Are the MLB, NBA and NHL in an Economic Crisis?

I should declare my bias up front before digging into this crisis simmering just underneath the glossy surface of sports: I live in Denver, Colorado, home to the 2022 NHL and 2023 NBA Champions, both of whom have not been broadcast on TV for Comcast or Dish Network customers since 2019. I got DIRECTV specifically so I can watch the Colorado Avalanche and Denver Nuggets on Altitude, the regional sports network (RSN) owned by their owner Stan Kroenke, and now practically every weekend to start football season every year, I lose a random channel where DIRECTV tells me their contract ran out with networks like ESPN, CBS, and Fox. The economics around TV and sports haven’t felt this unsettled in a generation.

While Denver is an acute example of how there is quite literally nothing that teams can do on the field, ice or court to change the economic realities around RSNs, we are far from the only city deprived of watching our sports teams. The cable carriers oligopolizing America’s local markets are failing to come to agreements with RSNs on how to profitably broadcast professional sports, and the breakdown of a major broadcaster is exacerbating all these fundamental problems in the industry.

The bleak economic reality around the collapse of RSNs is everywhere you look. Major League Baseball announced that next season it will produce and distribute games for the Cleveland Guardians (currently playing the New York Yankees in the American League Championship Series), Minnesota Twins (who won a Wild Card series last year), and the back-to-back National League Central Division Champion Milwaukee Brewers. They join the San Diego Padres (who lost to the Los Angeles Dodgers in the NLCS), Arizona Diamondbacks (who missed the playoffs by one game) and my, uh, significantly less successful Colorado Rockies under MLB’s growing broadcast umbrella for teams whose RSNs have abandoned them. Teams still make money from this agreement, but not as much as they previously did with RSNs.

We know that this is having an impact on MLB teams’ revenue because MLB and the Players Association agreed to change the collective bargaining agreement this year, enabling the league to use a portion of its competitive-balance-tax proceeds to give teams who are losing TV money up to $15 million each, with an estimated limit of $75 million for leaguewide payments. Using Cleveland as an example, if they received the $15 million maximum, that would represent a little less than five percent of their total revenue for 2023. This is not a small problem, and it’s growing in size every year.

This crisis is fueled by Diamond Sports Group’s bankruptcy, the operator of Bally Sports, who held the television rights for 14 MLB teams and announced they won’t carry 11 MLB teams in 2025 without a new deal. When the Dodgers signed Shohei Ohtani to his historic contract last December, they guaranteed him more money than the entire American League Central committed to its payrolls in 2023. As Alden Gonzalez of ESPN noted, that fact is emblematic of how MLB free agency is now “shaped” by the “deteriorating cable model that might be finally coming to a head” which accounts for 20 percent of industry revenues. “When you have a seismic interruption in the market,” an industry source told ESPN, “the weaker [teams] feel it first.”

Lest you think this festering wound is confined to the league with the most games to sell, the NBA and NHL are experiencing the exact same problem. Last year, the Phoenix Suns gave out free antennas to fans so they could watch nearly 70 games the team showed on free over-the-air channels in the wake of Diamond Sports Group’s bankruptcy. I hemmed and hawed over how hyperbolic to make the title and whether to even use the word crisis in this article, but it’s measurably affecting MLB free agency and we have billion-dollar franchises giving out free antennas to people in the year 2023 so they can watch their team play. This seems pretty bad! Even ESPN is sweating, as they have dropped from being in 100 million homes to just 68 million homes since 2013. Cable cutting truly is the grim reaper for all cable TV where “there is no longer any floor” for how far it can fall, according to Craig Moffett and Michael Nathanson, independent equity researchers focusing on telecom and media.

Diamond Sports Group’s bankruptcy is a central narrative here too, as it agreed to broadcast local games for 22 NBA and NHL teams this season, which some expect to help pull it out of bankruptcy. Despite this momentary crisis being averted, this is still better news for Diamond Sports Group than for NBA teams, as they will see their rights drop by as much as 30 to 40 percent from their original fees. Diamond’s NHL teams are expected to be hit by about a 20 percent loss this year, and there is the opportunity to renegotiate agreements with all 22 teams at the end of this year depending on how this season unfolds. Whether this is a one-year bankruptcy-driven haircut or a harbinger of a new economic reality seems to be anyone’s guess at the moment.

The root of this problem is the youths, who unlike us olds don’t pay for cable. The notion of chord-cutting is nothing new—I was chastising right-wing idiots yelling at ESPN over this when I was at Paste Politics in 2017—but it has advanced to a point where it is making a serious dent in the finances of professional sports teams by effectively killing the business model of RSNs. Due to this toxic combination of a failed business model and our monopolistic and oligopolistic cable markets, the MLB, NHL NBA, RSNs and cable companies are at a stalemate across the country with no long-lasting resolution in sight (the NFL doesn’t have this problem because all their games are broadcast nationally and they don’t have to deal with RSNs).

It’s not that sports aren’t profitable (Warner Bros. Discovery has seen its TV revenue decline by double digits, and it is betting on streaming and sports to turn that trend around), it’s that regional sports networks aren’t, as noted by MLB commissioner Rob Manfred when announcing the change to MLB’s CBA earlier this year.

“We think that reach is a really important change. San Diego is kind of the leader in the clubhouse there, approaching 40,000 subscribers, which is a really good number. Having said that, from a revenue perspective, it is not generating what the RSNs did. The RSNs were a great business, lots of people paid for programming they didn’t necessarily want and it’s hard to replicate that kind of revenue.”

Forty thousand subscribers is not a lot, and certainly not anywhere near enough to replace the Padres’ previous RSN revenue. The question now is whether networks can find a way to make broadcasting leagues with billion-dollar national TV contracts profitable on a local scale. Out here in Colorado, we have been pleading with Altitude to release a streaming option for years, and after years of being told that the economics of it weren’t very feasible, they have finally launched it for this season. There are many who expect the NBA to eventually unveil a national RSN package similar to the NFL’s Google/YouTube package, with Amazon rumored to be interested. Maybe this is the model going forward, but it is rife with questions about its ability to replace the revenue that teams have become accustomed to getting from the RSN’s all dying slow deaths.

If some NBA teams are taking up to 40 percent reductions in RSN revenue this year, what does their local TV revenue look like going forward? Altitude had two opportunities to launch a streaming service next to a defending champion in Denver and punted on both. I am dubious about the level of demand among Americans to pay for yet another streaming package in their bid to avoid an unwieldy cable bill, especially when so many games are already on national TV.

Maybe I’m wrong, and teams can replace RSN revenue with streaming—and the NBA’s poorly kept secret to package it as a national product is probably the best chance to do so—but still, the proof is in the pudding with a fundamental change to people’s viewing habits like this. The cable TV pie is becoming smaller for everyone in the Netflixification of the world, and while sports are becoming more central to networks’ strategies to make money in the future, there may be less local money for teams to make in an industry stratified by streaming. That would change a fundamental plank in the business model of sports, what happens then?