Mariners Take Majority Ownership of ROOT SPORTS NW
We’ve known for a while that the Mariners had an opt-out in their agreement with ROOT SPORTS, and were going to be able to renegotiate their contract based on the fact that television revenues for Major League teams are skyrocketing right now. Because live sports are mostly DVR proof and not (legally) available through streaming sites, cable companies are investing very heavily in exclusive long term contracts for sports franchises, especially baseball, because it offers 162 broadcasts per year.
Instead of re-signing to a new deal with ROOT — currently owned by DirecTV, by the way — the Mariners have bought a majority stake in the network. What this means is that instead of simply licensing their television rights, the Mariners will generate revenue directly from the network, much like the Yankees do with YES. Wendy Thurm laid out all the different television contract arrangements in a great post at FanGraphs last year, so you can see there that the Mariners will join the Yankees (YES), the Mets (SNY), the Red Sox (NESN), and the Orioles/Nationals (MASN) as owners of their own RSN, rather than striking a licensing deal with an existing cable network.
The big advantage of owning your own network is having a separate entity in which to hide revenues and keep them from going into the revenue sharing pool that MLB takes a 34% cut from to distribute among the lower revenue clubs. If the Mariners had signed a deal that simply caused DirecTV to cut them checks for their broadcast rights, the team would have had to disperse 1/3 of that to MLB. As owners of the network, the Mariners will simply be able to claim that revenue as ROOT SPORTS revenue and not Mariners revenue, and thus won’t be subject to the same revenue sharing rules. It’s a loophole, but it’s one that MLB has not yet seen fit to close. It doesn’t mean they won’t close it eventually, but it’s more difficult to track revenues of affiliated companies than it is to track what the teams have to disclose as income, so it’s likely that this partnership will result in the team being able to keep a larger percentage of their television rights money than if they had struck a pure licensing deal.
What this will mean is that the Mariners are going to have a significant increase in revenues going forward. Under their current television deal, the publicly available information has the team bringing in about $45 million per year, or at least that was the average during the life of the deal – it might be higher at the moment if the deal was backloaded. Every team who has signed a new licensing agreement with an RSN over the last few years has done significantly better than that AAV, ranging from $60 million per year (plus a 20% equity stake) for the Padres to $280 million per year for the Dodgers. That the Mariners chose to take a controlling stake instead of signing a licensing deal means that they believe they can make even more money by controlling the RSN than they would have by signing those rights away, so while we’ll never know exactly how much the team will get from owning a good chunk of ROOT, you can bet it’s going to be a sizable raise.
So, yes, the Mariners payroll is going to go up, and probably go up a good amount next year. Pretty much every new TV deal has been met with a payroll increase for the team that signed the contract, even among the lower revenue teams. The Indians just signed Nick Swisher and Michael Bourn over the off-season in large part because of the deal they struck to sell SportsTime Ohio to Fox Sports. Don’t be surprised if the Mariners are among the most aggressive teams in free agency next winter. This is generally how things work after a team signs a new TV deal or creates their own RSN.
But, at the same time, you have to realize that this isn’t a Mariners specific thing. The Mariners are taking part of a trend that is pushing up the revenues and the payrolls of every Major League team. Relative to the rest of the league, the Mariners had to do this just to keep pace. Having their own RSN doesn’t instantly make the Mariners into the Yankees. They’re just jumping onto the wave that is lifting all Major League clubs at the moment, and so they’re going to have more money to spend, but when everyone has more money to spend, players just get more expensive.
And, as we’ve talked about, free agency is changing. The wave of long term extensions for players like Felix Hernandez and other teams’ versions of Felix mean that premium young talents aren’t getting to FA early in their careers any more. Money that used to go into luring away star players is now being used to keep star talents with their original organizations, and so the players who actually change teams are of lesser quality — or are just older — than they used to be. The Mariners may very well go into this coming off-season with a lot of money to spend, only to find that the best players available are Jacoby Ellsbury and Matt Garza. Franchise saviors aren’t hitting the market much anymore.
It doesn’t make that money useless, though. In my opinion, the new advantage of financial resources is going to come through a heightened ability to make trades. While MLB teams haven’t traditionally sold off their best players, I wouldn’t be surprised if teams like the Rays and Marlins begin to look for some kind of financial compensation when they put David Price and Giancarlo Stanton on the trade block. The commissioner’s office might not go for large cash transfers, but there are creative ways that low revenue teams can get teams flush with cash to provide them some financial flexibility. Maybe instead of just asking for five good prospects, the Rays would want the Mariners to sign Taijuan Walker to a guaranteed six year contract with a bunch of team options for $40 or $50 million guaranteed and then agree to pay Walker to pitch for the Rays for the next decade. Would MLB go for this? I don’t know, but this is the kind of thing that a team with money to burn and no obvious free agent targets could try.
