Plotting the Future of Local Sports Distribution – By Returning to Its Past?

When we look back, we may find that the end of the age of the regional sports network came very slowly, and then all at once.

That’s not to say that the age of the RSN is actually over, of course. Only two RSN groups are in serious trouble: Bally Sports and its parent Diamond Sports Group with its ongoing bankruptcy proceedings, and AT&T Sportsnet, which will be shut down by new parent Warner Bros. Discovery at the end of baseball season. Other RSNs and RSN groups continue to be profitable, and even within those groups there are RSNs that won’t be shut down entirely; Diamond has made payments to all but three MLB teams it has rights to for the rest of the season, and the Root Sports network in the Pacific Northwest, majority-owned by the Seattle Mariners, will not only remain extant but possibly remain operated by WBD. The problems with those two groups are that Sinclair overpaid for the former Fox Sports RSNs and didn’t have much of a plan to deal with the collapse of the cable bundle, not helped by Major League Baseball and its commissioner Rob Manfred deciding to play hardball with direct-to-consumer streaming rights, that Discovery may not have even wanted to inherit the RSNs (and for a while I wasn’t even completely certain they had) when they took WarnerMedia off of AT&T’s hands, and both of them ran into newly emboldened cable operators dropping them left and right, with RSNs all but disappearing from Dish Network and most streaming TV providers. The former Fox RSNs no longer benefitted from being lumped in with the rest of Fox’s networks, and AT&T and WBD never put any real effort into lumping their RSNs in with their national cable networks, while the move to WBD meant those RSNs were no longer co-owned with a distributor that could effectively subsidize the network. The NBC Sports RSNs have the benefit of other networks to bundle with and Comcast providing guaranteed carriage, so they’re in nowhere near as bad a shape.

And yet, should the Bally Sports networks completely collapse, the only RSN in the entire country that wouldn’t be at least partially owned by at least one of the teams it carries would be NBC Sports California in northern California – assuming that network even survives the pending move of the Oakland Athletics to Las Vegas. The Bally networks account for around half the US teams in the three major sports that provide content to RSNs, so even if its problems can be attributed to Sinclair’s mismanagement the fate of the Bally RSNs would effectively determine the fate of the RSN market as a whole, and their collapse would mark the point where it became clear that RSNs are no longer a license to print money and can only sustain themselves under specific economic circumstances, be they some combination of being owned by a team, owned by a distributor, or owned by a company able and willing to bundle them with other popular cable networks. And just because other RSNs are doing fine financially now doesn’t mean they’ll continue to be; cord-cutting is continuing apace, weakening the revenue streams for other RSNs (MSG was reportedly already flirting with bankruptcy itself this spring), and with potentially over half the teams in each league caught up in the proceedings, what they do now will help set the path for everyone else. Do they simply take over their existing RSN, or start a new one? Do the leagues take over the RSNs and use them to transition to a new streaming-focused distribution model? Or do teams and leagues rediscover a technology that’s been largely ignored for the last few decades but could be perfect for this new era? 

To hear Diamond tell it, Rob Manfred is significantly, maybe even primarily, responsible for the group’s woes. This goes back to when the Fox Sports RSNs were on the block originally, and MLB initially attempted to bid for the networks themselves and later joined Liberty Media’s bid. That bid didn’t end up succeeding, but this past September MLB teamed up with the NBA and NHL on another attempt to take the networks over. Manfred framed the original bid as a way for MLB to control their own destiny, to control their own rights and shepherd the sport to whatever came after the RSN era, and when Diamond came to them looking for direct-to-consumer rights, Manfred insisted that MLB had to “own and control the platform” and would at most accept “partners in the process”. As such, MLB initially insisted on having an equity stake in Bally Sports+, and later engaged in talks to launch their own direct-to-consumer streaming service, possibly in conjunction with the NBA and NHL.

Back in October, I suggested that while Manfred might have just been playing hardball to drive Diamond out of business and force them to sell the RSNs to MLB, nonetheless he was perfectly within his rights to tell Diamond that if they wanted MLB to get on board with their vision for the future of the local sports business, especially given their financial woes and the dubious nature of their apparent belief in a direct-to-consumer streaming service as a panacea for them, they needed to make it worth MLB’s while. The question, though, is whether Manfred has the rest of the owners on board with his own vision, because the steps MLB has taken into that pool as a result of the Diamond bankruptcy may have spooked them.

