Arizona’s looming television contract could change the game

The secret’s out: the Diamondbacks are going to cash in on a new television contract in the next 12-18 months. This should net the team a nice increase in revenue to be used at their discretion. Ken Kendrick recently espoused some thoughts on that revenue increase and how it enabled the organization to make a strong, perhaps uncharacteristic, play for Masahiro Tanaka. While the D-backs came up short in the end, their attempt was valiant.

Of course, television revenues have been skyrocketing for a while now. Back in 2012, Major League Baseball reached a groundbreaking deal with ESPN for eight years and $5.6 billion ($700 million per year). Not long afterward, they reached a deal with Fox/TBS for eight years and $12.4 billion, more than doubling the annual revenue from those networks. Both of these deals go into effect in 2014, sending $1.55 billion to MLB annually, nearly $770 million more than in MLB collected from the three networks in 2013. This money goes to the central hub, Major League Baseball, then is distributed evenly to all 30 clubs. This will send an additional estimated $26 million to the Diamondbacks in 2014.

While that’s clearly a large cash infusion, there’s yet another big payday looming. The Diamondbacks will renegotiate their current television contract with Fox Sports Arizona during the upcoming calendar year as their old contract expires before the start of the 2016 season. To say that the organization is excited about this opportunity may be an understatement, as Diamondbacks President Derrick Hall said to USA Today:

“We’re all seeing the opportunities in front of us,” said Diamondbacks president Derrick Hall, who plans to start contract talks this month with Fox Sports Arizona. Their current deal expires in 2015. “It’s the biggest game-changer a lot of us have ever seen. The landscape changed in Texas, and woke everyone up to what the possibilities are.”

Ken Rosenthal of Fox Sports weighed in on the matter a couple of weeks ago and estimated that the deal could be in excess of $90 million per season over 15-20 years. Considering the current contract nets the organization only $31 million per year, this is a substantial increase. Looking ahead to 2016, we could see the organization obtain a $60 million increase over the current local revenue, which can be added to the additional $26 million per year increase from the MLB deals with ESPN and Fox/TBS. Yes, there’s some revenue-sharing in there, but the takeaway is that the team is about to receive a major financial boost nearly equivalent to the club’s entire payroll in 2013.

What does that mean for a team that seems pretty comfortable with a $90 million payroll? Not as much as you might think, unfortunately. As you may have guessed by now, the Diamondbacks aren’t the only team to cash in on a new TV deal. Some teams already have, such as the Dodgers and Rangers, while others are right around the corner (Phillies, Reds, Rockies and others). Have you noticed how much salaries have increased around the game? They correlate directly to the increase in TV revenues. More money in the game means more money for teams to spend in attempts to outbid one another.

One of the concerns that we should monitor is whether or not the baseball TV bubble bursts before the Diamondbacks can get a new deal done. Noted authority on the subject Wendy Thurm has warned that this whole TV revenue stream could start to crash at any time. Recent legislation by, perhaps ironically, Arizona Senator John McCain, could have a hand in crashing that market. Deals are currently constructed around how many subscribers have access to a team’s television network. Under McCain’s proposal, which has gained steam recently, viewers would no long purchase cable television in “packages” and instead only pay for the channels they wish to use. This would drastically cut the number of subscribers as Fox Sports Arizona is a relatively standard channel throughout the state and there are presumably tens, if not hundreds of thousands of current subscribers who might cut the channel from their cable lineup if given the chance. While it may be somewhat unlikely that legislation putting this practice into action would occur before the Diamondbacks can get their new television contract worked out, it is still a very real possibility. Fewer viewers would mean less money for the team.

So in the end, while there’ll be a lot of rejoicing at the prospect of increased revenue, keep in mind that the revenues of other teams have or will also go up at similar rates and that there’s even a chance that this whole thing doesn’t pan out. If a deal is done before the bubble bursts, if it bursts at all, the Diamondbacks should go from a mid-level payroll to an upper-mid-level payroll. There will still be a number of teams with vastly deeper pockets, but it should provide a few more opportunities. They won’t start spending like the Yankees or Dodgers, but they may have a little more flexibility. How much flexibility is hard to determine at this point as the market is still evolving and salaries increase each offseason. Just don’t think money will solve things over night.