M’s TV Options

January 4, 2012

With some recent discussion focused on the M’s local tv rights, and given my recent post on ROOT’s future, it’s an appropriate time to take a look at the M’s options. Though reports differ somewhat on the terms, the M’s are generally believed to be in the midst of a 10yr, $450M contract with ROOT, with a team escape clause following the 2015 season. That was a superb deal when signed, but given the deals signed of late by the Angels, Astros and Rangers, in a market environment that’s bidding up rights for live sports, the M’s deal now looks mediocre. In fact, it puts them at a competitive disadvantage within the AL West. Let’s look at possible scenarios.

Given that the Northwest does not have the major league sports inventory to support two RSNs, one should not be surprised to see CSNW attempt to purchase ROOT. This eliminates a RSN competitor in the region, while also delivering the M’s (and Timbers) to CSNW to pair with the Blazers. Presumably, Comcast would come to agreements with the MSOs in Oregon that currently do not get CSNW. If this were to happen before the M’s opt out of their agreement, the club would essentially just be negotiating with Comcast for their new deal, rather than Comcast and ROOT. In theory, this would limit the amount the team could get in a new deal, compared to a two network bidding war.

If the team does not want to wait until 2015 for the opt out clause, and the possible market changing events that could happen between now and then, they should offer to buy ROOT. With approximately 3.7M subscribers, and let’s say $1.75/sub per month, that’s roughly $78M a year in revenue. Add in about $15M in yearly advertising revenue the team might be able to reap, for total network yearly revenue of $93M. With some RSNs reportedly valued at 5x revenues, ROOT would be valued at around $465M. The more robust the network programming, and successful the teams televised on it, the numbers above may be conservative given the rapid escalation in sports rights. In other words, there’s significant upside if the team performs well or adds local NBA, NHL or MLS games to the network. This might be too steep a price for the M’s ownership to pay, but they should at least have the discussion with DirecTV, who may not want to be in the RSN business anyways.

If such a move were made, the M’s would be dealing from a position of strength in negotiations with Comcast. That could include the sub fees the team asks of Comcast. It could mean merger talks with CSNW, but with the team playing a direct role, rather than that of an interested third party. Lastly, it gives the M’s a platform to offer the Blazers, Sounders or any future Seattle NBA or NHL teams should the current relationships amongst those teams and their tv partners change. This would give the M’s owned network even more potential upside. While I’m skeptical of a RSN centered on two rival cities, it might work if it’s the only game in town. What is near certain is that the current RSN setup in the Northwest will look different in three years. We’ll see if the M’s take advantage of the changes to benefit themselves.