MediaTalk | Season 4 | Ep. 12 - As RSN Models Evolve, Who Wins Baseball’s Local Media Rights Battle?

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Mike Reynolds: Hi, I'm Mike Reynolds, a senior reporter covering the media industry with S&P Global Market Intelligence's Tech, Media, and Telecom news team. Welcome to "MediaTalk," a podcast hosted by S&P Global, where the news and research staff explore issues in the ever-evolving media landscape. Today, we're talking baseball. Kagan principal analyst Scott Robson keeps tabs on U.S. networks and sports, and Kagan analyst Mike Johnson, or MJ, who's on the U.S. sports watch, are in MediaTalk’s virtual dugout. Before we get going, you guys are both Mets fans. A tumultuous offseason, right, Scott?

Scott Robson: Yes. As a born and bred Long Islander, I'm loyal to the Mets. It's been a bit of a rocky road, but ever since Steve Cohen took over, we've had some hope. Definitely a busy offseason. I was excited when we picked up Bo Bichette. He was great on the Blue Jays last year, but losing Pete Alonso and Edwin Díaz stung. I think we're in good shape overall, though.

Reynolds: Mike, how are you feeling about the Amazin’s going into the next campaign?

Johnson: Yeah. Yeah. A lot of big changes in the offseason. I've come around; I'm cautiously optimistic, like usual. Like Scott was saying, last year was pretty disappointing. But anytime you have Francisco Lindor and Juan Soto in the lineup, you have a chance. But I'm just waiting for these younger players to hopefully emerge. Hopefully, we can have a better season this go-around. But yeah, I'm hoping to get to some games this year, too.

Reynolds: Okay, cool. That's good. I'm a Yankees guy — relatively quiet offseason, hoping that Gerrit Cole and Carlos Rodón already return to the hill from injuries. Yankees could have a high-quality starting pitching rotation.

Speaking of which, there is a new limited challenge system in place for balls and strikes. Mike, can you take us through that a little bit?

Johnson: Yeah. Yeah, absolutely. So happy to break it down. Starting this year, MLB is rolling out the new ABS challenge system for balls and strikes. Each team will get two challenges per game, so you can't just challenge every pitch that you don't like.

Reynolds: Okay. Thank God for that.

Johnson: Yeah. Yep. And then if it goes to extras, you get an extra challenge per inning. The process is designed to be quick and straightforward. If a batter, pitcher, or catcher thinks the ump got a call wrong, they can just tap their cap or helmet right away — no waiting around. So, no coaching from the dugout. Also, it's pretty interesting that it doesn't wipe out the traditional catcher framing or the art of working the umpire too much, since most calls are still made by the human umps. So those skills definitely still matter. And it's kind of a happy in-between — full robot umps and the old-school human element. It adds a new layer of strategy.

Reynolds: Scott, do we think that Elon Musk and the robots will soon be all the umpires?

Robson: First off, I think one of the best parts about being the richest man in the world would be owning a pro sports team. And Musk hasn't done that yet, so I think that's a big missed opportunity. But in regards to this ABS challenge system, I think it's a very cautious step into umpire automation. The league seems reluctant to go full robot ump at this time. The stakes are so high in pro sports these days that it makes sense for these calls to be as accurate as possible. This has been tested in the minor leagues, and the challenges have a 52% success rate. So it's not overwhelming that the umps are making a lot of bad calls. There was a game in February between the Diamondbacks and Rockies that had seven total challenges, which was the most in a game thus far. So I don't know if it's going to get out of hand at any time. Slow roll is probably going to work for most fans. There are challenges now across most sports.

Reynolds: Yep. Hopefully, it will be as Mike suggested — it can be initiated quickly and hopefully resolved quickly. No commercial breaks in between. Alright. World Baseball Classic in the books. A big hit for FOX and FOX Sports 1. Might have been even bigger if the U.S. had won the championship match. Mike, your take on what happened there?

Johnson: Yeah, I was able to catch a lot of the Classic this year, and honestly, it was a pretty great watch. The energy was off the charts, and the tournament broke all sorts of records in terms of viewership. I think it was over 1.6 million fans in attendance, which was a huge jump from the last go-around.

Reynolds: Okay.

Johnson: I think it was up over 24% for that. And I think the title game pulled in nearly 11 million viewers as well. Yeah, so just huge numbers all the way around.

Reynolds: Yeah, absolutely. Scott, were you watching?

Robson: I didn't watch a lot of the World Baseball Classic and generally don't watch baseball until the playoffs, but I did watch the championship game, though.

Reynolds: Okay. It's interesting — I guess this is every three years now, guys. Some world softball commission has some rights. MLB has some rights. Is this going to be part of the 2028 negotiating cycle when all the rights are going to come up for MLB? So, we'll tackle that as we get closer. Anyway, we talked about this when we did the baseball preview last year. ESPN had just announced that it was exiting its long-term relationship with MLB. Along the way, that meant Sunday Night Baseball was going to go away, the Home Run Derby, and the Wild Card playoff round. Mike, we were at a conference last year in Manhattan, and Commissioner Rob Manfred outlined where things would wind up — and in fact, they did.

