MediaTalk | Season 3 | Ep. 13 - Major League Baseball Starts Season with New Distribution Playbook

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's tech, media, and telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, wherein the news and research staff explore issues in the ever-evolving media landscape. Today, I'm joined by S&P Global Market Intelligence Kagan principal analyst Justin Nielson, who specializes in the broadcast industry, among other things; Kagan Principal Analyst Scott Robson, who keeps tabs on U.S. networks and sports; and Kagan Analyst Mike Johnson, or MJ, who's on the U.S. sports watch. Today we're going to talk baseball. It's been an incredibly busy offseason with the New York Mets signing Juan Soto to a record 15-year, $765 million contract, outgunning cross-town rival the New York Yankees, who signed Atlanta Braves hurler Max Fried to the largest deal ever for a southpaw pitcher. Also, plenty of action relative to where fans are going to be able to watch and stream games this season. Bear with us, listeners. There are a lot of scorecard notations, but there's also big news on the national front with ESPN and MLB.

Why don't we start there? Justin, can you give us a sense of what happened?

Justin Nielson: Yeah, it was a shock to the MLB world in the sense that the National Rights package with ESPN and MLB had been in a longstanding relationship. But there were cracks reforming, especially on the regional sports networks, with some of those teams being dropped, like my Arizona Diamondbacks going streaming-only and then direct distribution to the multi-channel operators. It's an interesting environment because all these teams now are scrambling on where to place some of their games ahead of the season. With ESPN, I think there will be operators that will come in and take those rights. You may look for a streamer like Amazon or Apple to come in and pick up some of those games. In the past, they've been strategic in terms of live rights, and even with Netflix, they've said, "We'll think about it, but the price has to be right."

Reynolds: Scott, your sense of who might want to get in, or is there a favorite there?

Scott Robson: I think that there's enough interest out there for sports content among the big media companies. NBC might step in and throw some games on Peacock. Fox seems like another to bump up their MLB inventory. I think Amazon is always part of the conversation these days, as they seem willing to buy live sports. Then CBS and Paramount+ could be another bidder for those rights. The company is transforming with Skydance taking over and could get more aggressive in accumulating sports rights. I think whoever gets involved now could be positioning themselves to get a bigger deal with the MLB in 2028 when the league could work up a national and local deal of some sort.

Reynolds: In the meantime, Mike, do you think that the CW has got a shot? Chairman and CEO Perry Sook suggested Nexstar, which owns 75% of the CW, is enjoying some success with other sports properties and maybe should be in the consideration set here. Do you agree?

Mike Johnson: Yeah, so I guess the CW could be a potential sleeper here in the search for the new rights holders. The network might be willing to pay a little bit more as compared to traditional media companies to gain a larger package for a major sports league. They've been busy recently with recent deals in college football, college basketball, NASCAR's Xfinity Series, and then with recent deals with AVP volleyball and the new Grand Slam track league. It's been reported that 40% of their current programming is live sports, and they recently drew 1.8 million for the opening race of the Xfinity Series, a number that actually beat out ESPN's average for Sunday Night Baseball last season at 1.5 million.

Reynolds: Yeah. I mean, the other thing is ESPN—maybe this is just a big negotiating situation. Maybe they stay in the games anyway, just to scorecard it here. ESPN's package is intact this season, 2025. It's got its Sunday Night Baseball slate. They've got the Home Run Derby during the All-Star Game festivities and the entire Wild Card playoff round on the local front. This story has been unfolding over the last few years with the transformation of the regional sports business, where baseball has always been the linchpin. Scott, can you take us through some of the RSNs' financial realities with MLB?

Robson: Yes. As you mentioned, MLB has been a critical part of the RSN model, as the league has more regular season games than the NBA and NHL. MLB derives a larger portion of its total revenues from local media rights than the other leagues, somewhere around 20% to 30%, depending on the team, and some teams are far better off than others here. You look at the three biggest local sports rights deals; they all belong to MLB, with the Dodgers, Yankees, and Angels bringing in over $170 million each per year. Some teams are opting out of the RSN model, and this has resulted in less of a local media rights payment but wider distribution in some cases, as the pay-TV operators continue to drop RSNs or place them on a more expensive tier. So the reality for a lot of RSNs is now pretty grim as they face declining subscriber numbers, less revenue, and then increased rights fees.

Reynolds: Justin, your take on this reshaping. This is how a lot of people watch MLB games, and things are changing. Some games are going back to broadcast a little bit.

Nielson: Yeah, it's almost cyclical, right? You've had this situation with the NBA going back to NBC, and then you've got the broadcasters taking on some more local games for baseball. The broadcasters have been right to take on some of those local rights, pairing with streaming platforms to reach those consumers. But over the air is a great proposition to increase their reach in the local markets. There have been some cracks in terms of fan engagement. Baseball has always been a localized sport, so you get that local fan base, and then you extend it out to the region and nationally if you have a really popular team. But it is winners and losers, where you've got the big teams that have the good regional sports network payments, and then you've got the smaller mid-tier teams and smaller teams that are shuffling around their distribution partners to see what the best mix of broadcast and streaming and cable is for their teams.

