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How MLB splits your TV dollars

Last week, we examined how your cable and satellite bills will pay for Major League Baseball’s billion-dollar TV deals. Now let’s look at what that means for the teams themselves. How does baseball distribute your money?

We know that MLB’s new national TV contracts with ESPN, Fox, and Turner will more than double the amount of money each team received from those three networks. Where the previous contract paid teams an average of $25.53 million each per year, next year’s contract will pay teams an average of $51.67 million per year. Having an additional $26 million on hand seems useful.

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Now lets take a look at the local TV deals. Much of this data was compiled by Wendy Thurm of Fangraphs, with some data from around the web filling in the gaps. Some of the numbers are rough estimates, with escalators in place for the New York Yankees (4%) and Los Angeles Angels of Anaheim (2.5%).

Clearly, if there were no revenue sharing, small-market teams would be at a huge disadvantage. MLB’s collective bargaining agreement, however, stipulates that teams share 34% of their local TV money. The shared pool is then split evenly among all thirty teams. That means every million dollars a team makes from its local TV deal is worth $11,133.33 to the other 29 teams.

With that in mind, let’s take a look at how much total TV money each team will make in 2013:  

Is that enough to cover escalating player salaries? Let’s take a look at how these numbers compare to 2013 payroll numbers, which were taken from Forbes:  

As you can see, only three teams are capable of covering their payrolls with TV money alone, and two of them — the Astros and the Marlins — have slashed their payrolls to the point of being woefully uncompetitive. The Padres’ new deal with Fox Sports West, on the other hand, puts them in a slightly better position, even though they’re a bit off the pace of the Giants and Diamondbacks right now.

Of course, TV money is far from the only source of revenue for teams. Gate revenue alone will make up the gap for nearly every MLB team. In fact, gate revenue is expected to cover the entire payroll for at least four teams — the Yankees, Red Sox, Cubs, and Twins. Then there’s the $150 million dividend that MLB Advanced Media is expected to add to the pool, which ships another $5 million to each team. To say nothing of concessions, in-stadium advertising, and so on. Still, you can see from that chart how important revenue sharing is for small market teams — especially for teams like the Reds, Braves, and Athletics, who make so little from their TV deals.

So how much more do teams stand to make from next year’s TV deals? In order to determine that, we have to factor in a few things. First, we have to figure out how much the Dodgers will make next season. Their new contract with Time Warner Cable is worth $7 billion over 25 years, which averages out to $280 per year, but chances are there’s an escalator clause in that deal, so as to minimize TWC’s short-term risk. If it’s the same as with the Yankees’ deal with YES (4%), TWC could pay the Dodgers about $170 million next season. (Let’s also assume that the Dodgers will agree to share 34% of that, even though MLB’s settlement with Frank McCourt would permit them to share much less.)

We’ll also factor in the escalator clauses for the Yankees and Angels, as well as the Mariners’ purchase of ROOT Sports Northwest, which could put the M’s on the same level as the Red Sox, who own NESN.  

The Dodgers’ new deal alone adds more than $44M to the shared revenue pool. That will add about $1.47 million to every MLB team’s bottom line. Now what happens when we put these estimates next to 2013 payrolls?  

Suddenly, the number of teams that can cover their payrolls with TV money alone rises from 3 to 12, and most of them are small market teams. Sure, teams like the Athletics will have to keep Moneyballin’ to remain competitive, but they will benefit greatly from the additional $27.6 million generated from new TV deals. So will the Braves, Pirates, and Rays. They can keep their teams intact and perhaps make a run at the playoffs.

More of these big local deals are coming. The next TV deal for the Phillies, whose current deal with Comcast expires in 2015, is expected to be worth almost triple the $35 million they’re getting now. On top of that, the Cardinals, Cubs, Diamondbacks, Rays, Rockies, Tigers and White Sox could all see increases in their TV deals in the next 5 years.

Of course, these local TV deals will only go up as long as cable and satellite TV subscribers are willing to foot the bill for them. Right now in and around Houston, TV carriers and baseball fans alike are rebelling against the Astros and Comcast. Is that merely a reaction to an owner who doesn’t seem to care about winning, or will we see more fans start to reject these added costs on their cable bills? The next few years could be quite telling.  

Dave Warner writes about sports and the cable industry at What You Pay For Sports.  Follow Dave on Twitter at @whatupay4sports.

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About Matt Yoder

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