O's channel is risky play

Sun Staff

Picture this, sports fans: The Baltimore Orioles launch a new regional sports channel and treat viewers to unprecedented behind-the-scenes footage of players and coaches before and after games.

And on off-nights, the network airs in-depth player biographies, or perhaps a reality series chronicling the day-to-day life of the team's top slugger. Viewers and advertisers go wild. And Orioles owner Peter G. Angelos makes so much money off the network that he plows more dollars into the team's payroll, helping the Birds to become a world championship team.

That's the utopian vision driving a growing number of professional sports teams to risk tens of millions of dollars to launch their own regional sports networks. Historically, teams have sold television rights to cable providers or local broadcasters, which produce the games and pocket the surplus revenue.

Such regional networks are a gamble that have made millions for teams such as the New York Yankees. But it has left others, such as the Minnesota Twins, with steep losses after the networks folded.

The stakes are so high that Major League Baseball has dangled the prospect of a team-owned network in front of Angelos as part of a financial package to win his acceptance of a plan to move the Montreal Expos to Washington.

Though the details are still being worked out, the deal is expected to give Angelos half the revenue from a yet-to-be-developed regional network featuring Expos and Orioles games, along with a mix of other local sports. He would get 60 percent of the proceeds if the network is ever sold to another party.

"Depending on the team, it can make the difference between making money and not making money," said Lee Berke, president of LHB Sports Entertainment & Media Inc., which has advised the New York Yankees and several other professional teams in setting up their own networks. "Quite often, a properly done regional sports network can end up more than doubling the TV revenue the team was previously receiving."

The Orioles don't disclose their revenue from selling television rights, so it's hard to predict how lucrative such a deal could be for the team. The team's broadcast market stretches from Delaware to North Carolina.

One thing is certain - a team-owned network would give the Orioles control over their own media destiny, analysts said. But teams taking the plunge also take on huge startup costs and financial risks. Owners can lose money if their teams fail to win ratings, or if cable and satellite providers refuse to carry the games for the price demanded by the teams.

"You typically have to be prepared to risk something like $50 million to $100 million over a five- to 10-year period," said Dean Bonham, chief executive officer of the Bonham Group, a Denver sports marketing firm. "It's a very expensive and risky venture, and you have to have very financially stable ownership in place."

Comcast, the dominant cable provider in the Baltimore-Washington area, would have to agree to carry the games if a regional network is formed here. The company, which has a contract to broadcast more than half of the Orioles games through 2006, has not commented on the proposal.

In some cases, the rewards of a regional network can be stratospheric, as in the case of the New England Sports Network. Launched in 1984, the network is a joint venture between the Boston Red Sox and the Boston Bruins hockey team. NESN broadcasts both teams' games, along with a smattering of college teams and other local sports spanning the six New England states.

In 20 years, the network has become as valuable as the teams that own it, by some estimates.

"When you look at the Boston Red Sox, for example, here's a team that sold for $700 million a few years ago, and half the value of that was the Red Sox' 80 percent stake in the New England Sports Network," said John Mansell, a media industry analyst with Kagan Research.

But the road to broadcasting millions can be fraught with peril - even for teams with a solid business franchise and a huge fan base.

The Yankees, which are part owners of the Yankees Entertainment and Sports Network, stumbled in its attempt to negotiate financial terms with Cablevision to carry Yankees and New Jersey Nets broadcasts. The cable company boycotted the YES network in 2002, angering fans who were unable to see the games on television.

An arbitration panel has since settled the dispute and the network is hailed as a success for the team. Berke estimates YES is now worth $1.2 billion, up from about $800 million at its launch.

The Twins didn't fare as well when the team launched its own Victory Sports One network in late 2003 without having agreements with the five major cable providers in the Twin Cities market. Many fans were left without access to the games when the season started, sparking outrage among lawmakers considering a stadium financing deal for the team.

In May, the Twins abandoned the network and raced back into the arms of Fox Sports Net, which agreed to double what it had previously paid the team for television rights to its games. The deal was reportedly worth $12 million a year, or about as much as some analysts estimate the team lost on its brief foray into the broadcasting business.

"Teams sense that this is a way to take out the middleman and bring the product directly to the consumers," said Dave St. Peter, president of the Twins franchise. "It's filled with land mines. We learned that the hard way and went through a difficult period of time when our games were not accessible to our fans."

A partnership of Chicago sports teams found a way to avoid those pitfalls.

Jerry Reinsdorf, owner of the White Sox and the National Basketball Association's Chicago Bulls, joined with the Chicago Blackhawks and Chicago Cubs to form a regional sports network that includes Comcast Corp. as a partner. By cutting the region's primary cable provider a piece of the action, the teams avoided conflicts over distribution. The Cubs are owned by Tribune Co., which also owns The Sun.

"I really think it's the ideal model if you can get all the teams in a market to work together and get the main distributor involved," said Jim Corno, senior vice president and general manager of Comcast in Chicago.

Teams that own their own networks have an advantage when it comes to selling ads and marketing the franchise, analysts said, because they can use the network to grow their fan base and promote games on-air. Advertisers also like it because an ad buy may get them a deal on a billboard in the team's arena, or perhaps a personal appearance by a well-regarded team member.

And unlike Fox or others, the team-owned networks have unfettered access to the players and coaches, which opens opportunities for innovative sports-related shows that might otherwise never get off the ground, industry officials argue.

NESN, for example, recently hired Bill Borson, a former vice president of programming for Fox, to come up with new ideas for shows that go beyond game nights. One new reality show will feature former New England sports stars, who will head into the wilderness and engage in a survival competition with local and national comedians.

"There's more that you can do than just [broadcasting] games," said Gary Roy, a spokesman for the network.

Robert L. Johnson, founder of Black Entertainment Television and owner of the NBA's Charlotte Bobcats, is taking a similar tack with his Carolinas Sports Entertainment Television network. C-SET, which will launch Oct. 16, will broadcast the team's games throughout North and South Carolina, extending the team's fan base beyond the network's Charlotte headquarters.

In addition to games, the network will air a documentary-style reality show featuring the day-to-day life of the Bobcats' top draft pick, Emeka Okafor.

Regional networks

A sampling of regional sports networks

The New England Sports Network

  • Teams: Boston Red Sox and Boston Bruins
  • Status: Credited with doubling the sales price of the Boston Red Sox to $700 million. The network is celebrating its 20th year by launching new shows, including a reality series featuring former New England sports stars and local comedians. Yankees Entertainment and Sports Network
  • Teams: New York Yankees and New Jersey Nets
  • Status: Failed to negotiate a distribution deal with Cablevision in its first year, leaving some fans without access to several games in 2002. The matter has since been resolved, and some peg the network's value at $1.2 billion. Victory Sports One
  • Team: Minnesota Twins
  • Status: Failed to negotiate distribution deals with five local cable franchises, leaving most fans in the dark for the start of 2004 season. The team folded the network under pressure.
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