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There are many things peculiar to the US sports industry. The franchise model, the primacy of playoffs and the draft system are either alien to the rest of the world or have been half-heartedly emulated. This unintentional contrarianism extends to its broadcast arrangements, where teams negotiate local television deals to complement their league’s national contracts.
While some of these local deals are with free-to-air (FTA) affiliates of major networks like ABC, CBS or NBC, most are with regional sports networks (RSNs) that show a combination of live professional, collegiate and high school sporting events across a certain market.
The consumer proposition is an obvious one. Rather than having to watch a game on national television involving two teams the viewer has no association with or interest in, they can access a service that shows nothing but content involving their favourite local teams.
The concept dates back to the 1960s, when a forerunner to Madison Square Garden (MSG) Network started live transmissions of the National Basketball Association’s (NBA) New York Knicks and the National Hockey League’s (NHL) New York Rangers to viewers in Manhattan. Several other RSNs started to appear around the country, driven by the growing adoption of cable television.
By the mid-1990s, virtually every single major media market acquired an RSN, which in turn became a major source of revenue for teams in the NBA, NHL and, above all, Major League Baseball (MLB).
Now, the model is in jeopardy – threatened by changing consumer habits and economic forces. RSNs, teams and leagues are scrambling to find a futureproof model while arguing in courtrooms in a bid to mitigate the potential damage. The situation is multifaceted, fast developing, and unique to the American media market.
Bally Sports operates 19 RSNs across the US
In the US, cable television viewers cannot pick and choose which services they want to pay for – they either have to subscribe to all of the bundle, or none of it. Cable companies then pay a channel operator a royalty fee for every customer, the value of which is related to their perceived importance in attracting and retaining that subscriber.
Local sports have typically been viewed as one of the major selling points of the bundle, allowing the cable companies to justify their steep fees. Accordingly, RSNs have benefitted greatly from this system and enter into long-term deals with major league teams to maintain their position and squeeze out would be competitors.
Ultimately, RSNs assume the value of royalties will exceed rights payments and other costs, while teams receive the certainty of a lucrative long-term revenue stream. For several decades, this symbiotic relationship has benefitted all parties and increased franchise values – especially in MLB.
The RSN ecosystem comprises a handful of media groups and independent stations owned or part-owned by teams themselves.
Examples of the latter category include MSG Network, the New York Yankees’ YES Network, the Boston Red Sox-owned NESN and the Mid-Atlantic Sports Network (MASN), a joint venture between the Baltimore Orioles and Washington Nationals.
NBCUniversal has NBC Sports Regional Networks in Boston, Chicago, Philadelphia and San Francisco, while WBD Sports has three AT&T SportsNet stations in Colorado, Pittsburgh and Texas.
However, the biggest player is Diamond Sports Group (DSG), a fully-owned subsidiary of the Sinclair Broadcast Group, which operates a collection of 19 RSNs under the Bally Sports banner. These RSNs were previously known as Fox Sports Networks before Disney was forced to divest them as a condition of its US$71.3 billion acquisition of 21st Century Fox. DSG paid US$10.3 billion for them back in 2019.
The RSN space is a microcosm of what is happening in the wider sports media world. The widespread availability of high-speed internet in the US means many households will no longer tolerate the expense, limitations and inflexibility of cable television and are ‘cutting the cord’.
They are switching to streaming services that offer more flexible, affordable contracts with greater freedom. This is an existential threat to the cable television model and, as one of the greatest beneficiaries of the bundle, RSNs are among those most exposed to its vulnerabilities.
Whereas a non-sports fan was forced to subscribe to an RSN even if they only wanted the Discovery Channel on cable TV, they can now build their own bundle and bypass the sporting world entirely. One fewer cable subscriber means one less royalty payment for an RSN. Compounding this situation is that cable companies might also seek to reduce the value of royalties they pay RSNs.
Many cord cutters still want to watch and record linear television, giving rise to multichannel video programming distributors (MVPD) like Hulu TV, YouTube TV and Fubo that transmit FTA and cable channels over the internet.