Johnson: Yeah, definitely. So Commissioner Manfred was the speaker at that conference, like you mentioned. He was doing his best to skirt some of the questions that were being asked. But everyone that was in the room could get a sense of what was coming. Last year, like you just said, ESPN made headlines by stepping away from the 35-year run with Sunday Night Baseball. And even though MLB kind of framed it as a mutual parting, ESPN made it pretty clear that it was their decision. Yes, they also gave up the Home Run Derby and also live coverage of the Wild Card. So MLB locked in these new media deals with ESPN, NBC, and Netflix, now worth around $800 million a year, with ESPN paying the bulk of that — I think it's around $550 million annually. And even though they lost some postseason games, they picked up some in-market streaming rights. I think they're up to 22 teams with the integrated MLB.TV into their app. So they're very much still in the MLB game.

Reynolds: No doubt. Yeah, I think they're midweek games. I'm not sure they start right away. So yes, you can still catch an MLB game on ESPN linear if that's what you want to do. Scott, what's your sense about — it's another step, it's not a big one in my view in terms of Netflix stepping into the sports realm, but they are in the game now.

Robson: Yes. Netflix has been pretty selective with their media rights deals. When it comes to sports, they got the Christmas NFL games, the boxing matches. They had a deal for the World Baseball Classic in Japan this year. But they're also going to kick things off with the Opening Night game of MLB as part of the three-year deal. They'll have the Home Run Derby and a Field of Dreams game. They recently signed Barry Bonds to join the broadcast. I think Netflix just needs a few key events throughout the year like this to reduce churn. I don't really think that they need to go all in with a full season's worth of games as part of their model. But this is the world that we live in now, where leagues are looking to maximize media rights deals, and they're carving out different packages, forging deals with just a variety of different channels, streamers, yeah, what have you.

Reynolds: Yeah, no doubt. NFL's been the king of that so far — so good for Rob Manfred. Mike, you talked about ESPN as well, but what about NBC? These guys, this is a big play. They're now basically year-round, Sunday night sports.

Johnson: Yeah, exactly. So they're basically the Sunday night sports powerhouse, covering NFL, NBA, and now MLB. I think it's pretty much 50 weeks of the year, so they're the go-to spot on Sunday nights. For MLB specifically, I think they're paying around $200 million a year for the rights. And they've already rolled out a stacked schedule for this year, starting with Opening Day. I think it's a doubleheader — you have the Pirates and Mets, and then later in the day, Dodgers are going against the Diamondbacks, where they're going to raise their, I think, World Series banner there. And then you have Sunday Night Baseball officially debuting on March 29th. So they have a loaded lineup with marquee games throughout the year.

Reynolds: All right, we'll see. Last year with ESPN, Sunday Night Baseball did very well. So let's see, as I think it's a combination of both NBC broadcast as well as Peacock. So we'll see how that turns out. But for most of us, and most of the games, they're local. And for decades, that meant regional sports networks, and that business is in major flux. Diamond Sports was the largest operator of RSNs — 21-month bankruptcy. Came through as Main Street Sports. Now Main Street has its own financial difficulties, could be out of business within about three or four weeks. But anyway, Mike, can you give us a sense — what does that mean for the clubs this year? There are so many that MLB itself is handling in terms of distribution and production.

Johnson: Yeah, so the local TV landscape over the past four years has been a wild ride. For decades, watching your team meant tuning into the local RSN, and they were the backbone of MLB coverage. But then streaming took off recently, cord-cutting hit the RSN industry pretty hard. Diamond Sports, like you mentioned, was the biggest RSN operator right before the pandemic, and their investment in the industry was very bad timing. The whole industry was already facing challenges, and then the pandemic kind of made things worse. So now, currently, only 16 MLB teams are tied to RSNs outside of the MLB media platform.

Reynolds: Okay.

Johnson: This past offseason, you saw the Mariners’ ROOT Sports Northwest shut down. You've seen the Nationals leave the Mid-Atlantic Sports Network, and like you mentioned before, the Main Street Sports Group closing, which appears to be imminent. On the flip side, you have teams like the Dodgers and Yankees still having valuable RSN deals. The Mets, Cubs, Red Sox, and Phillies are also pulling in close to $100 million annually, if not over that. So you're seeing a big discrepancy between teams within the league. And as for the teams that were previously on the FanDuel Sports Networks, they've all moved away, with six of the teams moving to the MLB app and MLB media as well.

Reynolds: So Scott, again, Mike's just mentioned some of the top teams and players. They're getting sizable rights fees. I don't think people are getting Yankees or Dodgers money, but this was a sizable revenue stream for the teams themselves, then the RSNs.

Robson: Yes. The local media rights are far more important to MLB than any other of the major leagues. So they account for 20 to 30% of revenue depending on the team. For the NHL and NBA, it's around 10%. And then really, okay, yeah, for the NFL, it's just local radio and preseason games, so very minor. Yeah, I think we're going to see local media rights as a percentage of total revenues decline for MLB when the next national deal gets renewed, as it has for some of the other leagues.