And now the Mariners are going to be that kind of team. The payroll is going to go up, and they’re going to be more aggressive in player acquisition than they have been. This isn’t an unexpected gift from the heavens, as they’ve known this windfall was coming and it was part of the motivation behind the Felix Hernandez extension, but it’s still going to be a financial boost to the team. It doesn’t make them the richest team in baseball or anything, but you can bet that the team almost certainly isn’t going to run an $85 million payroll again next year.
One final note – if your plan is to respond to this post with a rant against ownership being cheap bastards who are just pocketing all the money and screwing the fans because they don’t want to win, don’t bother. In fact, go away. You don’t know what you’re talking about. The perpetuated myth that the team is intent on screwing you out of your money by putting a bad product on the field is stupid and wrong. Winning teams make more money than losing teams. If the Mariners were completely and utterly intent on maximizing profits with no regard for anything else, they’d have invested more heavily in the product, because winning breeds revenues. It isn’t a lack of desire to win, or a preference for profit over winning, that has caused the team to stumble the last decade. They just made a bunch of bad baseball decisions that ended up doing real long term harm to the franchise. It is as simple as that. They aren’t losing on purpose. Stop believing that crap.
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37 Responses to “Mariners Take Majority Ownership of ROOT SPORTS NW”
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Two things:
1.) Not to be overly impatient, but are there trade targets out there this season with deals the Mariners may be more willing to accommodate than the team they’re currently on? Thinking the Alfonso Soriano type. Obviously not stars—and not referring specifically to him—but players who are paid more than they should, but still have some value.
2.) Though I doubt it will happen, it’d be nice to see the Mariners put some of this windfall towards the fans by reducing the cost of the ballpark experience. The Mariners have a beautiful park, and more fans should experience it. The more who do, the more who will developer a stronger bond with the team and do things like buy apparel, season tickets, etc. Though losing has been the biggest factor in plummeting attendance, dynamic ticket pricing and soaring concessions costs haven’t helped.
We know they haven’t been cheap when it comes to talent. All you really have to do is look at the contract they just signed Felix to and if that isn’t enough, note the big time free agents they pursued in the offseason. It wasn’t that they didn’t offer them enough money, it was they for whatever reason couldn’t sell the talent on coming to Seattle. I think one thing the Mariners have learned through the years and that is you have to try to put a good product on the field or the fans won’t come. They are seeing examples of that again this year. As a DirecTV subscriber, I just hope they continue to offer Root Sports in my package and it doesn’t turn into another Comcast NW or Pac12 Network where they get into a grudge match with the carrier and Root goes away.
This is a bit of a side issue, but as a resident of Seattle/King County/Washington I’m concerned this new arrangement will help the team avoid profit sharing with the community per this article. I hope the team will keep up its end of the deal so I can keep telling everyone that the Safeco funding scheme wasn’t too bad for the public.
Would such a team-owned arrangement theoretically provide additional incentive to win, given that the revenue generated through TV will presumably rise and fall with the fortunes of the team? Obviously this would be a consideration under any agreement (because on-field success dictates gate revenues), but I assume the team will have a larger vested interest in year-to-year viewership given that it is no longer simply receiving a flat licensing fee annually (or are they? Do we know the particulars of their “majority ownership?”).
Great read. Interesting to see the Mariners take a more creative approach to the TV deal trend. I wonder if the Mariners would even try to make the Root broadcasts more interesting with grater control. Would be tough to see impartial analysis of the team and the team’s decisions, but to be fair it isn’t there now either.
I am glad the Mariners have a better revenue stream set up. I do wonder, though, if this whole setup is going to blow up in the faces of sports teams over the next decade. They’re heavily invested in an old revenue model, which right now is very lucrative – but the way many people get their entertainment is changing, very rapidly, as technology advances.
With each new year, there’s less and less stuff that I’m watching directly from “commercial TV”. I watch it on Netflix, I watch it on YouTube, I occasionally rent (or buy) DVDs. At some point I can definitely see myself deciding it’s not worth paying Comcast $70 a month just so I can see Mariners games.
I’d love to see MLB.tv let local fans watch their local teams. They could even just offer a feed from the local franchise (ROOT in this case), complete with local commercials.
