The news this week of the NBA’s Phoenix Suns and WNBA’s Phoenix Mercury signing a TV deal with two broadcast stations owned by Gray Television sent shockwaves through much of the media world. While there had been lots of talk of local sports broadcasts moving to a different model than regional sports networks, especially around the ongoing Diamond Sports (parent of the Bally Sports regional networks) bankruptcy proceedings and around Warner Bros. Discovery Sports looking to shut down or transfer their RSNs, the Suns and Mercury were the first to actually do it, signing both this broadcast deal with Gray and a streaming deal with Kiswe.
There’s still some uncertainty around this, with Diamond claiming they have an option to match (both teams previously had their games on Bally Sports Arizona) and threatening legal action. But this move to broadcast TV does seem like it may happen. And new Suns and Mercury owner Mat Ishbia (who had his bid for those teams officially approved in February) had some interesting comments about the rationale behind it to Shlomo Sprung of Boardroom, saying the key for him was the expanded reach available on broadcast TV:
.@Mishbia15 spoke with Boardroom on his decision to provide games for free to roughly 2.8 million households in Arizona — tripling the audience the @Suns and @PhoenixMercury reached during games broadcasted by Bally Sports.
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— Boardroom (@boardroom) April 30, 2023
Here’s more on that from that Boardroom piece:
“The goal has always been to do right by the fans and the community. When there was an opportunity to deliver this to the Suns and Mercury organizations, to three million households instead of 600,000 to 700,000, and do it for no cost to them, it was an easy decision… That’s what the whole strategy was around and where we ended up.”
…“Cord cutters, cable subscribers, fans with an antenna – everyone will be able to watch Suns and Mercury games on Arizona’s Family,” Ishbia said. “Coupling that with a partnership with an industry leader like Kiswe to provide an innovative digital streaming solution allows us to transform the way fans watch our games, giving them more options and access than they’ve ever had.”
“Cable subscriptions are going down in the country, and so you don’t want to have less fans watching your product. So, how do you fix that? How do you solve for that? The reality is yes, I think others will follow. I think this is the way it’s going to go in the future. We’re going to change the game a little bit.”
Of course, the key question here is “How do you monetize this?” Broadcast TV has much greater reach than cable at the moment thanks to cord-cutting, with even top cable networks like ESPN and TNT in almost 50 million fewer homes than the Nielsen-estimated TV universe, and RSNs like Bally Sports Arizona in far fewer still even within their territory. But cable networks have the revenue stream of per-subscriber fees for every multichannel video provider (cable, satellite, or virtual) package including their channel, even if those subscribers never watch it. For RSNs in particular, that enabled them to pay very lucrative contracts for a long time regardless of viewership numbers, as MLB commissioner Rob Manfred discussed recently.
Broadcast networks can get a bit of similar revenue there from retransmission fees they charge to MVPDs. But it’s harder to get those fees up as high. And negotiations there often lead to carriage disputes, and to even some MVPDs giving customers antennas rather than working out a retransmission deal. So for broadcast TV, the equation becomes much more about viewership and advertising revenue. And higher viewership can lead to higher advertising revenue, but there’s a big hill to climb against those RSN per-subscriber fees. A separate streaming deal like this one with Kiswe can help further, but it’s still far from clear that these deals can beat, match, or even come close to the dollar value of the previous RSN deal.
Direct revenue from a contract is only part of the equation, of course. There are further ancillary benefits for Ishbia (seen at top at a February press conference on his bid being approved) in having Suns and Mercury games seen by more people. That encourages fandom, which can boost merchandise sales, ticket sales, in-arena concession sales, sponsorship revenues, and more. And that’s a big part of what Ishbia’s comments here are focusing on, with “You don’t want to have less fans watching your product” and “How do you solve for that?” But the contract direct revenue is what Diamond is complaining about, and saying they have an opportunity to match, so it will be interesting to see how their threat of legal action shakes out.
The other notable thing to consider here is that whatever Gray and Kiswe are paying for these rights doesn’t necessarily have to equal the money they make back exactly on this, especially at first. Kiswe will be offering this season’s Mercury games for free, but that may wind up being an introductory-only move to boost awareness and exposure. That’s what happened with AppleTV+’s MLB deal (which went to a paid tier this year following a free first year).
As for Gray, John Ourand of Sports Business Journal shared an interesting theory that this could be used to help them gain MVPD distribution and retransmission fees, even for stations like their Phoenix CBS affiliate that aren’t involved in this deal. So the Suns and Mercury contract could be a loss-leader that helps Gray elsewhere. And sports TV consultant Patrick Crakes has noted that there are other ways to make money off deals involving broadcast TV, including “tiered non-exclusive Pay TV distribution as well as broadcast enabled pay walls” under the new ATSC 3.0 standard (but it’s unclear if any of that will show up here, especially at first), so it’s possible that these kinds of deals could eventually get close to the revenue teams were getting from RSN contracts.
But what that revenue looks like at the moment may determine if “others will follow,” as Ishbia claims. Increased distribution is certainly nice, and certainly can help teams in other areas, but many owners may not be keen on the idea of taking less TV money to make that happen. And what that revenue looks like at the moment may also impact if this actually winds up going into effect. The threats of legal action from Diamond if they’re not allowed to match this offer revolve around that direct contract revenue, and “We’re solving for having more fans watch” may not be enough of a defense there. That will be a fascinating part of this situation to keep an eye on.
[Boardroom; photo from Mark J. Rebilas/USA Today Sports]