Earlier this year Diamond lapsed on their payment to the San Diego Padres, and as the Padres have an ownership stake in Bally Sports San Diego, they immediately reclaimed their rights and MLB began producing Padres broadcasts for distribution to all cable providers that had carried Bally Sports as well as via a direct-to-consumer offering through MLB.TV, impressively managing to pick up the baton in the middle of a series (let alone the season) by following through on a plan established by MLB before the season started for any teams that ended up reclaiming their rights, or had them surrendered to them, as a result of the Bally bankruptcy. It would be both a stopgap to maintain the Padres’ revenue streams and allow fans to continue following the team with limited interruption, as well as a proof-of-concept for how MLB taking over production and distribution of games would work. As part of the plan, MLB would guarantee the Padres 80% of the revenue Diamond owed them, to be paid out of MLB’s pocket.

Laid out like this, there’s a fairly obvious problem. MLB would not only be taking on the expense of producing the game, they would also, effectively, be paying the Padres’ rights fees, meaning they were taking on most of the same expenses Diamond hadn’t been able to afford. MLB would be shaving 20% off of those rights fees as well as getting revenue from a direct-to-consumer service, and doing so with less overhead and without having to program a full 24 hours, but still there was little reason to think MLB had put themselves in a situation much better, if at all, than what Diamond was in. And Manfred had seemingly committed to doing this for any team that Diamond elected to drop, which they would presumably do if they, too, were losing Diamond money, meaning MLB would be taking on even more losses – and worst case, if Diamond completely folded they’d be doing this for nearly half the teams in baseball. The massive losses Diamond was taking were now being taken on by MLB, which really meant they were being taken on by the other owners, particularly those still in relatively healthy RSN situations that were now being asked to subsidize those that weren’t, in some cases division rivals. At most, they’d only be willing to put up with that as a one-season stopgap, not a long-term solution.

So when Diamond offered the Arizona Diamondbacks a renegotiated contract earlier this month that would have paid the team substantially less than their current contract – though ultimately the same discount they would have gotten had Diamond dropped them and they had to rely on MLB to cover the rights fees – and given Diamond direct-to-consumer rights, Manfred reportedly came under heavy pressure from owners to take the deal. Having less revenue from RSNs coming into the MLB ecosystem is preferable to having no revenue accruing to any given team, after all. Nonetheless, Manfred blocked the deal anyway, and last Tuesday Diamond terminated their agreement with the Diamondbacks and MLB took over production.

In so doing, Manfred made a big bet on the future of MLB and his vision of having full control over MLB’s transition to a post-RSN future – a vision that had already lost most of its support from owners, certainly the richest and most powerful owners that would have effectively financed the move – and at that point, it looked like if it didn’t work out it might cost him his job (though Manfred has now had his contract extended through the end of MLB’s national TV deals in 2028). But if Manfred had allowed the wealthiest owners to dictate his course of action, it would have left him in a difficult position. The gap between the haves and have-nots in MLB, the only major American sport without a salary cap, has always been a thorny proposition, and the collapse of the cable bundle could amplify it. The most profitable and lucrative teams, the Yankees, Red Sox, Dodgers, and Cubs, are all on RSNs that they have ownership stakes in and are in no danger of folding. The most popular teams on Bally Sports RSNs, the Braves and Cardinals, are in no danger of being dropped, and even if Bally collapses entirely are likely to land on their feet in relatively stable situations, as they’re popular enough to bring in enough subscribers to convince cable operators to carry their networks and pay sufficiently high premiums for them. It’s the smaller-market, lower-wattage teams like the Diamondbacks and Padres, and teams in places like Cleveland, Cincinnati, and Tampa Bay, that have had to worry about losing their RSN or taking a pay cut. MLB promised to guarantee 80% of Bally’s rights fees so that teams would be able to make their payrolls that were based on Bally’s existing contracts and, going forward, could compete with the most popular teams on, if not a level playing field, at least not a completely vertical one.

Even if he was ultimately forced to back off his position and allow teams to take significantly less money, Manfred would probably still have to pressure the other owners to accept expanded revenue sharing to allow the small-market teams to at least remain within sight of the larger ones and make expansion an attractive proposition. If not, the CBA signed earlier this year becomes a ticking time bomb that could lead to a nasty work stoppage in 2027. Ideally, Manfred would be able to control the rights for all the teams in Major League Baseball, but it’s unlikely that the biggest-name teams would allow MLB to take over their distribution for the foreseeable future, if ever. (One league source told ESPN back in March that they expect all 30 teams to fall under the league’s umbrella within “two to three years”, but it’s not clear how that could plausibly happen for the biggest-market teams on stable RSNs they have an ownership stake in and long-term deals with.) It also might not be a good idea for MLB to adopt an in-house streaming service as the means of distribution for its games, effectively collecting money only from their biggest fans to pay teams’ bills as well as the costs of producing broadcasts, as a long-term solution; the goal for this strategy, at minimum, should be to follow the path set by MLS with their Apple TV deal and form a partnership with an established streaming company.

