing well. Assuming the same insane figure of $750/household*year I calculated for the Dodgers floated deal, and rounding up to 100,000 viewers, that amounts to $75M/year — or a more than seven times increase. (If you just use the numbers directly, it's only $54M/year.) But ... really? It's hard for me to imagine those viewers are worth as much as (say) Angels or Dodgers viewers. A large piece of this is a function of what Fox can sell advertisements for. Teams with proven track records will get better deals. And at the moment, the Reds have spent a long time not winning.
The economy stopped growing. Baseball’s never did. And it won’t anytime soon.