Thursday, April 24, 2014
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Understanding true value of Phillies TV deal

The Phillies may not eclipse the Dodgers' finances anytime soon, but this TV contract secures a financial sum beyond the $2.5 billion guaranteed rights fee.

Understanding true value of Phillies TV deal

Citizens Bank Park. (H. Rumph Jr/AP)
Citizens Bank Park. (H. Rumph Jr/AP)

This was a moment for the Phillies to keep pace with their competitors, David Montgomery said. But Montgomery, the Phillies president, oversees a team that encountered few financial threats in the National League until the Los Angeles Dodgers unshackled from destructive ownership.

The Phillies signed a 25-year deal last week with Comcast SportsNet that will pay them more than $2.5 billion and Montgomery used the occasion to say his Phillies should continue to rank in the top five of Major League Baseball's payrolls as they have for each of the last four seasons. The Phillies were outspent by a National League team (Los Angeles) in 2013 for the first time since 2009.

They may not eclipse the Dodgers anytime soon, but this TV contract secures a financial sum beyond the $2.5 billion guaranteed rights fee.

Said Montgomery: "These deals have various components attached to it; not just rights fee, which is what people focus on."

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The rights fee is the only part of these TV deals subject to Major League Baseball's revenue sharing. The Phillies must send 34 percent of the rights fee to MLB's revenue-sharing pool. Thus, teams making these deals find profit in other areas, like an equity stake in the network and a share of advertising revenue.

Those aspects of the Phillies' deal could be worth billions more.

Scott Boras, one of the game's most powerful agents, believes the actual appraisal of the deal is worth some $200 million per year to the Phillies. Boras does not have direct knowledge of the Phillies' agreement but has examined similar contracts between other teams and networks.

Boras said the Phillies, like other teams, are taking advantage of a loophole in the sport's collective bargaining agreement.

"Having a percent ownership in the entity prevents them from exposure to revenue-sharing rules," Boras said, "which hurts other teams in the league from receiving the true payment." 

Whether the total value of the deal is worth $4 billion, $5 billion or $6 billion, it is significant. Various sports business analysts said the agreement was comparable to recent ones across baseball. The Dodgers remain an outlier; they signed a deal valued at $8.5 billion after a lengthy bidding war between Time Warner and Fox Sports. (They will pay $2 billion of that toward revenue sharing.)

The Phillies will possess a 25 percent ownership stake in Comcast SportsNet Philadelphia beginning in 2016. The network's value is unknown, but it ranks as one of the most successful and highly rated regional sports channels. It holds the rights to not only the Phillies but also the Flyers and Sixers. It is the sole regional sports network in the nation's fourth-largest market.

For comparison, News Corp acquired a 49 percent stake in the YES Network in late 2012. At the time, the network was valued at $3 billion and $3.8 billion come 2015. YES was created by the Yankees.

The Phillies could have waited until their exclusive negotiating rights with Comcast expired and shop the rights elsewhere. Maybe they could have pitted Fox against Comcast in a bidding war. Maybe not. Maybe they could have signed a more lucrative deal with Fox to create a new Fox Sports Philadelphia network. But Comcast, the majority distributor of cable television in this market, would not be required to carry this hypothetical new network. They could claim Fox Sports' financial demands were too great to pass onto the customer.

In San Diego, some 22 percent of the Padres' viewership has not seen games for two seasons. The Padres signed a huge deal with Fox Sports but Time Warner, one of four service providers in San Diego, balked at the networks demands for a carrier agreement.

Just 40 percent of households in the Houston market could watch Astros games on the newly created Comcast SportsNet Houston last season because of carrier disputes. That network has already declared bankruptcy.

The Phillies were a minority owner in Comcast SportsNet Philadelphia when it was created in 1996. They held an estimated 10 to 15 percent of the network. The two sides agreed five years later to dissolve that venture; Comcast kept the TV rights and the Phillies maintained valuable advertising revenue.

As a part of their new contract, Comcast will recoup some of the advertising money.

"Very few other deals have any advertising going to the club," Montgomery said. "That has been a big part of our past relationship and it continues to be a significant part going forward."

He added: "It has served them well and served us well. They are such a dominant distributor of TV in this market."

Translation: A deal with Comcast was the cleanest option. The Phillies will reap billions from it, and the network reinforced its stronghold on this market. 


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The place for up-to-the-minute Phillies coverage from The Inquirer beat writer Matt Gelb and columnist Bob Brookover.

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