Teams and TV Dollars

Otis Foster

rex ryan's podiatrist
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Jul 18, 2005
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There are times I wonder if this is a speculative bubble. Baseball reputedly is losing some ground to the NFL and the NBA. Are there sufficient entertainment/sports $ around to support the enormous video and sponsorship commitments that facilitate contracts like this? Deals of this size can only set a marker for the next wave (although the large number of quality arms may suppress prices).

I'd be interested If someone has done any analysis of this issue
 

IdiotKicker

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Nov 21, 2005
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Somerville, MA
Otis Foster said:
There are times I wonder if this is a speculative bubble. Baseball reputedly is losing some ground to the NFL and the NBA. Are there sufficient entertainment/sports $ around to support the enormous video and sponsorship commitments that facilitate contracts like this? Deals of this size can only set a marker for the next wave (although the large number of quality arms may suppress prices).
I'd be interested If someone has done any analysis of this issue
From a purely financial perspective, the answer at this point is no. And there's a very critical reason for this - sporting events are one of the only consistent live TV draws for a mass-market audience today. Both advertisers and media companies have struggled to adjust to on-demand programming, DVR, and the move away from traditional distribution methods. So to find an area where you can still draw millions of live eyeballs to make your pitch without them fast-forwarding through commercials is huge.

Think of eyeballs the way we do home runs. In the 1990s, everyone watched live TV. It was the only option. But now there is a diverse set of options, many of which allow people to skip commercials entirely. Thus, as supply of those live eyeballs goes down, the price advertisers will pay for them goes up. And trust me, every company advertising is cross referencing their lead acquisition costs across multiple ad options so they know what is the most bang for their buck.

At some point, sports will hit a peak due to not enough disposable dollars. But I think we are 10-15 years away from that, and it likely has more to do with general economic trends than just what is happening in sports. The other thing to consider with regard to "bubbles" is that a hallmark of bubbles in many cases is excessive borrowing. We don't really have that in sports. We have businesses that are largely cash-flow positive. And when there are issues, we have work stoppages to sort them out. I don't think there is any sign of a decline in salaries or revenues any time soon.
 

Otis Foster

rex ryan's podiatrist
SoSH Member
Jul 18, 2005
1,613
Chuck Z said:
From a purely financial perspective, the answer at this point is no. And there's a very critical reason for this - sporting events are one of the only consistent live TV draws for a mass-market audience today. Both advertisers and media companies have struggled to adjust to on-demand programming, DVR, and the move away from traditional distribution methods. So to find an area where you can still draw millions of live eyeballs to make your pitch without them fast-forwarding through commercials is huge.

Think of eyeballs the way we do home runs. In the 1990s, everyone watched live TV. It was the only option. But now there is a diverse set of options, many of which allow people to skip commercials entirely. Thus, as supply of those live eyeballs goes down, the price advertisers will pay for them goes up. And trust me, every company advertising is cross referencing their lead acquisition costs across multiple ad options so they know what is the most bang for their buck.

At some point, sports will hit a peak due to not enough disposable dollars. But I think we are 10-15 years away from that, and it likely has more to do with general economic trends than just what is happening in sports. The other thing to consider with regard to "bubbles" is that a hallmark of bubbles in many cases is excessive borrowing. We don't really have that in sports. We have businesses that are largely cash-flow positive. And when there are issues, we have work stoppages to sort them out. I don't think there is any sign of a decline in salaries or revenues any time soon.
 
Thnx - very helpful analysis. I hadn't taken into full account the structural brakes on excessive spending.
 
Jul 15, 2005
438
Chuck Z said:
From a purely financial perspective, the answer at this point is no. And there's a very critical reason for this - sporting events are one of the only consistent live TV draws for a mass-market audience today. Both advertisers and media companies have struggled to adjust to on-demand programming, DVR, and the move away from traditional distribution methods. So to find an area where you can still draw millions of live eyeballs to make your pitch without them fast-forwarding through commercials is huge.

Think of eyeballs the way we do home runs. In the 1990s, everyone watched live TV. It was the only option. But now there is a diverse set of options, many of which allow people to skip commercials entirely. Thus, as supply of those live eyeballs goes down, the price advertisers will pay for them goes up. And trust me, every company advertising is cross referencing their lead acquisition costs across multiple ad options so they know what is the most bang for their buck.

At some point, sports will hit a peak due to not enough disposable dollars. But I think we are 10-15 years away from that, and it likely has more to do with general economic trends than just what is happening in sports. The other thing to consider with regard to "bubbles" is that a hallmark of bubbles in many cases is excessive borrowing. We don't really have that in sports. We have businesses that are largely cash-flow positive. And when there are issues, we have work stoppages to sort them out. I don't think there is any sign of a decline in salaries or revenues any time soon.
Two things- weird to see this thorough a breakdown with no mention of enterprise value; that's where the excessive borrowing is. Also, just because you're describing the early stages of a bubble doesn't mean it's not a bubble!!
 

jimbobim

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Jul 14, 2012
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BarrettsHiddenBall said:
Two things- weird to see this thorough a breakdown with no mention of enterprise value; that's where the excessive borrowing is. Also, just because you're describing the early stages of a bubble doesn't mean it's not a bubble!!
 
Can we move the overwrought worrying about baseball's television bubble to a non prominent thread? It's a 9 bill dollar business. Are TV contract perhaps inflated and unsustainable ?Very debatable for a variety of interesting reasons. I tend to think not. 
 
For the here and now the teams are swimming in obscene cash that is pretty clearly filtering down to a higher then normal AAV's and commitments. Baseball players are also enjoying the fruits of being historically one of the strongest unions in american sports.  Lester is going to meet or clear the commitment given to Tanaka last year 7-155 .
 
The Red Sox have overpaid before and might do so here, but they might not. If he goes elsewhere I have to think the FO looks at potential trades for Zimmerman or Cueto with the eye on giving them that massive contract that is needed if you don't have a ready grown farm hand coming into his own. 
 

IdiotKicker

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Nov 21, 2005
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BarrettsHiddenBall said:
Two things- weird to see this thorough a breakdown with no mention of enterprise value; that's where the excessive borrowing is. Also, just because you're describing the early stages of a bubble doesn't mean it's not a bubble!!
 
I don't know if there are really signs of excessive borrowing. Many owners, especially new ownership groups, have numerous business interests outside of baseball that keep their overall leverage ratio in a very manageable range. Some unfortunately are unable to stay in that range or run into problems outside their control (see Glazer and Wilpon), but even they can turn to other incredibly wealthy people to continue operation who want a part of the business at those values. Beyond that, I think the primary focus of the earlier post was on salaries, not necessary asset prices for teams, which is a different discussion because as we've seen recently, those two are not necessarily coupled, partly for the reason I mentioned in my second sentence.
 
Beyond that, I disagree with your other contention. Not because it's fundamentally wrong, but because what we are dealing with in Major League Baseball and really any other sport is different from other types of assets. We aren't talking about stocks, real estate, metals, or anything else that the masses can buy. We are talking about an incredibly small supply of an illiquid asset whose operating parameters are completely controlled by the people who own it. As such, they have the ability the change the rules of the game on the fly (and I don't mean on the field) to suit their business interests. Trying to look at this type of asset in comparison to anything else is an exercise in futility. I'm not saying they definitely aren't overvalued, but I'm saying that it's not a simple process to begin figuring that out.