On the other hand, Diamond isn’t out of the woods yet, as the future of their business will greatly depend on the outcome of negotiations with two of the three remaining major providers carrying the Bally Sports networks, Comcast and DirecTV, this fall, with Comcast expiring in September and DirecTV in November. Spectrum, the only major provider to reach a new deal with Bally since Diamond took over the RSNs, recently announced that it was splitting its basic package, with its most basic package now containing ESPN and most other national sports networks, but not RSNs, while packages with RSNs will now include a free subscription to those RSNs’ direct-to-consumer streaming services, including new services for Spectrum’s own RSNs in Southern California. If Comcast and DirecTV follow suit, Diamond’s fate, with or without actual direct-to-consumer rights, will hinge on how many people actually choose to subscribe to the RSNs, and that’s before even getting into how much those providers are willing to pay Diamond or if they decide to drop the RSNs entirely. The prospect of Diamond folding entirely if negotiations with providers go poorly is still a very real proposition. As such, earlier this month Diamond moved to postpone the deadline for a renegotiation plan to November 9, after its deal with Comcast comes up for renewal and around the time of negotiations with DirecTV, which will provide clarity as to the future of the business – but its position in those negotiations will depend on what rights it has, especially in MLB. If Diamond folds, Manfred might look like a genius for setting up teams as well as possible for the collapse of Diamond, but you could also make an argument that his hardball tactics were responsible for Diamond collapsing in the first place.

But if Manfred had allowed the Diamondbacks to take Diamond’s deal, and negotiations with Comcast and DirecTV went poorly and resulted in Diamond folding completely regardless, MLB might find itself in a much more complicated position trying to reclaim the D-Backs’ rights and wouldn’t have had a head start establishing itself. Moreover, even the status quo might not be quite as dire as it looks this year; MLB is reportedly offering its stopgap feeds to cable providers at dirt-cheap rates this year to keep teams on the air, with the hope that once MLB can pick up a critical mass of teams’ rights it can work out deals that can command higher fees, so the losses MLB is taking might not be quite so bad if it elects to start playing hardball more as soon as next season. By taking over Diamondbacks rights now, and continuing to play hardball with any more contracts Diamond wants to renegotiate, MLB can bring as many teams into the fold as soon as possible with hope of ensuring a relatively fair market price for their games whenever Manfred feels ready to do so. Manfred’s approach may hasten Diamond’s collapse, but that would also minimize the damage from that approach.

But it’s still not a great situation, in the short or long term. Right now MLB is hitching its wagon to the same constrained distribution the Bally Sports RSNs have, and the only way to improve it might be to drastically cut the price; meanwhile, the direct-to-consumer option is probably only going to be taken by people who are hardcore enough fans of the teams to pay the price, but not enough to sign up for a cable bundle that contains the RSNs. Even the MLS-Apple TV deal has only a limited assortment of games available without subscribing to the Season Pass, none of them with any regional variation – and the Season Pass is an all-or-nothing proposition. Any post-RSN future is likely to involve the biggest fans paying more of the cost of production and distribution of games, but teams and leagues are going to try and salvage as much of the lucrative cable bundle model as possible. This isn’t just for the sake of their pocketbooks, but because being able to reach casual fans, or people who aren’t fans yet, for at least some selection of games is critical to the future of the teams and the sports.

In the meantime, there are the teams in the NBA and NHL with contracts coming up for renewal, as well as those getting trapped in the midst of the AT&T Sportsnet shutdown. The latter case isn’t likely to affect that many teams even controlling for AT&T Sportsnet’s limited scope; the Houston teams have expressed interest in re-taking over that RSN, and as the Pittsburgh Penguins are owned by Fenway Sports Group, there’s been speculation over them launching a new RSN for the Penguins and Pirates modeled after NESN (or even NESN itself carrying the teams somehow), so it’s mostly the teams on AT&T Sportsnet Rocky Mountain that need to find a path forward, and the Utah Jazz and Vegas Golden Knights had expiring contracts anyway. But without guidance from MLB, those teams need to find a path forward for themselves, and finding a new RSN is just getting themselves further enmeshed in the dying marketplace, while going the streaming-only route is probably not yet practical. Instead, the teams that have signed new contracts since the Bally bankruptcy started have been rediscovering the value of over-the-air broadcast television.

