Time Warner Cable sees its new alliance with the Los Angeles Dodgers as part of a campaign to gain long-term certainty over key sports costs.
The Major League Baseball team, as expected, last week said it would create a new regional sports network, SportsNet LA, to debut with the start of the 2014 season. Time Warner Cable, the dominant cable operator in the market, is in the dugout as exclusive affiliate and advertising sales agent.
Terms were not disclosed, but published reports have estimated TWC will spend $7 billion to $8 billion over 25 years to control distribution, if not rights, to the channel.
TWC is guaranteeing the monthly subscriber license fee, expected to be north of $4, even if other distributors don’t reach carriage deals.
“Our sense is if we are going to carry these games, they are going to be expensive,” TWC chairman and CEO Glenn Britt said during an earnings call last Thursday (Jan. 31). “We think what we’ve done with these deals is to minimize and stabilize the costs over a long time period.”
Last year, the company launched Time Warner Cable SportsNet after securing rights to carry Los Angeles Lakers National Basketball Association games for 20 years, at an estimated cost of up to $3 billion.
Britt said because rights to both the Lakers and Dodgers games were essentially up for auction, it was clear the price tag would be high. Fox’s Fox Sports West and Prime Ticket were the incumbent TV homes of the teams; Fox will air Dodgers games in the upcoming 2013 season.
Time Warner Cable chief financial officer Irene Esteves said, “This will be a lower cost alternative than if we had not guaranteed those rights for the 25-year period.” Benjamin Swinburne, analyst at Morgan Stanley Research, called that an achievable goal, “particularly given the experience of the recent launch of two L.A. Lakers RSNs.”
One potential hangup: The Dodgers deal had yet to be approved by Major League Baseball, which requires teams to contribute 34% of local TV revenue to aid small-market clubs.
A bankruptcy court settlement between the league and the Dodgers had assessed fair-market value of the club’s local TV rights at $84 million per year, plus annual escalators. This agreement is said to average $280 million annually.
Then there are questions about how TWC makes this deal work financially and whether it serves as a model for other clubs to form their own networks by enlisting affiliate, advertising and technical support of an MSO or other multichannel distributor.
“I’m not sure that this will be the template per se, but other owners will continue to look to distributors, investors and programmers in various capacities,” Lee Berke, CEO of sports consultancy LHB Ventures, said. “There are many flavors to get deals done.”
The size and scope of TWC’s Dodgers gambit could also draw the attention of regulators, as escalating sports rights have again become a hot-button issue. With the launch of SportsNet LA, the market will have seven RSNs, translating into as much as $15 per month in RSN license fees.
Mike Farrell contributed to this story.
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