Reynolds: All right. The changes in the business and the dynamics aside, a big catalyst here has been what was called Diamond Sports, the Sinclair Unit, which bought 21 RSNs from Walt Disney Co. back in 2019 as a stipulation of Disney being able to buy many assets from Fox. Mike, the financial underpinnings aside, the timing for Diamond Sinclair and what is now called Main Street Sports is not the best.

Johnson: Yeah, absolutely. So the timing of everything couldn't have been probably worse for the investment, just before the pandemic and combining that with cord-cutting. Since 2019, the RSN industry has been significantly reshaped. Diamond recently reemerged as Main Street Sports Group following a 21-month bankruptcy battle, and they completed a financial restructuring earlier this year, slashing its debt from, I think it was $9 billion to $200 million. So now they manage 16 RSNs under the FanDuel Sports Network brand with deals with 30 professional teams, including nine from Major League Baseball, down from the 42 pro teams when they initially struck a deal with Disney in 2019.

Reynolds: And along the way here, before they emerged from bankruptcy, which I guess is just early this year, Justin, there were a few missed contracts along the way. The Diamondbacks and Padres were the first to get lost in the Diamond shuffle, so to speak.

Nielson: They were, and they had to scramble with the league's support in terms of getting those games on their streaming platform without any local restrictions. And that goes back to the fact that the blackout rules have really impeded some of these local distribution deals in certain markets. So with MLB being a little bit more flexible, especially since the regional sports networks dropped those teams because the rights fee was just encumbering their profitability for their channels, the broadcasters have fit in nicely in those situations. The streaming platforms have been gaining, slowly growing subscribers. But I think that pairing of broadcasts and streaming has really worked well for some of those teams in the sense that they get the wider reach, and then you've got the super fans that are subscribing for more content.

Reynolds: Another big component to the change here was Warner Brothers Discovery. It exited the RSN business at the end of 2023. Scott, can you give us a little bit of a sense of what happened there?

Robson: Yeah, so Warner Bros. Discovery exited the business that they inherited from AT&T with their ownership of three AT&T Regional Sports Nets. I don't think David Zaslav ever really wanted to be in that business. The fallout from that was the Rockies finding a new home with MLB after the shutdown of AT&T SportsNet Rocky Mountain. The Pittsburgh Pirates are now on SportsNet Pittsburgh, which was purchased by the Fenway Sports Group, which also owns the team. And then the AT&T SportsNet Southwest was taken over by the Astros and the Rockies and rebranded as Space City Home Network. So a lot of shuffling around there.

Reynolds: What about what is now called the Chicago Sports Network? It's home to MLB's Chicago White Sox, the NBA Bulls, and the NHL Blackhawks. Mike, can you give a sense of what's going on or not going on there?

Johnson: Yeah, like you mentioned, the Bulls, together with the Blackhawks and the White Sox, opted to create their own regional network last year, the Chicago Sports Network, in partnership with Standard Media. And it's gotten off to a rocky start so far, with some Chicago sports fans remaining in a state of flux regarding how to watch their local teams due to the ongoing dispute with Comcast. There's also been rumors about Chicago's two regional sports networks, the newly formed Chicago Sports Network and Marquee Sports, possibly joining forces in the future. But a lot still going on there.

Reynolds: Going back to Diamond a little bit here. MLB Commissioner Rob Manfred is never a big fan of Diamond. He always questions its strategy and fiscal capabilities. He didn't want the MLB teams to extend their local streaming rights to Diamond. Manfred has talked about MLB starting its own local game streaming service. When Judge Lopez approved the Diamond Main Street Sports reorganization on November 14, 2024, there were six MLB teams in the fold for Diamond. Since then, a few more have gone over to Main Street, including the Milwaukee Brewers, Kansas City Royals, and Cincinnati Reds, giving it nine MLB squads. In turn, that left MLB's local lineup with the Padres, Diamondbacks, Rockies, Cleveland Guardians, and Minnesota Twins. MLB, though, has subsequently added the Mets, the New York Mets with SNY, and more recently, the Athletics, Giants, and Phillies via NBC Sports regionals. Those teams' games are also available as add-ons through NBC's aggregate streamers, Peacock. The Dodgers are also streaming this year. Spectrum and DIRECTV subscribers to Charter's RSN SportsNet LA will get in for free. Those who don't subscribe literally can purchase SportsNet LA+. Through all the shuffling, MLB is offering 10 local streaming clubs this year. While we haven't mentioned all of them, at least I don't think we have, MLB says 26 of its 36 clubs now have local market streaming options this season. Justin, your thoughts on all the back and forth between Main Street and MLB?