Many MVPDs actively market to sports fans, raising the prospect of the bundle surviving in a streaming world, but RSNs have traditionally been too expensive for these platforms to consider – especially when the point of switching from cable is to reduce costs. However, it is worth pointing out that Fubo recently welcomed back Bally Sports after a three-year absence.
If viewers are migrating from linear television to streaming, then surely it makes sense for RSNs to launch direct-to-consumer (DTC) platforms that can capitalise on this demand? Not quite – RSNs have so far been reluctant to make that jump.
The first issue is that no alternative as lucrative as the cable model exists. RSNs are guaranteed revenue for every single cable customer without the need to make an effort. It might not be a sustainable model, but it’s still working… just.
Going DTC requires significant knowledge and expense in acquisition, retention, customer service and marketing – all of which eat into margins. Meanwhile, a competitively priced DTC offering risks cannibalising cable viewers, affecting revenue and damaging relationships with cable distributors who believe sport is one of the final things keeping the bundle together.
This means the price of RSN DTC services remains relatively high, possibly to reinforce the idea that the bundle is good value, limiting their wider appeal. Furthermore, the fact is that many former cable customers won’t subscribe to an RSN now they are no longer forced to. Ultimately, DTC means higher costs and lower revenues.
The second major factor is rights. Many of these long-term deals with teams were signed without consideration for streaming, meaning many RSNs don’t actually have the legal ability to broadcast over the internet. Many teams would either like to retain these rights for themselves or charge RSNs additional fees for the privilege.
However several RSNs, most notably those owned or part-owned by teams, are now launching DTC services and DSG considers its Bally Sports+ proposition to be its path to survival.
NESN 360 was the first DTC platform to be launched by an RSN (Image Credit: NESN)
The amount that DSG paid for the Fox Sports Networks was a huge sum for a business that relies on an increasingly outdated model, and the pressure of its liabilities is intensifying. According to Sportico, DSG owes US$600 million in payments on its US$8.6 billion debt and US$1.9 billion in rights fees to its partner teams this year alone.
With subscriber numbers falling, this is far from an ideal financial situation. Having missed a US$140 million interest payment earlier this year, DSG filed for Chapter 11 bankruptcy protection to buy time and try and find what it considers to be a more sustainable business model. For now, it’s business as usual, and DSG has reportedly kept up payments to all but three of its partners – MLB’s Arizona Diamondbacks, the Cleveland Guardians and Minnesota Twins.
Ultimately, DSG wants to renegotiate its contracts on more favourable terms, arguing they need to reflect the lower number of cable subscribers and should include specific provisions for streaming so it can launch Bally Sports+ in more markets.
Indeed, DSG has filed court documents outlining plans to cut fees owed to the Diamondbacks, Guardians and Twins. Unsurprisingly, this course of action has been met with fury by MLB and the affected teams.
What comes next for Bally Sports+ after Diamond’s Chapter 11 filing? Michael Schneider, Bally Sports GM and COO, spoke at #OTTUSA23 about the future of RSNs just hours before Diamond’s announcement. pic.twitter.com/d4XAIHRTIG
Watch the full session ? https://t.co/OLYpSVS2AR
Bally Sports+ launched last year in selected markets, offering the ability to watch local coverage of NBA, NHL, MLB, Women’s National Basketball Association (WNBA), college football and high school sports without the need for a cable subscription. The idea is to give cord cutters the ability to subscribe now that they don’t have cable.
While the NBA has agreed a short-term streaming deal with DSG, the aforementioned contractual impasse with several MLB teams means their games are missing, impacting the appeal of a subscription to some viewers.
While the economic challenges outlined above still persist, Bally Sports is confident it can futureproof the business by taking advantage of the new revenue opportunities that streaming affords. These include in-play betting, interactive features, ecommerce and ticketing.
Michael Schneider, general manager of Bally Sports+, said during SportsPro OTT Summit USA he believes there is a market opportunity for a local streaming service that has more sport, more short-form content and integrates technological innovation as seen on national platforms.
“It’s not doom and gloom as people make it out to be,” Schneider told the audience. “These rights are still incredibly valuable. They just need to be positioned, marketed and distributed in a very different way.”