I don’t understand the statement “live sports are mostly DVR-proof.” I record live sports to DVR all the time. Please explain? Thanks.
This is good Mariners news. I feel like this team has the players in their system and resources to be very competitive in the near future. I’m looking forward to that day.
If the Mariners were completely and utterly intent on maximizing profits with no regard for anything else, they’d have invested more heavily in the product, because winning breeds revenues.
Alternate version, when you realize you don’t have Billy Beane and just want to make consistent money with a bad baseball team: dump all the salary from your roster ala Houston with a $30 million payroll, collect revenue sharing and whatever revenue you can get from being a doormat, and you likely can turn a consistent profit. The Marlins have done versions of this for years, and the Twins did this when they were owned by Carl Pohlad, one of the richest guys in baseball at the time.
If by some chance your cheap kids end up good (see: Twins or Marlins), dump them when they get expensive. Rinse/lather/repeat.
I don’t understand the statement “live sports are mostly DVR-proof.” I record live sports to DVR all the time. Please explain? Thanks.
Sports viewers are much more likely to watch the program live than fans of other programming. They’re watching at bars or at home with friends, so they can’t skip through ads. So advertisers are willing to pay a lot more to advertise during a live sporting event than they are to advertise during a reality show with similar ratings that most people will have on their DVR for a few hours or days before watching.
I have a question in regards to Directv and their part of the ownership of Root Sports. I am stationed at Dover AFB, DE and I purchased the “Local Sports Channels” package. It provides almost every clubs Root Sports affiliation channel. The only problem is, all of the M’s home games come up as “you are not subscribed to this channel” as soon as the game starts. Any help? I have called and a representative who didn’t seem very knowledgeable said that root sports holds the right to black out games on the easy coast. Does that sound right? If so, it makes no sense for me to continue to pay for the subscription if I am not able to watch half of their games.
Dave,
I’ve been following you for six or seven years, and to me this is the most perceptive thing you’ve ever written.
Absolutely rock solid from top to bottom.
thanks.
Hey Mariners2620 – who did you buy this package from? And when you watch the M’s road games, you’re getting the home team’s broadcast, right? Like, the A’s telecast or Rangers or whoever?
If you’re in Delaware, there’s no way MLB is blacking you out of a game in Seattle. My guess is that you have a cable operator that may not be playing nicely with DirecTV-owned ROOT Sports. ROOT Sports also has the Pittsburgh and Colorado markets, but the M’s don’t often play those teams.
Comparing the Yankees relationship with YES and the Mariners relationship with ROOT, is nonsense.
Murdoch bought 49% of YES. The Yankees now own 25%. YES annual payout for the Yankees rights will increase 4% a year, $85m this season to $350m in 2042.
What will the Ms receive from the ROOT deal in 2042 or 2020?
ROOT does not have the content or the financials of YES.
The Seattle based ROOT needs national distribution over cable for the rest of its content. And rather than the current exclusive ‘cablecast’ contract (with ROOT) the Ms need a local TV ‘broadcast’ contract. Just as the Yankees and Red Sox have.
The revenue of ALL MLB teams is/will be significantly increasing (with the new national TV contract and revenue sharing). Yet the payrolls of some small market (and some not so small) is not keeping pace.
How much does ROOT charge per subscriber? And how much of that will end up with the Ms?
I’ve been wondering for a while if deals similar to the one you imagined for Taijuwan Walker could happen.
I think the biggest limitation is that MLB wouldn’t let the contract be conditioned on a trade going through, not when the original team is paying the contract, which means this would take some sort of handshake deal with all of the people involved, which isn’t something risk-averse teams appreciate.
But if you are willing to sign players and then try to trade them while eating their salary, you can probably get some value in terms of talent, at least until MLB decides to hinder reverse salary dumps the same way they do salary dumps.
Two free agents the Mariners are likely to sign next winter?
Morse and Morales.
I could see a trade being contingent on the receiving team agreeing to a long term contract with the player, and the trade including the sending team paying for much of that contract.
I think I’ve seen similar deals in the past, if not exactly that detail.
This is really REALLY cool. And something I didn’t see coming at all. It creates a double-barrel opportunity to milk any hype/popularity around the team, so it almost NECESSITATES spending and winning more, or the owners are missing out on huge profits if they DON’T. Win/win literally for the Mariners. Because, if the team returns to high popularity the turnstiles will create additional revenue, and the increased cost of subscribing, or advertising, through Root will create additional revenue– and there’s really no ceiling to that doubling of increased income until, well, until you’ve won 4 or 5 World Series in a row and can say “interest has peaked”.
