Can the Reds afford the Votto deal?
An affirmative answer to that question involves growing team revenues. One route to new cash is through higher attendance. A more likely avenue is enhanced broadcast revenue from league sharing arrangements and local television and radio contracts.
National Broadcast Revenue Sharing
The Reds earn an equal share of MLB’s national television contracts with ESPN, FOX and TBS — deals which expire in 2013. Those networks currently pay $900 million annually to broadcast games to national audiences. With the growing appeal of baseball as live television programming, MLB should be in a strong negotiating position in the upcoming talks. MLB’s expanded “sudden death” playoff format also promises a positive bump.
The renegotiated national broadcasting contracts could add another $10 million a year to the Reds’ through league revenue sharing.
Add to that amount any new digital-source money from MLB.TV and apps like At Bat for smart phones. These platforms are growing rapidly and already generate $500 million for MLB per year. They offer the promise of millions more for each club.
Local Broadcast Revenue Sharing
Local broadcast contracts across the country will also help the Reds’ bottom line.
Individual major league teams have been signing new local agreements for astronomical amounts of revenue. For years, the Yankees have capitalized on their enormous local television following. This year the YES Network, which is partially owned by the Yankees, will pay the club an estimated $90 million.
Now, other big-market clubs are jumping in. The LA Angels recently signed a 20-year deal that pays them $150 million a year in local TV revenues. Their owners quickly cashed in to sign Albert Pujols and C. J. Wilson this off-season. The Texas Rangers followed with an $80 million/year TV deal that enabled them to lock up Japanese pitcher Yu Darvish.
The downside of this arrangement for the Reds is that it creates a huge and growing source of inequality between franchises. And unlike money generated from national broadcasts, which is shared equally among all thirty teams, only 31 percent of local broadcast revenue goes into the league’s revenue sharing program.
The Reds do, however, benefit tangibly from these mega-deals. For example, the Angels will contribute roughly $45 million annually to the revenue sharing pool. Divided equally, each club receives $1.5 million. That provides important cash to the Reds when you add up their share of the many new contracts. That increase in revenue sharing money helps pay Joey Votto’s big contract.
FOX Sports Ohio
The current Reds contract with FOX Sports Ohio is estimated to pay the club $10 million per year and due to expire in 2016. The Reds might have an opportunity to renegotiate the deal prior to that date.
The Reds enjoy rapidly growing ratings locally – the fifth best percentage in the major leagues. But total revenue is limited by the relatively small number of viewers. A typical Reds broadcast has 60-80,000 viewers in Cincinnati, with that number growing to 200,000 if you include Dayton, Columbus and Lexington.
What can the Reds expect from a renegotiated deal?
Again the Brewers may offer a hint, as they are scheduled to renegotiate their TV contract next year. They enjoy high ratings like the Reds and currently receive an estimated $10 million/year in broadcasting rights. Their new agreement should be a good indicator of what the Reds might earn. The Detroit Tigers’ 2008 agreement that pays the club $40 million/year may also be a benchmark for the Reds, with the calculation that the Reds could earn at least half of that amount.
The bottom line: An increase of $10 million/year in local TV revenue seems very possible. As John Fay points out, a deal like that would go a long way to pay Joey Votto’s contract.
Radio Broadcast Revenue
WLW-AM has the highest average audience share in all of MLB, with over 100,000 listeners per game and their ratings continue to grow sharply. For men between the ages of 25 and 54 who are listening to the radio, a higher percentage (25%) listen to Reds games compared to any other market. Detroit is second at 21%.
More stations have been added in recent years to the Reds Radio Network with broadcast affiliates numbering 68 last season and new stations added each year.
The Reds took over direct operation of advertising sales for their radio broadcasts 2008, a decision that resulted in millions of dollars of additional revenues. Higher ratings and more stations promise growing revenues.
In summary, there are several promising sources of increased funding for the Reds that are generated by expanded fan interest in broadcasts. While they may amplify league inequalities, these sources also offer clubs like the Reds an opportunity for meaningfully larger payrolls.