ESPN's issues could have trickle down effect on local teamsJune 19, 2017 8:46am

June 18-- The fervor of America's sports fandom has long lined the pockets of athletes, coaches, general managers and the owners who sign all of their checks. Middling infielders and mediocre basketball players make millions of dollars a year. College athletic conferences hold their meetings and events at hotels like the Ritz-Carlton, rather then economy hotel conference rooms.

But for all the high living the sports world's elites have enjoyed, a pair of local teams haven't hit pay dirt in quite the same way, and it now looks more likely that they could miss the boat. The Pirates and Pitt athletics lag behind many of their peers when it comes to television money, an issue with plenty of eyes on it these days.

The times continue to change across the TV landscape, with sports feeling those changes as strongly as ever. Look no further than the late-April shakeup at ESPN, a network so powerful in sports broadcasting it is sardonically called "the mothership"-one that some view as rudderless following layoffs in the triple digits late last month to save millions of dollars.

So if ESPN is seeing its business model struggle, what does that mean for anyone else in the business of sports programming, or sport in general? That depends on whom you ask. It's possible the wheels will keep turning and all will be well. The doomsday scenario goes something like less money from TV, less money to pay players or schools, and a whole different world of revenue levels from what we know now.

Most realistic is that the future lies somewhere in between, but there's little doubt the Pirates and Panthers are behind the media rights 8-ball, each in their own way.

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Conference hauls

Many who analyze the cable industry, from economists to media critics, had been pointing toward an eventual ESPN pratfall for years. After all, the network pays $1.9 billion each year to the NFL for the rights to Monday Night Football, whereas Fox and CBS each pay about half that for their weekly NFL offerings. ESPN also reportedly pays at least $1.3 billion yearly for its NBA rights, in addition to $700 million per year to Major League Baseball, $470 million for the College Football Playoff and $100 million-plus for each of the major conferences' sports programming.

Yet, ESPN has seen a steady loss of subscribers-at least 12 million over the past six years based on Nielsen ratings data-and may have lost up to $1 billion in over that time. Overpaying for sports rights and under-delivering on subscriptions meant something had to give, and that something was many of its most recognizable faces. Ed Werder, Danny Kanell, Jerome Bettis and, just last week, venerable NFL analyst and Pittsburgher John Clayton lost their jobs.

After meeting with new Pitt athletic director Heather Lyke and her ACC peers last month in Amelia Island, Fla., conference commissioner John Swofford was adamant ESPN's recent cost-cutting is nothing close to a death knell for his league's network, set to debut in August 2019.

That has been the launch date since it was announced last July, and Swofford insists everything remains on schedule to give the ACC a linear TV channel, much like the Big Ten Conference has had since 2007 and the Southeastern Conference has enjoyed since 2014. But those two leagues have had a head start on stacking cash. Some estimates using subscriber fees multiplied by home subscriptions put the Big Ten Network at $290 million in revenue and the SEC Network even higher at $547 million in 2015.

The Big Ten's latest federal tax return reported a total revenue of $483.4 million, the SEC's $639 million, while the ACC was at $373 for its fiscal year 2016. The goal is to close that revenue gap, but that aim is threatened by recent changes in the broadcast industry.

"Mark my words on how their projections are revised between now and the date they launch-if they launch-because I'll tell you what, if this issue with ESPN snowballs, forget launching a new network like that," said Matt Polka, an industry expert who is president and CEO of Greentree-based American Cable Association representing small, independent cable companies nationwide. "Forget it. Because there just won't be people to support it."

As more Americans cut the cord, how can the ACC compete with the Big Ten and SEC on the field and in the marketplace?

"We always have to be cognizant of technology and how fast it's evolving," said Lyke, worked in Ohio State's athletic department when the Big Ten Network was born. "There is a generation of people that are not ordering cable the way it was done, or cord-cutting or whatever you want to call it, but I think that's something we'll always constantly be keeping in mind, and obviously following very closely. But I do expect that the ACC Network will launch on time and in a very successful way."

Just how successful, then, is the question. Swofford gave his assurances. Athletic directors such as Lyke seem to buy it, and ESPN sent executives to the ACC meetings to discuss it.

Frank Hawkins, who left a vice president position in the NFL to co-found the Scalar Media Partners consulting firm, suggests the viability of the ACC Network depends on the approach from ESPN.

If ESPN tries to distribute it as a new channel that costs, for instance, a $1 subscriber fee per month, cable companies might push back on that price. But if it can be slipped into a general package of ESPN's networks, with the conference getting a cut, that could be more profitable overall.

But that might not be as lucrative as earlier revenue forecasts.

"Yes, the content will go out there. Yes, they will make some money. But I wouldn't necessarily use the word 'big' money," Hawkins said.

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Bubble talk

If closing the revenue gap is a major reason for the ACC giving its own network the old college try, imagine the effect a shifting TV landscape could have on a Major League Baseball team. Such as, perhaps, the Pirates.

In 2013, Pirates president Frank Coonelly made headlines with an assessment of how much his team's TV contract with Root Sports is worth. Coonelly, at that time, claimed it ranked in the top half of MLB, whereas outside sources such as FanGraphs.com peg it at $25 million per year. That's higher than only a half-dozen or so franchises and eons behind the Los Angeles Dodgers with their league-leading $204 million. Within the NL Central, the Chicago Cubs lead the way at $65 million a year, a number that could go up for the reigning World Series champions.

Regardless of where the Pirates stand, their current deal was signed in 2010 and runs through 2019. So barring an earlier renegotiation, the Pirates and Root will sit down at the bargaining table and talk dollars-at a time when networks are hesitant to spend. The Pirates did not respond to an interview request, and Root general manager Shawn McClintock was unavailable for comment.

The worry from any fan perspective is that if the Pirates' don't profit as much from TV, which brings down payroll and means less money to put into the team. Cynics already denounce owner Bob Nutting for not spending enough, so any further harm done by a bursting TV rights bubble is cause for concern.

"This ESPN story is going to have a massive ripple effect throughout the entire sports programming and sports rights industry. How can it not?" said Polka, who's an avid watcher of Pirates and Penguins games on Root but notes many who pay for the channel are not.

"ESPN is basically the Titanic. They're the first one to hit the iceberg to show how damaging this greed of theirs has been over the years, to overpay for sports rights and to force that down to consumers whether they wanted to watch it or not."

Yet, not all who study the industry are as alarmed. Some believe leagues and networks will adapt to the new frontier of TV-watching, as Lyke predicts. Streaming options and the involvement of companies like Netflix or Hulu in sports programming could open up more doors to potential revenues, more ways for teams to profit off their popularity.

Last month, Root announced it will now allow in-market streaming of Pirates games to those who pay for the channel at home. The DirecTV-owned network excluded two of the area's largest providers, Comcast and Verizon, in this move, which makes one expert suspect the powers that be are experimenting with some new ideas.

"They'll figure out how to make the most money they can make," said sports economist and University of Michigan sport management professor Rodney Fort, who doesn't subscribe to the bubble concept in this case. "They've been very good at that."

Meanwhile, whether it's a college conference or professional league, others who hold the same theories as Polka see a rude awakening coming their way.

"Here's the immovable object, the leagues and the players, and the irresistible force is the programmers who want the programming, but now won't be able to pay for it," he said. "But do you think the leagues are going to demand any less, the players are going to demand any less? I don't know the answer to that question. All I know is that by the time these contracts come up for renewal, whether it's ESPN or Root Sports, they're never going to be able to pay what they've been paying because there are fewer subscribers who are actually going to buy this sports programming to pay for it."

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(c)2017 Pittsburgh Post-Gazette

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