Although, there is definitely an opportunity created here for someone to redefine how folks get their baseball content. With the extravagant prices TV contracts are bringing (same reason the M’s want to be a majority holder in that) the media providers are definitely seeking cheaper solutions to increase their profit margins without paying so much for the rights. And though that might suggest a plateau for TV profits coming soon, it also suggest it’s a really REALLY great time to be a baseball fan.
Won’t be long till we have umpire cams, pitcher cams, and fans can choose exactly the camera angle they want at any time during the game. Or have 2 or 3 on the screen at once.
Hypothesizing here, but how cool would that be? More revenues, more technology, more access, a better experience for the fan.
This is fun news.
Marc w- I bought the package from Directv. They are my current provider. During the road games, I get the Seattle broadcast due to the fact that I am watching it on the Root Sports North West channel. That is included in the package. However, during the Mariners’ home games it allows for me to watch the pre game but as soon as the game starts it disconnects and days “You are not subscribed to this channel”. It makes literally no sense, because I am in fact subscribed to the channels. It is part of my package. It sounds as if I am being screwed out of something.
Marc stated “you have a cable operator that may not be playing nicely with DirecTV-owned ROOT Sports”.
The poster inferred he has DirectTV, not cable. This issue with M’s games sometimes showing on ROOT Sports on DirectTV, and sometimes not, has been oft reported. I’ve observed it myself too many times to count.
Is it possible whenever a live game is on ROOT Sports-Pittsburg (or ROOT Sports-Denver) the Direct TV operator (command center) is incorrectly blacking out the Ms game for ROOT Sports-Seattle subscribers?
Mariners2620– I think you have to buy MLB extra innings to be able to watch those games. The sports package you bought is probably the one that gives you all the channels like Root or Fox sports from different areas, but those channels black out when a game is on.
@HighlightsAt11
There is another layer to this that hasn’t been talked about.
John Stanton taking majority control with the Mariners, and soon per Geoff Baker.
This does a lot of things.
1) More active ownership group (Stanton fought for the Sonics)
2) Stanton was CEO of Voicestream and knows the Cable & Broadcasting industry
3) Stanton and Chris Hansen have been connected and are quite “cordial” per Baker
This all basically leads to an ownership group with a RSN and infrastructure set up to provide a TV network for the Sonics/NHL when they come back.
Lots of positives, lots of good news for regional sports fans, and most importantly, lots of money for those involved.
So if big time free agents aren’t hitting the market like they used to, and the big marquee free agents may be Ellsbury and/or Garza, why would the Mariners payroll increase significantly from $85 mm? Unless some big name talent is on the trading block, I can’t see the M’s upping the payroll just because they can. They’ve been aggressive over the last couple of years and have been willing to increase payroll (Hamilton, Upton trade offer) but the big free agents or guys with no-trades just don’t want to come here. So I don’t see this deal as a sign that we will drop serious coin in 2014 and beyond.
This was clearly a move in an effort to shop/sell the team. The real intent of the ownership all along.
You are.
Have you called them? Sounds like you are being charged for a service they failed to activate for you.
Shortbus,
If you’ve been telling folks the safeco funding scheme wasn’t a bad deal for the taxpayer, you’ve been misrepresenting the facts. I’m sorry, I love the M’s but can’t let my fandom blind me to the economic reality.
Stevemotivateir,
If the deal is good for shopping/selling the team, then it’s also good for current ownership if they retain the team. Therefore, this deal doesn’t tell us whether or not they’re looking to sell. (The primary owner is not a young man, lives in Japan, and doesn’t care that much about baseball–but all three were also true when he bought the team many years ago.)
Ha! I knew I’d get someone to bite;)
Seriously, I’m just waiting for someone to shoot off with that suggestion. It makes little sense to sell the team now. They would be selling low. Would make a lot more sense to build the team back up, then flirt with the idea.
Right now, a TV deal just shows the potential, much like our minor leaguers. I don’t believe for a second that the team is being shopped or sold. But I’m sure someone will think otherwise.
Hey, maybe the team will offer Raul a 4 year, $100 million contract! With grit-related incentives!
There aren’t enough players available to fill the entire league and if some teams (Dodgers, Yankees, Angels, etc.) try to buy up the most expensive free agents over several years, the dispersion is going to be uneven. Also, teams with excellent talent scouts have higher than average rate of MLB-ready talent. For teams that don’t or can’t keep pace with either of these factors will forever be at a disadvantage with fielding decent players. Money coming next year will get Geoff Baker excited but won’t have the result he thinks will come from it.
