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Sports League Expansion, and How Lost Revenues and Media Rights Factor In

Most industries have been hit pretty hard over the last 10 months, and professional sports leagues are no exception. In the United States, all four major sports leagues — MLB, the NBA, NFL and NHL — have seen drastic reductions or complete elimination of in-person fans since mid-March. The NFL is the only one of those leagues to fail to miss any games so far, in part because they just played through COVID issues.

While the NFL is certainly hurt by a lack of in-person fans, they’re also helped by U.S. sports’ largest media rights deal (that’s about to get bigger) and the fact that there are just eight home games per team in the regular season. Those attendance shortcomings do add up, of course. But not the same extent we see with the other three leagues.

For the 2019-20 season, the NBA lost at least 10 games per team (average of five home games) — and for those that weren’t invited to the Orlando bubble, it was nearly 20 (10 home games). Hockey teams lost about 10 or so games apiece as well last year. Baseball, the most attendance-driven sport of all of these, lost 102 per team (51 home dates) in venues far larger than those of the NBA and NHL.

Add to those issues an additional complication that the NFL doesn’t suffer from: regional rights deals for game broadcasts. While all three of the other leagues have national media deals that pay well, they’re nowhere near what the NFL receives and many of the games aren’t on national TV at all. Those games (the majority of the season for each team) air on regional sports networks that also need reimbursement from the lost dates of this past year and parts of this season as well.

The resulting losses for all of these leagues winds up amounting to billions of dollars, and for MLB, the NBA and NHL, they’ll complete at least part of their 2020-21 seasons with fewer games and/or no fans in attendance. So where do they turn to fix that?

Media rights is one area where you can make up part of the difference, but to what extent? Regional networks are getting squeezed since Fox sold those to Sinclair, and various MVPDs (Hulu, YouTube TV to start) dropping them makes it harder to pay the sums rights deals were worth less than a decade ago. For MLB, the Milwaukee Brewers and Miami Marlins don’t even have regional rights deals in place for 2021 right now.

Looking at MLB, specifically, first — this FanGraphs breakdown from early 2020 shows just how much these regional deals mean to those clubs. The Los Angeles Dodgers leading the way at $239 million per year in revenues from its broadcast deal with Spectrum SportsNetLA. Meanwhile, even the lowest contracts on that list even net teams over $20 million per.

Along with doubts about future payouts (which is a valid concern for the two teams without deals and the others who are facing expiration of their deals in the next few years) is the fact that none of this is new revenue. It was expected and factored into the books.

So the national broadcast deals could help MLB… or they would if every broadcast partner appeared to be on board with continuing to increase payouts. That may be the case for Turner and Fox, who recently inked big increases in their respective rights deals with MLB. But for ESPN, the new deal is expected to be a scaled-back contract that reduces annual payouts by about $150 million per year according to a report from The Athletic’s Ken Rosenthal. So MLB’s still up, but not by as much, and those increases were likely expected revenue already. Add in potential fears about labor strife coming to baseball and you can see where trouble is coming.

For the NBA, national media rights are secure with Turner and ESPN, yet the regional deals remain a long-term concern amid the issues spotlighted earlier. Going into 2020, cord-cutting and the long-term albatross of sports rights’ impact on cable package prices was a concern, and that’s been intensified as audiences scattered all summer to other entertainment options. When sports returned, viewership was down in a crowded environment. TBD if it goes back up.

The NHL is in a similar boat to the NBA, on a smaller scale. Where things could get interesting is if ESPN joins the fray and starts a bidding war with current rights holder NBC. ESPN has not had broadcast rights to NHL games since the early ’00s, before a work stoppage cancelled the 2004-05 season (though they did earn back some NHL games with ESPN+’s launch a couple years ago). This situation is unique for the NHL versus the NBA and MLB, since hockey is set to see a significant increase in media revenues in the near-term that the other two may not be.

Of course, media rights is one of two major ways to increase revenues. The other is league expansion.

In the 1970s, 1980s and into the 1990s, expansion was a huge part of all four pro sports’ leagues strategies. MLB, the NBA, NFL and NHL added a total of 32 teams from 1975-1999 in an effort to grow broadcast footprints and rights deals, fan engagement and add some money to owners’ wallets in the form of expansion fees for the trouble of letting another team dilute talent.

Now, expansion comes with a much heftier price tag and could come at a time when owners NEED that influx in cash. The Seattle Kraken will join the NHL in 2021-22 and pay $650 million to do so. That amount was agreed to (and maybe even paid in part) prior to March 2020, so it’s not necessarily the shot of unexpected funds one might assume owners need. Still, it’s money that helps offset lost revenues there AND helps increase the value of the next TV rights deal by adding another team (more games) in a strong media market.

On the NBA front, there were no hard plans to add teams… though commissioner Adam Silver appears to have changed his tune there as teams and the league continue to lose money into 2021. A Brian Windhorst report for ESPN last week seems to indicate the NBA would like to add two franchises, at the hefty price tag of $2.5 billion apiece. The favorites for those spots seem to be Seattle (finally righting the wrong of the Supersonics departing for Oklahoma City over a decade ago) and Las Vegas. But most of the markets thought to be in contention should mean a sizeable spike in the value of the national TV rights deal the league has in place unless expansion also coincides with a significant reduction of games per season (something owners are unlikely to agree to now after losing games for both 2019-20 and 2020-21).

The league most in need of the cash that expansion brings would be Major League Baseball, but Rosenthal shed some light on that as well for the Athletic in an article this week.

Unlike other leagues, MLB does seem to have a larger number of owners willing to use franchises as a means to pocket cash and not actually compete. Uncertainty around small markets is also larger in MLB, and the threat of teams moving always seems to exist (as is the case for the Oakland Athletic and Tampa Bay Rays right now). As a result of this and other factors detailed in the piece, expansion would appear to be off the table in the near-term and that means actively saying no to the money it would provide.

There’s no timeline for the NBA, but with the Supersonics’ return already looming over the league for 10-plus years and various other markets tested out all the time, it would seem they’re pretty far down that road to have a team start by 2022-23 or 2023-24, perhaps. Whether they get the $2.5 billion expected is another story, but either way, it’s likely they make that move and help fix some of the current problems.

The story’s far from over for MLB on the expansion front given the financial needs of most franchises. But for now, they do appear to be the league most willing to stand pat and accept losses as just part of doing business right now.