If the fall quarter is when the national broadcasters rake in the bulk of their money, spring is the boom time for the regional sports networks, a period that coincides with the run-up to the NBA and NHL playoffs and the rise of a new MLB season. But despite the frenzy of the sports calendar, the RSN business remains in a slump that it may not be able to power through.
Despite signs that the vaccination effort has knocked some of the teeth out of the coronavirus—on Monday, New York Gov. Andrew Cuomo announced that Yankee Stadium and Citi Field as of May 19 will be allowed to increase their capacities from 20% to 33%, a shift that would allow as many as 32,000 fans to watch the hometown clubs in person—the pandemic is still giving the RSNs fits. Rebates to distributors won’t be paid in full until June 2022, and the advertising business, while in recovery, has yet to return to its full pre-COVID potency.
Things are tough all over for the RSNs, but perhaps no networks group is taking it on the chin quite like Sinclair’s newly rebranded Bally Sports roster. In addition to being absent from the Dish Network satellite-TV lineup as well as YouTube TV, Hulu and FuboTV, the Sinclair unit that runs the RSNs, Diamond Sports Group, this spring shelled out nearly $85 million to extend rights with MLB’s Brewers and Marlins. Last summer, the Royals came to terms on a renewal valued at $50 million per year with Diamond affiliate Bally Sports Kansas City. Other renewals, including what promises to be a pricey re-up with the NBA’s Clippers, are in the wings.
According to a recent filing with the Securities Exchange Commission, Sinclair in 2021 is on the hook for $1.82 billion in rights fees.
These headwinds are buffeting Sinclair, and the rest of the RSN sector, as the multichannel universe continues to contract. According to Nielsen data, demand for the trappings of pay-TV is swooning: In the first quarter of this year, only 66.9% of all U.S. TV homes subscribed to the traditional cable/satellite/telco bundle. That’s down from 83.9% five years ago, and while the growth of the virtual MVPDs cited above is clawing back some of those subscriber losses, those contributions largely do not extend to the RSNs. (In addition to the Bally Sports nets, YouTube TV also does not carry NESN and Marquee Sports Network, which serve as the home nets for the Red Sox and Cubs in their respective markets.)
Naturally, Sinclair was fully aware of what the RSN business was up against long before the virus shut everything down last spring—after all, it had snapped up its suite of sports channels in a virtual fire sale. Two years ago, when Disney agreed to sell the 22 sports channels it had picked up from Fox as a condition of its $73.1 billion acquisition of the company’s entertainment assets, analysts believed the RSNs would fetch as much as $20 billion on the open market. By the time Sinclair agreed to take the Fox Sports channels off Disney’s hands, they paid less than half what Wall Street had anticipated, signing a check for $9.6 billion.
(While the oft-cited figure bandied about in the context of the Sinclair RSN buy is $10.6 billion, $1 billion of that price was shouldered by minority shareholders.)
If the RSNs will be paying out COVID-related programming refunds for some time, there is at least some relief from the leagues that has yet to be surrendered. The tap shuts off at the end of this quarter; according to Sinclair executive VP and CFO Lucy Rutishauer, “minimum game delivery shortfalls totaled approximately $697 million,” of which $542 million was paid up in 2020. (Much of that sum was MLB money, given the extreme truncation of last year’s 60-game season.) The remaining $155 million in payback is due by the end of the quarter.
On the other side of the ledger, Sinclair reports that its payouts to operators will add up to $420 million in the obligations column. And while that makes for an overall savings of $277 million, it’s a rounding error when viewed in the light of the $4.23 billion impairment charge absorbed by the RSNs in the third quarter of 2020. During that same earnings call, Rutishauer disclosed that YouTube and Hulu had accounted for 10% of the local sports channels’ gross distribution revenue for the month of September.
If getting dumped by the virtual MVPDs has taken a bite out of Bally Sports’ reach, the ongoing Dish stalemate is costlier still. The satellite TV service closed out 2020 with 8.82 million video subscribers, and its Sling TV added another 2.47 million households to the pile. On Opening Day of the 2021 MLB season, some 11.3 million U.S. homes were unable to access the Sinclair RSNs. (Not that Bally Sports is alone in feeling the chill from Dish, as the operator has also failed to reach a carriage deal with the NBC Sports RSNs and MASN, the home network of the Orioles and Nationals.)
Even some elite, team-owned RSNs are now struggling to keep the faith. “I used to say that the RSN model is good for five to 10 years, but I have to modify that,” said one sports net programming chief. “COVID will have a more lasting impact on sports than perhaps we’d anticipated. The RSNs are not in a great spot right now—along with the battle with distributors, the advertisers are not clamoring back.”
The prognosis is grim. “The impact of the last 14 months has been profound, but let’s face it, the next six to 12 months may be too much to come back from.” When asked if there’s any lifeline to grasp, the network exec said, “Gambling can’t happen soon enough.”
Obviously, the fact that a major casino group forked over $85 million for the right to rebrand the Sinclair RSNs in its own image suggests the emerging sports-betting market may not be a long shot. But will the opportunity be sufficiently lucrative to offset the loss of so much affiliate revenue? Former NBA Broadcasting capo Ed Desser last week was a dissenting voice in the ongoing discussion about the restorative powers of betting (“I’m not a believer that gambling is going to be gargantuan any time soon,” he said)—while his former pro hoops running mate John Kosner said a league-driven workaround may be taking shape.
“If the RSN business continues to be challenged, you may see leagues selling more like the NFL,” Kosner said. “The teams may start plugging their local rights into a more national package scheme.”
If the future of RSNs is hard to make out from the vantage point of a pandemic, the model hasn’t exactly taken to its death bed. The NHL expansion club Seattle Kraken in January inked a five-year, $150 million deal with Root Sports, the local net which is majority owned (71%) by MLB’s Mariners and minority owned by AT&T’s DirecTV. Root Sports has a footprint that extends across five states, including Washington, Oregon, Montana, Idaho and Alaska.
Of course, everything’s relative. If, for example, you happen to be in the enviable position of Randy Levine, who runs the point for the $6.75 billion Pinstripes, panic over the deprivations of the devolving pay-TV universe hasn’t quite set in. Speaking at Sportico’s MLB Valuations 2021 panel yesterday, the Yankees president allowed that while YES Network took a hit during the lockdown phase of the pandemic, much of the sound and fury about the state of the RSNs amounts to just a whole lot of noise.
“The doom and gloom was overblown,” Levine said, and it’s little wonder he seems so unbothered. YES next year is expected to boost its average monthly subscriber fee to a staggering $7.27 per household, a 12% hike from the $6.49 a pop the network booked in 2019. If nothing else, the fare bump should offset any sub losses YES is likely to incur across its footprint, which includes New York state, Connecticut, northeast Pennsylvania, and north and central New Jersey.