Sports’ Cable TV Bubble is still inflated, and the Nationals still can’t cash in

The sports business is a weird little business. Zack Greinke, a 32 year-old pitcher, signed a six-year, $206.5 million contract with the ARIZONA DIAMONDBACKS and it hardly anyone was surprised. And why would they be? Greinke’s contract wasn’t even the largest contract signed by a pitcher that week. Even the entry of Diamondbacks into the $200 million marketplace wasn’t that surprising considering Arizona recently signed a $1.5 billion TV contract.

Instead of the usual hand-wringing about rising salaries in sports, a significant amount of the commentary centered around this counterintuitive point: baseball players, even with all their guaranteed nine-figure contracts, are actually underpaid considering how much revenue baseball teams create in the new Cable TV marketplace. Indeed, the players’ shares of revenues has actually decreased since 2002 from 56% to less than 40%.

In the short term, we can expect to see more Zack Greinke-like deals. The lucrative local TV deals being signed by MLB teams means many owners are sitting on mountains of cash, and many of them can spend it on players like Greinke while keeping significant profits for themselves. It’s really hard to imagine this trend reversing itself in the immediate future. Baseball free agency structure keeps young players out of the free agency marketplace for at least six seasons, most of which are in the players’ prime years. Players like Greinke who are fortunate enough to remain productive long enough to see free agency, can continue to expect to see huge contracts as long the Cable TV bubble doesn’t pop. A few months ago, considering his age and productivity, I projected Bryce Harper would be worth over $500 million on the free agent market, and I didn’t even feel silly doing it.

In the long-term, however, the Cable TV bubble will pop, or at least suffer from a slow leak. It has to. The current model is completely unsustainable. Cable TV companies bankroll their billion dollar baseball deals by charging all their customers, not just the baseball fans, monthly subscriber fees to carry regional sports networks like MASN. Cable customers don’t have the option of opting out. They do have the option, though, of cancelling cable altogether, which is exactly what’s happening. ESPN, the King of Sports Networks, has lost seven million subscribers in the past two years, and the network’s highly-publicized layoffs indicate they expect to lose a lot more in the near future. The biggest threat to baseball owners isn’t a labor strike or the threat of a recession. It’s Netflix. And Amazon. And Hulu, or any other entertainment alternative to traditional cable. We forget, with all the publicity sports receive, most of the general public simply doesn’t care and when these folks opt out of cable and stop paying for sports networks they don’t watch, they’re not coming back.

So, where do the Nats fit in? A few months ago, I speculated whether the shifting marketplace would cause the Nats to miss out on cashing in while the cable TV bubble was at its most inflated. With the recent MASN court ruling, a resolution to the Nats uncertain TV situation is even further in the future. Meanwhile, more teams like the Diamondbacks will lock in billion dollar deals, and many of those teams will give out Greinke-like free agent contracts.

The time bomb in this scenario, of course, is Bryce Harper. The Nats can survive on the field letting players like Jordan Zimmermann leave via free agency as long as they’re drafting and scouting well. Harper, though, is the only player irreplaceable both on and off the field. Losing Harper would be a demoralizing blow to the fanbase and would also rip a once-in-a-generation talent out of the lineup just as he’s entering his prime.

So as we speculate about the Nats future, it’s only fair to consider sports’ Cable TV bubble. If the Diamondbacks can afford to give 32 year-old Zack Greinke $200 million, the Dodgers can surely afford to give 25 year-old Bryce Harper $500 or $600 million. While rooting for the Nats on the field, perhaps we should be rooting for the Cable TV bubble to leak a little bit faster. If the Nats can’t cash in while the bubble is still inflated, their best hope is that it goes away altogether. Tell your friends who don’t watch sports to cancel their cable. Get an Apple TV. Tell them to stop paying for sports networks they don’t watch. The people who continue to pay $200 a month for cable are the ones who allow the D-Backs to pay Greinke far more than he’d otherwise be worth, and they’ll be the ones who allow the Dodgers to give Harper an offer he can’t refuse when he finally hits free agency.


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