The first and most notable such team is the Phoenix Suns, owned by billionaire Mat Ishbia, and actually the team that, according to the court proceedings, has been keeping Bally Sports Arizona afloat. Nonetheless, in April the Suns and WNBA’s Mercury announced that starting with the Mercury season, all of their games would be available on stations owned by Gray Television and on a direct-to-consumer streaming service operated by Kiswe, effectively tripling the teams’ reach compared to Bally Sports Arizona. At least 40 Suns games and 13 Mercury games will air on independent station KTVK channel 3, with at least 30 more Suns games airing on KPHE-LD, which has the awkward brand name of the Arizona’s Family Sports and Entertainment Network, or AzFSEN. Gray declared its intention to expand and simulcast AzFSEN to Arizona’s other TV markets in Tucson and Yuma; Tucson’s Gray-owned CBS affiliate KOLD-TV will air the network on one of its subchannels, while Gray has a construction permit to build a new station in the Yuma area. The over-the-top platform is free for Mercury season (the first of only two seasons Gray and Kiswe have the rights to, while the Suns’ deal runs for five) while the teams and Kiswe settle on a price point for the service, but it’s likely to be a fraction of what Bally and MSG’s over-the-top services cost, with Kiswe saying they hope for it to be closer to “soda money than gas money”.

Even with retransmission consent, the new deals will almost certainly pay less to the Suns than what Bally was paying or even what Bally is willing to pay, even in the midst of bankruptcy. But not only is Ishbia fine with that, he seems to think that sticking with RSNs as the cable bundle’s ship has continued to sink has been short-sighted. “Money always follows more fans. The monetization is not the number one focus. The first focus is reach,” Ishbia told the Washington Post. Expanding on that attitude to ESPN’s Brian Windhorst, Ishbia added, “We’re going to have more fans than ever before. We’re going to have more people who will have eyeballs on Devin Booker and Deandre [Ayton] and Kevin Durant, Chris [Paul] and cheer the team on. And more people buying merchandise because they’re bigger fans.” When Diamond sued the Suns and won an injunction putting the deal on hold on grounds that the Suns failed to honor Diamond’s right to match, the Suns and Gray even argued that the greater reach of the deal outweighed the lower monetary payment and made the deal worth more than Diamond’s offer, and while the court didn’t initially seem to think that was a plausible (or at least quantifiable) line of reasoning, when Diamond elected not to match the Gray/Kiswe offer earlier this month, SportsBusiness Journal’s John Ourand reported that it was the reach and marketing considerations, not the monetary aspect, that Diamond wasn’t matching. Coupled with the rejection of the Diamondbacks contract, that leaves Bally Sports Arizona with only the Arizona Coyotes, and their virtually nonexistent fanbase and constant relocation rumors, as their only content, leaving the very real possibility that Arizona will be left without any traditional RSN at all by the end of the year.

In the meantime, two teams whose contracts with AT&T Sportsnet were expiring have adopted similar approaches of marrying broadcast television with a dedicated direct-to-consumer streaming platform. Just a week after the Suns announced their deal with Gray, the Vegas Golden Knights reached an agreement with the E.W. Scripps Company, whose Scripps Sports division had made the biggest splash in declaring their intent to bring local sports back to broadcast. The flagship station in Las Vegas itself would be KMCC, currently an Ion station but which Scripps announced it intended to relaunch as a general entertainment independent station. Meanwhile, earlier this month the Utah Jazz announced a deal that will return games to KJZZ, a local independent station previously owned by the owner of the Jazz but which is now owned by… Sinclair Broadcast Group, the company that formed Diamond Sports Group in the first place. It’s an interesting juxtaposition of a company that’s struggling with its regional sports networks signing teams up to be distributed on their broadcast stations. I wondered if Sinclair bought the Fox RSNs as a way to transition the teams on them to distribution via broadcast, and while that was always somewhat unlikely and the way things have played out has made it seem even more so, Sinclair has a large enough base of stations that it was perhaps inevitable that they would be part of any large-scale return of local sports to broadcast, certainly in the case of the Jazz given their relationship with KJZZ.

