Cord Cutting Will Be The End Of The Sports Salary Bubble
The Toronto Blue Jays are nearing a point of decision on a number of their highly paid players. Will the 2017 edition of the club be worth preserving? Or is it time to unload Josh Donaldson, José Bautista, Troy Tulowitzki and others at the trade deadline for whatever they will return in trade?
Even if the club is still clinging to a faint whiff of postseason enthusiasm, there is another good reason why they— and why teams in many of the major team sports— should be unloading the expensive contracts they’ve signed recently.
While huge money is still flowing to leagues in existing contracts s from various media sources, there is a very real possibility that the TV/ radio bubble is about to burst— taking huge salaries with it.
Here’s why: According to Nielsen Research, ESPN lost 1,176,000 subscribers in just two months last fall. ESPN currently has just over 88 million domestic subscribers—. down from 99 million subscribers in 2013. (ESPN disputes the numbers but not the trend.)
There are a lot of reasons for this. Cord cutting (dropping cable subscriptions) has accelerated dramatically in the U.S. as consumers turn to Netflix, Apple TV, Google, Amazon, Facebook and other content outlets. Particularly, young viewers are customizing their viewing, turning to tablets or phones for their live sports to save money. Or ignoring sports completely.
As well, the recent political turn by ESPN (awarding Caitlyn Jenner with the Arthur Ashe Courage Award at the Espys went over like a lead balloon with the sweats) has soured many die-hard sports fans who want to keep politics on CNN or FOX.
The upshot of this mass migration from the Disney-owned channel will inevitably be less money for rights to prime sports properties. Here’s what ESPN currently is paying, according to Outback The Coverage: “$1.9 billion (all figures US) a year to the NFL for Monday Night Football, $1.47 billion to the NBA, $700 million to Major League Baseball, $608 million for the College Football Playoff, $225 million to the ACC, $190 million to the Big Ten, $120 million a year to the Big 12, $125 million a year to the PAC 12, and hundreds of millions more to the SEC.
That’s about $6 billion. And while ESPN remains very rich because of their subscriptions (estimates are that average customers pay $80 a year to ESPN, hidden in cable fees), something will have to give. For a long time, cable subscribers who were forced to pay for ESPN but never watched it subsidized the minority who do watch. New rules on choice kill that equation.
Who will take up the slack?
Other cable sports networks face the same future. Fewer bidders for all these rights is going to send shockwaves through the leagues that have grown fat and sassy on TV money. Those strapped to guaranteed contracts and salary caps will no doubt face a crisis if the cord-cutting continues at this pace. Teams like the Blue Jays.
Cord cutting is also hitting the mainstream media— and that includes the major networks that routinely pony up for sports in the U.S. Three TV networks— NBC, CBS and FOX plus ESPN— are paying the NFL about $6 million a year for rights. Fabulous sums in the billions are going for the NBA, NHL and MLS, too.
Regional broadcasting might see less volatility, but the amounts it brings outside of a few major metropolitan regions are not going to replace the missing national revenues from lost customers and millenials who have drifted to other entertainment vehicles. This is, in part, why leagues are encouraging Google, Amazon and Netflix, among others, to bid for broadcast rights to their sports events,
In Canada, Sportsnet wagered everything on obtaining the NHL national TV/ digital package from CBC. The 12-year, $5.2 billion deal is a bet on having a platform to sell its phones, cable TV and internet. While cutting the cord has not accelerated in Canada as it has in the U.S., it’s a mater of time till the new bundling rules— which allow non-sports fans to escape cable or satellite fees for unwanted sports channels— produce a cascade of customers away from the easy subscription money of non-watchers.
To say nothing of a collapsing CDN dollar in a contract paid in US dollars.
That could leave a significant hole in revenues needed to pay current rights payments— and, by extension, player salaries. That’s major jeopardy for the CFL, MLB, NBA and other sports in Canada. Leagues have already begun undertaking the production of their own cable networksor creating their own broadcast platforms for the day when advertisers will no longer pay expensive rates for spots on telecasts few young people watch.
The future for them all— and for the athletes who are paid out of the huge TV revenues— hangs on the ability to monetize digital rights. While there have been some interesting innovations— and large audiences for YouTube or other digital platforms— the current pay scales are unsustainable under the current economy.
The smart teams will be the ones that see this first and act on it quickly. Your move, Blue Jays.
Bruce Dowbiggin @dowbboy.is the host of the podcast The Full Count with Bruce Dowbiggin on anticanetwork.com. He’s also a regular contributor three-times-a-week to Sirius XM Canada Talks Ch. 167. A two-time winner of the Gemini Award as Canada's top television sports broadcaster, he is also the best-selling author of seven books. His website is Not The Public Broadcaster (http://www.notthepublicbroadcaster.com)