Cooper: Regional Sports Network Struggles Could Spur a New Era for MLB

The long-anticipated beginning of the demise of the Regional Sports Networks (RSNs) is shifting from theory to reality just in time for the 2023 baseball season.

While everyone was focused on Bally Sports’ financial issues that are likely headed to bankruptcy, AT&T SportsNet decided to give up. The company, which has the rights to four MLB teams, has begun informing teams that they could have their TV rights back for no cost in exchange for absolving AT&T SportsNet of future liabilities. Otherwise, AT&T SportsNet would institute liquidation proceedings.

While RSN revenue is important to the NBA, NHL and MLB, the timing means that the financial issues for these RSNs is hitting late in the NBA and NHL seasons, which means those leagues’ teams have received much of their yearly rights payments. For MLB, the Bally and AT&T SportsNet issues meant that more than half of all MLB teams’ local TV rights and the rights payments that come with them were thrown into limbo just a month before the MLB season was set to begin and at a point where teams are expecting significant revenue from the RSNs.

MLB has promised that it has a plan in place to ensure fans can watch their teams even if Bally and AT&T’s RSNs all go belly up. There are a lot of understandable questions about what this will mean for local baseball broadcasts in 2023. There are also questions about what it will mean for the much-hated local TV blackouts on MLB.tv as well as concerns for what it will do for teams’ 2023 revenues.

Those are all worthwhile questions, but in the long run what happens in 2023 will likely be viewed more as the start of something much bigger. We are at the cusp of a foundational shift in baseball, as MLB transitions from the era of regional sports networks to direct-to-consumer offerings. And it’s likely that it will make as dramatic an impact as the arrival of Regional Sports Networks (RSNs) and cable TV did in the 1980s and 1990s.

Not every team’s local broadcast rights are currently affected, but RSNs and cable TV in general can be viewed like landline phones in 2010. Sure, there were still plenty of them around, but no one had any illusions on where that industry was headed.

For a diehard fan, there are likely some positives and negatives about the foundational shift. If you’re willing to pay, it will likely become much easier to watch games of your local team wherever you are. And the insanity of Iowans being blacked out on games from one fifth of the league may go away. 

For the baseball teams and MLB, the shift will be much more dramatic. The next era of baseball broadcasting may be very different. There are significant questions over whether teams can come close to recouping the revenue they received for local broadcast rights from RSNs if they sell directly to consumers through MLB.tv. But that’s only one significant question. Equally important is the reality that teams will go from a world where RSN income is steady and consistent to one where they have to win over fans each and every year, or in some cases, each and every month.

The cable TV model gave MLB teams massive amounts of steady, passive revenue. There have always been a large number of cable TV subscribers who were paying monthly fees (usually $1-$5 per customer) to the RSNs even if they would never watch a moment of any sporting event. The RSNs were usually on the basic cable tier, so non-sports fans would pay to get sports channels they’d never watch, and in return sports fans would pay for other channels they would never watch.

Those massive live sports contracts were the reason for the RSN existence. In most cases, the programming around the live sports broadcasts was kept as inexpensive as possible. But the basic cable bundle meant the costs were spread among a very large mass audience. And since there were usually enough diehard sports fans to complain if a cable or satellite company failed to carry the RSN, those sports networks had enough leverage to gain that spot on the basic cable tier, which ensured they would receive the largest amount of revenue.

That balance of power has shifted over the past five years. Many of the biggest streaming TV providers (Sling, YouTubeTV and Hulu) cut many RSNs from their offerings, reasoning that lower subscription costs would outweigh the uproar from fans.

Usually they would first propose to move the RSNs to a special higher-cost tier, but for RSNs, being on the biggest mass-market tier is fundamental to driving the revenue to pay the large rights fees they have agreed to pay teams.

Those rights deals were long-term contracts that didn’t vary based on television ratings. The Padres’ massive spending spree has clearly increased fan interest. It has boosted ticket sales and made it easier to land sponsors. But when it comes to the team’s RSN deal, it doesn’t change the team’s revenue at all. Those contracts cover many years, and whether a team’s television ratings skyrocket or crater, the RSN’s rights fees remain the same.

Similarly, if a team tears down its roster and tanks fan interest, it doesn’t see its rights fees drop. The Oakland A’s may have gone from being a plucky team that exceeded expectations every year to a cellar dweller, but the RSN contract doesn’t change as fans flee.

None of that is true in a direct-to-consumer world. The friction of cable TV ensured a long-term stable audience. If you’ve ever tried to return a cable box to your local cable company, you know how hard it is to cancel cable TV and how hard it is to get cable TV installed.

So once people got cable TV, they didn’t turn it on or off depending on whether they were interested in that month’s television offerings.

With streaming TV, hopping on or off a service is a matter of clicking a button. Streaming services have to deal with monthly churn, as a portion of the viewership will hop in and out depending on what’s showing that month.

That churn can be a nightmare for a club that can’t sell its fan base some hope. Can a team that expects to win 65 games convince hundreds of thousands of fans to pay to watch it all year? Will some of those fans sign up in April but cancel their monthly subscriptions in June if the team is already 15 games out of first?

We are likely to go from an era where much of teams’ revenues were pre-determined irrespective of fan interest to one where a team’s success in engaging a fan base could play a much larger role toward the bottom line.

Every year, teams will have to convince their fans to sign up for a yearly or monthly subscription to their broadcasts, much like the sales team has to drum up season ticket and group sales every year.

If a team has a great year of convincing fans to sign up to watch its broadcasts, revenues will soar. If a team has an awful offseason and half as many fans sign up next year, then the local TV revenue is halved.

So what does this potentially mean? It’s possible the system that has created incentives to embark on lengthy rebuilds may not be as palatable for owners in a direct-to-consumer world. Pressure on front offices and managers may climb as well. There surely will be effects that I’m missing.

It may eliminate the incentives that have made lengthy rebuilds a very appealing option for both front offices and owners. Financially, there have been few penalties to rebuilding as the reduction in payroll costs usually covers the loss in revenue. And a front office embarking on a lengthy rebuild has generally created a form of long-term job security. If you’re tearing the MLB team down to rebuild, it’s hard to fire a general manager for poor performance over the next few years.

It could create incentives for even bad teams to make an effort to succeed because they know they have to do something to convince fans to subscribe to their broadcasts. Or it could create a system where some lower-revenue teams with frugal ownership could be buried at the bottom of the standings year after year.

This broadcasting switch could also set off a struggle between MLB owners, as low-revenue teams with small fan bases may argue that MLB should institute some further revenue sharing from local TV rights to both provide more consistent year-to-year revenue for teams to count on as well as to limit the discrepancies in local TV revenue. 

Larger revenue and more successful teams may just as vehemently argue that they should be asked to subsidize teams who struggle to engage their potential fan base.

There will surely be other effects that we can’t foresee yet. But already it’s apparent that baseball is getting ready to undergo a significant change, one that will likely reshape baseball as we know it.