Reynolds: Yep. I guess again, it just will be interesting to see in terms of what's going to happen. Rob Manfred and his counterpart at the NBA, Adam Silver, they're both looking to, for lack of better terms, centralize the local streaming aspects for their leagues’ games. And again, as we've just mentioned here, there's Dodgers, Yankees, Cubs, Red Sox, what have you, and their counterparts in the NBA with the Knicks and the Lakers and others. Guys, how does this happen? Does this underline the haves and the have-nots more than anything in terms of, okay, maybe I'm Jimmy Dolan, or I'm the Dodgers’ owners. I don't want to be in the localized, centralized baseball offering. What do you think, Mike?

Johnson: Yeah, like you mentioned, if you look at the Dodgers, they're projected to spend over, I think it's $540 million this season, which is $50 million more than the Mets. I think they're number two. And it's six times more than the Marlins are spending this year. And that kind of gap really highlights how tough it is for these smaller market teams to compete, especially when it comes to signing top free agents, etc. You've had teams like the Guardians speak out on this. The GM there says it's basically impossible to go out and sign big free agents in the current system. Both sides are preparing for a showdown. The owners have a $75 million “protean” fund ready in case of a lockout and this dispute coming up here. So we'll have to see how these negotiations take place after the start of the season.

Reynolds: Scott, is there any way you can see that you can incentivize the Yankees, the Dodgers, the Knicks, the Lakers to go local and share more alike?

Robson: Yeah, look, listen, I think this is going to be the cause for a lot of headlines in the sports media press in 2027 leading up to the renewal in 2028. I think the Yankees started talking out against MLB's local media rights package in 2024, saying it should be optional. Their current Yankees deal runs through 2042, so they probably want to milk that for as long as possible. Despite this resistance from teams like the Yankees and the Dodgers, Commissioner Manfred has expressed a lot of confidence. He is saying that he will have the availability of all 30 clubs by 2028. Acknowledged this would require a lot of give and take. So I think there's going to be a revenue sharing system in place, especially favoring those teams that are giving up the most.

Reynolds: We've touched on this a little bit. It's an interesting year because of all the local teams working with MLB Local. The Braves have their own network. I think the Angels wound up in this Main Street exit. They bought the network from Main Street, they're going to work with the LA Kings, so they're going to make a go of it this way. These other clubs, they work at MLB. We'll see how it all pans out. And then, on top of it, there's the labor situation again. Mike, you mentioned $500 million plus. There's deferred salary for the Dodgers. Other teams, and I can't remember off the top of my head, their payrolls are $120, $140, $150 million. These are major discrepancies. Do we expect there will be a work stoppage in 2027?

Johnson: Yeah. I think so at this point. We'll see how negotiations take place. The owners might push for maybe a salary cap or maybe a salary floor even. Right. When the union's already come out saying they're firmly against a cap. I'm not saying it's essentially guaranteed at this point, but there's definitely a lot of give and take that needs to be negotiated over this next few months here.

Reynolds: And all those moving points. Scott, we will see what the new national contracts, how they work in 2026, what the local situation will be, and 2028's not far away for all of MLB rights to be available, whether local or national. Mr. Manfred has a lot of work to do.

Robson: Absolutely. The current CBA is up in December, so there could be a lockout ahead of the 2027 season. As a Mets fan, I'm against the salary cap as we finally have an owner willing to spend on talent.

Reynolds: I got it.

Robson:  But as just a rational observer of the business, I think that some of these contracts are ridiculous. So yeah, I think it's prime for some disruption.

Reynolds: Yeah, it'll be interesting to see. Alright. Last year, seven-game series — Dodgers in Toronto. Mr. Ohtani and a couple of other members of the Dodgers hail from Japan. You had the whole nation of Canada engaged with the Blue Jays trying to win. I'm sure MLB wouldn't mind if that were to reoccur, given the viewership was, I think, their best ever in terms of international watching. Plus, here in the States, it did very well as well. Any sense, guys, for Mike — who's going to be in the World Series this year and win it?

Johnson: Yeah, I'm going with a long shot in the American League with the Tigers to reach the World Series. I think they have a good one-two punch at the top of the rotation, right, with Skubal and Velazquez. And then on the NL side, I have to go with the Mets winning it all for the first time in almost 40 years, I think.

Reynolds: All right. Alright, I'm a Yankees guy, as you guys know, and I've said before — the logic says it's not going to happen, but the heart's going to win out, and I'm going to say they're going to win the series by beating the Dodgers and not allowing Los Angeles to match the 1998 through 2003 feat. So there, but last swing is to you, Scott — are the Mets on your lineup here?

Robson: I'm going to have to go with the three-peat for the Dodgers. I just don't see anyone beating them. They continue to get better, and they have a lot of money to attract talent, so I think it's their year.

Reynolds: Okay. Alright. That concludes this episode of “MediaTalk.” Thanks to Scott and Mike for talking about the National Pastime on the diamond and the business of baseball in general. Scott, Mike, thank you so much, guys.

Robson: Thank you.

Johnson: Thanks, Mike.

Reynolds: Alright, and thanks to all of you for listening. We'll catch up soon on the next episode of MediaTalk. It's baseball season. Enjoy. Goodbye, everybody.