Nielson: Yeah, you make a good point, Mike. It has been very disparate in terms of the deals that had been signed by Main Street and even prior Diamond Sports under the tutelage of Sinclair, which was really focusing on the streaming aspect and getting pushback from the league and from the teams to expand that platform because they were developing their own. But if you look at it from a perspective of some of these teams, looking at the rights fees and then looking at the opportunity cost in terms of going it alone with broadcast and streaming, it's still yet to shake out, let's put it that way. I think there's still an opportunity for mainstream sports to focus in on those profitable entities and teams they can sign distribution rights for. And maybe it becomes an even more fragmented environment for teams being their own personalized distribution model outside of just the national model.

Reynolds: We've talked about streaming along the way here. Amazon Prime Video is now involved with the Main Street clubs. Mike, can you take us through Main Street's projections about where linear and the streaming business will be in the years ahead for it?

Johnson: Yeah, definitely. Main Street Sports, like you mentioned, faces declining revenue and lost several rights agreements following the bankruptcy. Through that partnership with Amazon, they've announced plans to boost their D2C streaming revenue from, I think it was $63 million in 2024 to $580 million by 2027. And that's in contrast with linear revenue, which is expecting to drop a bit to around $1 billion during the same timeframe. They also aim to grow streaming subscribers from 500,000 to 2.8 million by 2027, whereas linear subscribers are projected to decline from 22 million to around 16 million.

 

Reynolds: Scott, your thoughts here? Streaming is obviously continuing to rise within the entertainment space and with national sports properties. What about locally? Do we really think they're going to make a lot of inroads?

Robson: Yeah, so I think the slow migration from pay TV to streaming services is here to stay and will continue for the foreseeable future. And that includes local sports. But I do think that local sports will be one of the last holdouts, as we've seen teams opting for local broadcast station distribution in some cases.

Reynolds: The streaming services for local sports seem to be somewhat of a difficult business given the limited reach and high monthly price tag. So I could see the streaming shift happen if the MLB bundles the rights and sells them to Amazon or a company like that. But it's going to be a slow process.

Nielson: So if your team starts the baseball season off, you're 20 and 40 by the end of May, that's not good for business either.

Reynolds: No, it's not. And there's a lot of games to place when it comes to baseball, so the churn rate on streaming is a lot higher than you would from a traditional multichannel and broadband package. So they have to factor that in when signing some of these deals. But the thing with broadcast is it's free over the air and nationally distributed. So those local markets could potentially offer some of those enticing games to get people to subscribe again. But yeah, that's the situation with any team, right? They start off really slow, but it's a long season, so they can always make their way back.

Reynolds: That's true. All of a sudden, you get hot, and now I want to get back in; I want to check out my squad. All right. I think one of the more interesting situations has been with the Texas Rangers, the 2023 World Series Champions. They've garnered significant rights fees over the years from Fox Sports and Fox Sports Southwest, and then Diamond Sports Southwest. They were on last year at a reduced rights fee. Now they branch out on their own. They're putting together a combination. I think they're working with Victory+ for streaming for most of the games. They're working with the local TV providers, and I think they also have some games with Nexstar and Gray on Friday nights. A very interesting package. Guys, any thoughts on that approach?

Nielson: From the broadcaster's perspective, it is interesting that you've got multiple station owners working together in terms of distribution. So, like you mentioned, you've got TEGNA, Gray TV, Nexstar, Scripps, and others kind of packaging their stations together to get a wider reach in the region. I think that's really interesting in the sense that they can create their own regional sports network, say, across broadcast and tap into those out-of-market areas that they may have fans in.

Robson: Yeah, and it's interesting with the Rangers. They stand out as one of the most significant teams to abandon the traditional RSN model, just based on the fact that they were getting about $70 million annually from the RSNs. And then aside from the broadcast distribution, they’ve teamed up with the Dallas Stars to have the games available on the Victory+ app, so we'll see how that pans out.

Reynolds: Generally speaking, guys, the stations provide greater reach for the teams, and they can also add some ad dollars along the way. Gray has been particularly aggressive on the local sports front with the NBA, the NHL, and now the MLB. At this point, Gray stations will be offering simulcasts of 10 regular season game packages from FanDuel Sports Networks for five MLB clubs this season: the Braves, Cardinals, Royals, Rangers, and now the Reds. The Reds will air via WXIX, Gray's Fox affiliate in Cincinnati. Other Gray stations in Ohio, Kentucky, Indiana, and Tennessee will also pick up those Reds contests. Justin, do you expect to see more of that in the years ahead?

