New TV Deal Means Flexibility for D-backs, Eventually

News broke late last week that the Diamondbacks had (finally) agreed to terms with FOX Sports Arizona on a new television contract that will drastically change the financial complexion of the organization. This wasn’t unforeseen, obviously. The current contract was set to expire at season’s end and for over a year there had been speculation coming out of Phoenix about what a new TV deal might entail. That deal is finally done and although we don’t have all of the details just yet, there’s enough information to elicit excitement. And truth be told, with the trends that we’ve seen with recent television-rights negotiations around sports and some of the speculation around “sport-television bubble,” this deal couldn’t have come at a better time.

In fact, let’s start with the timing of the agreement before we get into how the deal might shape the future of the organization. Teams have been cashing in on new television contracts in a major way over the last several years, with the most notable deal being the one the Dodgers signed in 2013 with Sports Net LA. That deal is worth $340 million annually with a lifespan of 25 years.

*Note: this has been a problem for cable customers in Los Angeles who don’t have Time-Warner cable (the only cable channel that carries Sports Net LA currently; the satellite providers haven’t caved and bought in, just like ATT U-Verse, the cable provider of yours truly (that’s fine, I don’t want to watch the Dodgers anyways)), the deal will pay the Dodgers regardless. Similar problems have been experienced in San Diego and Houston, but teams may not care all that much since the money is guaranteed. I’m sure they’d prefer to have more fans watching their games, but then again, maybe it’s in their interest when it comes to ticket sales. Either way, the issues experience in those markets won’t apply to Arizona. 

With the influx of these TV mega deals, salaries for players have skyrocketed as a direct result. Players getting more money isn’t a problem for teams rolling in the cash, especially those who’ve inked recent television contracts, but for those on the outside, it’s been tough to crack in and compete. If competitiveness is directly tied to television revenue for most teams, then one might figure that teams that are currently on the outside looking in are just waiting for their current deals to expire so they can cash in and join the fray. But therein lies the problem: this “bubble” of large local television contracts has been speculated to burst in the very near future.

In fact, it wasn’t all that long ago that Wendy Thurm, who’s something of an expert on the topic, speculated that the contract that the Dodgers signed with Sports Net LA could have been the last of the big deals. That bubble hasn’t burst as of yet, but with each new deal come threats to derail the trend. One of those threats was noted above when cable and satellite companies have failed in several markets to agree on sharing programming (if you are a fan of the Pac-12 and you have DirectTV, you know exactly what I’m talking about). That could eventually snowball into a massive problem that undermines these deals because it ultimately splits the viewership and have huge financial repercussions.

The other issue is homegrown, if you will. Arizona Senator John McCain has been somewhat of a lightening rod when it comes to cable television (among other things) and his ideas on the matter could be just what does this whole television bubble in. He’s proposed legislation that would allow consumers to purchase television channels a la carte, meaning subscribers could simply purchase the channels they wish to watch without having to buy all of the other junk on TV. As it stands now, television providers sell their programming in tiers where to get a handful of channels a consumer might wish to watch, they have to purchase everything else bundled in that tier. This alternative sounds completely awesome, if I’m being truthful, but it could completely kill the sport-television bubble that we’ve seen.

Why would that upend the trend that we’ve seen? There are millions of viewers who, believe it or not, don’t want to watch FOX Sports Arizona (or any other sport channel, for that matter) and they’d likely opt out of purchasing sports programming. That would shrink the perceived and actual audience immensely, meaning advertisers would be willing to spend less because they’d be reaching fewer people and that would dry up a big chunk the money associated in these deals. To my knowledge, that legislation hasn’t been making progress of late, and if it were passed you can guarantee that television providers would put up a huge legal battle. But the threat of it alone might be enough to keep cable companies from wishing to enter into these deals with teams in the first place. Boom, there goes your bubble even with the legislation because, after all, speculation is a dangerous thing.

But the Diamondbacks narrowly missed whatever trouble may be looming and that’s clearly a good thing. Reports suggest that their annual revenue from the current deal (the one set to expire in 2015) is in the $30 million range annually. The new partnership with FOX Sports Arizona will net them something near or exceeding $90 million per year, and, according to Derek Hall, that money will go right back into the product on the field. From Nick Piecoro’s work at AZ Central this week:

“This is game-changing for us… It puts us on par with a lot of our colleagues. Any increase in revenues, as we’ve said in the past, will go directly toward our (organization). It will help the franchise. It will help the product on the field.”

That’s obviously good news to the ears of D-backs fans, but some of those sentiments were tempered slightly when he alluded to the fact that the team tapped into that flexibility in their deals with Yasmany Tomas and Yoan Lopez. The money doesn’t factor in until next year and it appears that the team will move forward judiciously in the short term, likely waiting until the winter of 2016 to really open up the flood gates. And because Chase Field is such a quality park and given that Salt River Fields is considered the best Spring Training venue in the Cactus League, there’s really nowhere else to spend the cash than on the product on the field.

As I’ve surmised all along, the team may really positioning itself for 2017 and beyond. They’re still committed to some deals through 2016, but come 2017, they’ll have an absolute ton of flexibility. I’d implore you to play with this tool to illustrate the part, but by then, Aaron Hill, Cody Ross, Trevor Cahill are all out of the way (some of that will come at the end of this season, but you get the idea). They’ll likely need to re-negotiate with Paul Goldschmidt and could consider extending other core players like A.J. Pollock and Patrick Corbin, but they’ll have plenty of resources to do that and so much more.

They should also have a good idea of their team needs by then. As this Grand Diamondbacks Experiment plays itself out, Arizona will know what they have in guys like Archie Bradley, Aaron Blair, Braden Shipley, Jake Lamb, Brandon Drury and others. While there’s some depth right now, they should have a great idea of who’s working out, who’s not and what they need. Unlike the current situation, they’ll have both the roster and financial flexibility to change their fate quickly, so long as they invest wisely. If you’ve suffered through the last couple of seasons, this is a great reason to get excited about the future.

The spending may come slow and I know the first instinct is to think that the team will open up the checkbook immediately. Instead, I’d guess they take a more measured approach, let some problems work themselves out and go from there. They could look to make a handful of moves here or there, but by and large, I wouldn’t expect Christmas in Arizona to really set in for another year and half or so. They’ve largely been diligent thus far since the new regime took over and that’s a good thing. When it comes to a number of players, they’ve let the market come to them and avoided the winner’s curse. Hopefully that trend continues in the short term and they’ll use the impending flexibility to build a winner for the long haul.