This probably isn’t a universal solution for every team with rights coming up for renewal, even if you’re willing to sacrifice money for reach. It’s worth noting that the Golden Knights and Jazz are both in markets that are not only relatively small by US professional sports standards, but where no other teams exist that could provide fodder for RSNs. Where non-Bally Sports RSNs exist, or where an existing RSN can rely on content from other teams to keep the lights on, the best approach might still be to stick with them. The likeliest outcome for the Rockies, unless Manfred insists on taking those rights in-house, might be to find a place on Altitude Sports and Entertainment, which currently airs the games of the Nuggets and Avalanche – both owned, along with Altitude, by E. Stan Kroenke – but has little to speak of in the summer months. Broadcast station owners also have significantly less revenue than even the smaller media companies with national footprints and cable network investments; it’s entirely possible that any one station can’t afford to take on more than one, maybe two teams, at least without seeing what kind of revenue those teams can bring, and even larger station groups might not be able to spread around as much money as teams would otherwise like. It would be more viable if and when stations can lock themselves up behind paywalls, but that could defeat a lot of the point. There’s going to be a lot of eyes on how the Suns, Jazz, and Knights deals work out to see how valuable local sports rights can truly be to stations.

Still, even within pay TV bundles, and even with the thorny nature of retransmission consent, broadcast stations are probably more able to achieve carriage than RSNs have been able to in recent years, while a standalone streaming service allows the team an additional revenue stream and the ability to reach people with neither an antenna nor a pay TV bundle that carries the station. It’s a decent enough way to balance reach and revenue, especially for less-popular or smaller-market teams. Even for teams that don’t elect to put all their games on broadcast, it’s probably a good idea to put some there (or otherwise available for free), as traditionally was the case before RSNs took on all the games for themselves, to provide a mechanism to convert potential fans into hardcore fans that are willing to pay for whatever distribution mechanism you have for the remaining games. Even if Manfred sticks to his plan to control the rights to as many teams as possible for streaming via, it might be a good idea to simulcast at least some of those games on broadcast stations to relieve some of the distribution pressure facing games now and reach casual and price-sensitive fans. On the broadcast station side, the sorts of stations likely to pick up these teams tend to fill their schedules, at least outside primetime, with reruns, lowbrow talk and reality shows, and local newscasts usually produced by a co-owned Big Four station. If they’re truly committed to showing more games of local major league teams than was the case when local games were on broadcast more regularly, and especially if Big Four stations show a willingness to pre-empt network programming for such games, it may reflect at least an implicit acknowledgement that, on linear television in the streaming era, anything that’s not a live event is filler between live events.

To paraphrase Drew Lerner at Sports Media Watch, RSNs provide “stability and sizable rights fees” so long as the RSN continues to survive, broadcast stations maximize reach even if, at the moment, they don’t fully monetize that reach, and direct-to-consumer streaming services can reach cord-cutters willing to pay a premium for games. But as the RSN model continues to contract it’s fair to wonder how much “stability” they can truly provide, or if their rights fees can continue to hold up depending on how upcoming carriage negotiations go, and a DTC option isn’t mutually exclusive with either of the other two options. Laid out like this, it’s fair to wonder if distribution via broadcast may well become the norm for new rights agreements for local teams in the coming years, at least to the extent they’re allowed to (ie, to the extent Manfred accepts it for baseball teams).

To my knowledge, the only remaining teams with rights coming up for renewal imminently are baseball teams; besides the Rockies, the Minnesota Twins have their deal with Bally Sports North expiring after the season. Their fate depends on whether Manfred pushes them into following the same model as the Padres and D-Backs or allows them to go their own way; similarly, there’s the question of what the Padres and D-Backs themselves would do for distribution if the current arrangement doesn’t continue past this season, or alternately, whether they reach their own deals with local broadcast stations that could be complemented by MLB.TV or, if Manfred allows it, another streaming platform. There’s also the possibility that the Cleveland Guardians, who have only been paid through the end of the month, get dropped by Bally and need to find an alternate distribution mechanism, and going outside MLB, though the public position of the Coyotes is that they’re preparing for next season on Bally Sports Arizona, they have to be preparing for the likelihood of being kicked to the curb as well.

Can Bally Sports right the ship and convince Comcast and DirecTV not to seal its fate? Will Manfred convince his fellow owners to back his vision for control of local sports rights? Or will sports teams embrace broadcast television as the way to nurture the next generation of fans? Whatever happens, we’re in the midst of a turning point in the distribution of live sports in the United States, and the next few months will be critical in setting the course for the future of local sports distribution – and, perhaps, the future of the local broadcast television industry.

2 thoughts on “Plotting the Future of Local Sports Distribution – By Returning to Its Past?

  1. This will be very interesting:

    I wonder if in some areas, elected officials will chime in demanding games fully return to over-the-air stations. As it is, especially with MLB, teams usually air up to 25 games a year OTA to appease such and their constituents. While unlikely to return to the 1960’s, I can see where many more games air over-the-air like they once did.

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