Eleven years ago baseball's leading franchise, the
New York Yankees
, signed a blockbuster 12-year, $486 million contract to show its games on the
Madison Square Garden Network
, a fledgling regional network. Thanks in part to the club's resurgence, what once was viewed as a foolish investment has become the model for sports media deals.
The landmark contract doesn't expire until the end of next season, but already Yankees owner
is using his club's gigantic leverage to assemble a regional sports network of his own. Or so he says. What he eventually decides to do -- whether starting a network, selling the team's broadcast rights or selling the club -- will have big ramifications on the sports television industry's future.
As it stands now, media companies still have the upper hand in their relationships with sports franchises.
Rupert Murdoch and
Charles Dolan already have acquired key sports teams and now own all three facets of a sports property: the team, the broadcast rights and a network to distribute the programming. Murdoch snapped up the
Los Angeles Dodgers
for $315 million last year to complement his fledgling regional network,
Fox Sports West
, which generated $58 million in revenue last year, according to media consultants
Paul Kagan Associates
But now Steinbrenner seeks to break this mold. No less than three broadcast entities are interested in a deal that would give them the rights to show Yankees games on TV. One is Cablevision, which was on the cusp of buying the baseball team last month until Steinbrenner's ego got in the way.
would love to keep the broadcast rights away from Cablevision because Dolan is closely aligned with Murdoch and his
Fox Sports New York
. (Cablevision owns 50% of Fox Sports New York. Fox also owns 17 regional sports networks in the U.S. jointly with
. Also in the mix is
Steinbrenner, ever the shrewd tactician, further raised the stakes by recently creating a 50-50 corporate partnership with the
New Jersey Nets
, calling the entity
. This deal will package the teams' broadcasting rights for the highest bidder or enable them to set up another network to compete with Cablevision, which dominates the Northeastern corridor.
But a new sports network wouldn't assure Steinbrenner of a successful entity, says Neal Pilson, president of the television and sports consulting firm
"The risk of going out on your own is you forgo a guaranteed cash flow," Pilson says. "The question for George is, can you do better with an equity position in a start-up regional sports network?"
Pilson argues that the Yankees and the Nets would fill only around 1,000 of the 8,760 hours of programming a new channel would have annually. "It's not a guaranteed home run for the YankeeNets," says Pilson, a former president of
The more likely scenario is the YankeeNets were formed to drive broadcast rights even higher, says Hal Hawkey of
, a Denver-based sports consulting firm. The problem with this new sports finance strategy is that the more big entities merge, "the greater the chasm between the haves and have-nots in baseball and other sports," Hawkey says.
On the surface, it seems as if Disney's ESPN would have the best reason to buy into the Northeastern sports market by bidding for the YankeeNets rights. Last year, ESPN was about to launch its first regional network on the West Coast, but Fox's Murdoch swooped in and bought the broadcast rights of the
Anaheim Mighty Ducks
to go along with the media magnate's Dodgers purchase. ESPN then ditched plans for the regional network.
Will ESPN take another shot at it on the East Coast? "We will look into a regional sports network where an opportunity arises," says Mike Wade, ESPN's director of corporate relations. "Right now, that kind of talk is pure speculation."
Pilson, who had a good
read on the
lockout, believes Cablevision is still the most likely candidate to grab the Yankees and Nets because it has the most to gain by "making nice with Steinbrenner." Time Warner is a close second because it will soon compete with Fox in the Southeast with its
regional sports network, and Time Warner "may want to compete with Fox on a national basis for sports," says Pilson. ESPN, he says, is only third most likely to buy the YankeeNets' TV rights or to sign the two teams to a broadcast contract. "I don't know if ESPN wants to get in a cash-draining position just to tweak Fox for what happened out West," concludes Pilson.
Then again, a foothold in the Northeastern sports market is much more valuable than one out West, according to Brian Schecter, an analyst at Paul Kagan.
"New York is a different animal," says Schecter. "Look what happened with the Madison Square Garden network. Its subscriptions have tripled
from 2 million to more than 6 million since it won the rights to broadcast the Yankees." The MSG Network had $123 million in revenue last year, up tenfold from the 1980s, according to Schecter. This track record gives the Yankees and Steinbrenner the upper hand in any future rights negotiations with media companies.
Lonn Trost, a Yankees' executive vice president, says much of this talk is premature. The team is focused on the 1999 season, not the end of its broadcast contract, he says.
Regional Sports Networks Emerging
Fox is pioneering this latest wave of regional sports networks in the U.S., much as it used sports programming to boost ratings on its embryonic network earlier this decade. As this merging of the sports and media worlds continues, other regional ventures are in the works. Besides Turner South in the Southeast, investment firm
Hicks Muse Tate & Furst
is in the process of turning its assets, which include the
along with a Dallas-Fort Worth television station, into a regional sports network.
Mike Cramer, the controller of this still-private holding company named
Southwest Sports Group
, says that within the next month the group will decide whom it will align itself with. Cramer says the choices are to link with Fox Sports Southwest, which generated revenue of $45 million in 1998 and is expected to generate $48 million this year, according to Paul Kagan, or to partner with ESPN or even Time Warner's
"Of course, we could decide to compete with Fox and form our own network," says Cramer, who notes that plans for an
IPO of the sports group have been pushed back until the network is up and running.