Schneider added that early data shows fans are spending a lot of time on the platform, suggesting there is an engaged audience that can be monetised beyond subscription revenue. The next step, he said, was to create localised experiences for each of its 19 markets.
“At the moment [Bally Sports+] is a digital version of the live feed but this is just version one,” Schneider added. “We’re working with leagues, partners and teams to offer a truly localised [streaming service].”
Far from entering survival mode, Schneider suggested that DSG could even acquire rights to new teams or sports in the future. The WNBA, National Women’s Soccer League (NWSL) and even emerging sports like pickleball were all cited as possibilities, although DSG is in no position to expand just yet.
Bally Sports certainly has a vision for the future, but it remains dependent on the outcome of its contractual negotiations.
WBD Sports plans to close its three AT&T SportsNet RSNs as soon as possible
WBD Sports does. It informed teams earlier this year that it planned to shut down its three AT&T SportsNet RSNs claiming it did not have sufficient funds to pay upcoming rights fees. The situation affects the NHL’s Pittsburgh Penguins and Vegas Golden Knights, the NBA’s Utah Jazz and Houston Rockets, and MLB’s Houston Astros, Pittsburgh Pirates and Colorado Rockies.
However, unlike DSG, WBD has no plans to go DTC, while it also wants a more amicable exit given it has national contracts for the NBA, NHL and MLB and wishes to maintain healthy relationships. It has invited the affected teams to reclaim their local rights, although all concerned are keen to avoid any mid-season disruption and are reportedly close to a deal that would avoid any animosity or lengthy court battles.
Under the terms of the reported deal, MLB would regain the rights to the Pirates and Rockies, the Astros and Rockets would take over AT&T SportsNet SouthWest, while other teams would need to find local broadcast homes.
RSNs owned or part-owned by major league teams suffer from the same systemic challenges as the other RSN groups, but have two major advantages in the current landscape.
The first is that team-owned RSNs are often found in larger media markets like New York and Boston and the second is that they usually have a less complicated contractual landscape to navigate given they have shared parent companies.
NESN has already launched ‘NESN 360’, MSG Network is readying ‘MSG+’ and the YES Network launched a DTC version in time for the Yankees’ opening day. NESN could also become the new home of the Pittsburgh Penguins given both are owned by Fenway Sports Group (FSG).
However, all of these services must find a balancing act between appealing to cord cutters without jeopardising cable revenues.
Rise and Shine? The @Padres are playing on Bally Sports San Diego⚾️@Padres | #BringTheGold pic.twitter.com/pjIzBGdN7X
For now, nothing – all of the RSNs mentioned are continuing to operate and broadcast live games to subscribers. A medium-term impact could be that viewers in some parts of the US might need to find a new channel to watch their favourite teams. But it’s clear that all parties are preparing for life beyond the bundle – especially when ESPN finally decides it’s time to go ‘all-in’ on DTC.
Bally Sports clearly believes there is space in the market for a local sports platform, but if the rewards on offer aren’t as great in the streaming era, then the leagues might decide to go it alone.
MLB has established a local media division which will handle the production and distribution for teams who reclaim their local rights and has previously spoken about the possibility of ‘in-market’ games being available on MLB.TV.
The NBA’s DTC proposition is similarly well-developed and there is speculation it could offer a package of games for a streamer during its next rights cycle. Meanwhile, the NHL has already integrated its DTC platform into ESPN+, which could host local matches too.
A report last year linked MLB, the NBA and the NHL with a full takeover of DSG, allowing the leagues to regain certain broadcast rights, strengthening their own DTC platforms or allowing individual teams to go it alone – much like the NBA’s Los Angeles Clippers have done.
But such a course of action would require significant expenditure, threaten revenues, and transfer the risk from broadcaster to rights holder.
One solution could be to restructure deals to ease DSG’s debts and even give the leagues a stake in the business to further intertwine the fates of all parties. MLB could give DSG the rights to stream matches on Bally Sports+ in exchange for lifting local blackouts that prevent certain matches from being streamed on MLB.TV, for example.
Or maybe there is a hybrid future where fans can either subscribe to a league platform to watch their favourite sport or to a local streaming service that shows all their teams and has original content tailored to their area.
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