One of the major sports media stories to watch in the coming month is whether ESPN decides to opt out of its current deal with Major League Baseball.
It has long been anticipated that ESPN, which pays the league around $550 million in media rights fees per year, would exercise its opt-out and attempt to renegotiate a deal at a lower price. Last week, a report surfaced that MLB had warned ESPN it could “walk away” should ESPN exercise its option—but many saw this as an empty threat. After all, the network has been airing MLB games since 1990.
However, according to the media research firm LightShed Partners, the league may not be bluffing when it says it will leave ESPN at the negotiating table. In fact, LightShed believes that there would be several prominent bidders for a new national MLB package, including Comcast (NBC), Paramount (CBS), Amazon, and Netflix.
They also believe ESPN would be making a strategic misstep by walking away from MLB. Much of their reasoning surrounds ESPN’s impending launch of its direct-to-consumer streaming service “Flagship.”
“Considering the totality of Disney and ESPN’s streaming ambitions, we believe an opt-out would likely be a mistake. Of course from a near-term P&L perspective it would be accretive to Disney. Whether ESPN has MLB content or not, it will not have any discernable [sic] impact on their affiliate/retrans fees, as those are driven entirely by NFL/CFP rights.
“Given Disney’s longer-term ambitions, especially tied to ESPN Flagship DTC streaming service, the calculus around MLB changes considerably… ESPN Flagship is going to need robust year-round programming. And, that does not just mean SportsCenter and talking heads. It needs a consistent flow of games. If Disney had been focused on maximizing near-to-intermediate term ESPN profitability, there was NO need to renew the NBA, as its affiliate/retrans fees are unaffected and profitability would have exploded higher without the NBA. However, once they made the strategic decision to build a full-year sports streaming service, they not only need the NBA, they need MLB.”
Should ESPN lose out on MLB rights, its summer programming would heavily rely on properties like the WNBA and the Little League World Series — not exactly a murderers’ row of inventory. Additionally, if ESPN wants to fulfill its long-term ambition of being the hub for all live sports in the United States, it must first prove itself as a year-round destination for sports fans.
LightShed speculates that MLB makes sense for two other traditional media companies: NBCUniversal and Paramount. With its addition of NBA rights next year, NBC could fill out its calendar nicely with an MLB package to bridge the gap between basketball and football season. Soon to be under new ownership, Paramount might want to invest in more sports. Both possibilities would provide MLB significantly more broadcast exposure than its current setup—though other national games could conceivably end up behind a paywall on Peacock or Paramount+.
Of the other two companies floated, Amazon and Netflix, LightShed says that Amazon would be the more likely of the two to have interest. Like NBC, Amazon is beginning its NBA deal next season, and MLB could complement that property by filling out the rest of its summer sports calendar, thus reducing churn on Prime Video. Netflix was classified as “unlikely,” though they’ve clearly signaled interest in adding live sports properties recently.
Even though MLB has many potential partners, it’s still expected that the league will take a haircut on its rights fee under a renegotiated deal.
“While it would be hard for all four entities to justify the current ESPN price of $550 million/year, we suspect MLB is willing to take a lower price and/or include additional rights to accomplish the larger strategic goals of expanding baseball’s reach beyond the sinking ship of cable television,” LightShed writes.
The hard truth for MLB is that its current agreement with ESPN is an overpayment for the network. For 30 regular-season games, the Home Run Derby, and a single Wild Card series, ESPN is paying only $178 million less than Fox, which gets the World Series, an LCS and LDS, the All-Star Game, and a regular-season package to boot.
MLB is going to take a hit, one way or another. But it seems the league will have some decent options outside of ESPN if it chooses to go that route.