“Sports viewers are much more likely to watch the program live than fans of other programming. They’re watching at bars or at home with friends, so they can’t skip through ads. So advertisers are willing to pay a lot more to advertise during a live sporting event than they are to advertise during a reality show with similar ratings that most people will have on their DVR for a few hours or days before watching.”
—
Thank you for explaining. I understand the rationale. But happily, none of that applies to me. I know I’m an outlier in this, but (1) I watch almost no TV at all, EXCEPT for sports. (2) I watch almost everything recorded on DVR, and (3) At no time whatever do I watch or listen to TV or radio advertising of any kind, as long as I have a remote with a mute button in my hand. When I’m not in front of the TV, that sucker is OFF.
Just about everything else, I watch on the laptop or the phone.
Ivan-
That’s very noble, but if everyone took that position, we would have no advertising at all, which would mean, we’d have no television and no coverage of baseball and still be listening on the radio, which, y’know, has advertising.
Television is literally a “commercial” enterprise. The agreement with its viewers is “we provide you programming, and you sit through the occasional commercial, so we can afford to continue providing you programming.” It’s because people are willing to sit through commercials that stations make enough money to offer millions of dollars to our beloved Mariners for the right to cover their games. And likewise, ultimately, that makes the money to help pay our players’obscene salaries, and build huge gaudy HD stadium screens.
I understand your sentiment, but I’m glad not everyone feels that way. I like watching sports on TV.
When making generalizations about data don’t we initially toss out the outlier figures so we can concentrate on the information that matters?
People who disagree with me are “stupid and wrong”… More brilliance from the supposedly open-minded and forward thinking blogosphere …
@ MrZDevotee:
You are entitled to your value judgment, and to your threshold. If you enjoy watching commercials for boner medicine, then more power to you. Technology has enabled me to bypass all television advertising, and I do so without a qualm of remorse, and will continue to. I hardly need anyone to lecture me that advertising pays the bills. I doubt that baseball on TV will go away any time soon.
People who disagree with me are “stupid and wrong”… More brilliance from the supposedly open-minded and forward thinking blogosphere …
Right, because signing Felix to a long term extension instead of dumping him for a truckload of prospects, Marlins-style, proves that- oh, wait, no it supports Dave’s point, that the team is willing to spend and is interested in winning.
Again, if ownership was just interested in low-risk consistent profit while waiting for the day to cash their franchise appreciation in, and didn’t give a damn about winning baseball games, the way to do that is sell off your talent for cheap prospects the moment it gets expensive, and have a minimal payroll. They just traded for Aaron Harang for essentially nothing, and added some payroll to boot.
USSM has never been about making arguments that are completely contradicted by real world evidence. The team makes bad decisions about the product on the field, but it’s not a case of “we don’t care about the product on the field”.
Starting next year the Ms income from the MLB national media sales will increase from $25MM to $52MM. This gave them the assurance to sign Felix to big bucks and a long time. They were getting a reported $45MM a season from their regional media contract (according to Wendy Thurm of FanGraphs. So before this new deal they were going to get $97MM year in media income. Now they will get a so far unknown amount in media rights from ROOT Sports NW which they now own a controlling interest in. This payment might be ROOT NW friendly but it is required by MLB and subject to the 34% local income sharing pool. This has increased the Ms market value and the owners equity value. I’m guessing they would sell for about $1BB going forward.
Other effects, regional cable operators will be charged more to carry the ROOT Sports channel and you will see more Mariner-centric content. The Dodgers are supposedly figuring on $5 per month per cable household from cable operators. The ROOT Sports NW will not bring anything close to that, probably something in the $2 to $2.50 range, more if they ad NBA and/or NHL teams to the network.
Mariner-centric content can include things like a team man cave, minor league affiliated team broadcasts, weekly shows by current or former Ms like Bone, Junior or Edgar or the manager or GM, scouting reports, coverage of the Ms draft, backgrounders on players, coaches and other team employees. This will be fan friendly and help build the brand.
This deal is big and good and I for one love it.
@Dave,
Your final paragraph is dead on. If they were cheap, why re-sign Felix?
Plus, even though I’d like to see ticket prices a little lower, (who wouldn’t), if they do start winning, the seats will fill up, regardless of whether a big RSN deal was struck or not. Now, with the deal, they get to play “big boy” baseball.
And, the “R” in RSN, at least here in Seattle, is a pretty big region.