Nielson: I would, and also you look at just the sports calendar. So the ability for broadcasters to pick up NHL, NBA, and MLB games replicates what the RSN model was. So you're getting live sports throughout the season. So I think there's definitely opportunities to package that together and sell it to an advertiser. You're coming to the station for live sports, and that's going to help not only the broadcaster but also the teams that partner with them.

Reynolds: We've mentioned some of the bigger players, the publicly traded companies in the broadcast TV space, but Morgan Murphy Media is also taking a swing with MLB.

Nielson: They are. And it's interesting; we talked briefly offline about some new broadcasters coming into the fold with Rincon Broadcasting buying five stations from Sinclair. So you've got Morgan Murphy and others that are smaller group owners, but they're taking the opportunity to tap into this local sports rights renaissance, I guess you would say, for broadcast.

Reynolds: There will almost certainly be at least one other major change as we get into next year. Guys, MASN, the RSN home to the Baltimore Orioles and Washington Nationals, has been in litigation for years. The Orioles initially had 90% ownership of the network when it launched in 2005, with the Nationals having 10% and then an additional 1% annually starting in 2009. The Nationals have always felt as though they were not getting their fair share. The MLB's Revenue Sharing Definitions Committee decided in 2023 that the Nationals were right and were owed around $300 million in back payments. So, to give you that history, all this litigation was settled earlier this month, and the Nationals' games will be broadcast by the Mid-Atlantic Sports Network in 2025 under a new one-year contract. But after that, the Nationals will be free to explore other options.

Reynolds: And that's Monumental Sports leading off. Do you think?

Robson: Yeah, so Monumental Sports Network could walk away with the Nationals under their belt. The owner of Monumental Sports tried to purchase the team in 2022, and that network covers the Capitals, the Mystics, and the Wizards. So it's a logical fit for the Washington, D.C.-based team to come on board there.

Reynolds: Mike, there's a lot of one-year deals coming off after this season. So when we have this conversation again next year, it's going to be even more complex.

Johnson: I think so. The RSN landscape continues to evolve, and many of these agreements are set to expire after this 2024/2025 season. We reported that 27 out of the 66 current MLB, NBA, and NHL teams that have RSN deals currently are up for renewal after this season. And that amounts to a combined average of $900 million in annual value in sports rights payments. Yeah, this will be a constant state of change throughout the next year or two.

Reynolds: Getting to the end, what are you guys going to be watching most this season on MLB from both TV and streaming perspectives? Justin, you're up first.

Nielson: Yeah, I'll be watching my Diamondbacks, but I'm also just interested in terms of how these deals materialize in terms of the Rangers and others. Looking at their viewership trends and seeing if there's any increase using the broadcast and streaming type of model. The other thing I'd be interested in seeing is just all the player movement that's happened during free agency, the team valuations, and then also potential collective bargaining agreements. What happens to the league in a few years in terms of some of the smaller and mid-sized teams and how they can compete with these larger free-agent deals.

Reynolds: Scott, you're in the number two hole. What do you think?

Robson: Yeah, I'm interested to see what happens with the ESPN decision and who will step up there. I'm also very curious to see if these regional streaming services pick up steam and gain traction and if they start reporting some significant subscriber numbers.

Reynolds: Mike, you're our number three hitter here.

Johnson: Yeah, along with what Justin said, I'll be taking a closer look at player movement and then the spending of these teams over the next few years as these local deals expire and how these teams navigate the RSN waters.

Reynolds: Almost as much action around the dial, if you will, or around your streaming buttons as there will be on the diamond. Going to put you guys in the game a little bit here as we close out. Last season, the Dodgers topped the Yankees in five games, averaging 15.8 million US viewers.

Reynolds: That was up 67% from the Diamondbacks and the Rangers the year before. Guys, what do we think? What teams are going to make the Fall Classic this year? And which one's going to win the 2025 World Series? Justin?

Nielson: Anyone but the Dodgers. But no, it would be interesting to see a Subway Series with the Mets and Yankees, but yeah, I'll be rooting for my Diamondbacks.

Robson: How about you?

Robson: Yeah, so the Dodgers are the preseason favorite right now at the sportsbooks. I think they have a good chance to repeat, but I'd like to see the Mets make it to the big one. And I think they have a decent shot with Soto on the roster this year.

Johnson: As much as I want to see my amazing Mets win it all, I'm going to have to go with the betting favorite Dodgers over the Red Sox.

Reynolds: Me, I'm a Yankees guy, as you may know, but I'm going Dodgers over the Cleveland Guardians. So we'll see how it all shakes out. That concludes this episode of “MediaTalk.” Want to thank our group of Kagan analysts, Justin, Scott, and Mike for talking baseball. Appreciate it, guys.

Nielson, Robson and Johnson: Thanks, Mike.

Reynolds: And thanks to all of you for listening. I know this was a complicated one, but that's baseball. I'm Mike Reynolds. We'll catch up soon on the next installment of “MediaTalk.”