September 26, 2014

THE PUSH BACK

The Tribune repeats in a business article this week on the plight of the Cubs in trying to leverage their wayward local television broadcast rights after opting out of the WGN deal.

WGN was happy to get out of the deal early, because reports indicated that WGN-TV was losing money on every game because of poor ratings.

The team currently has no 2015 deal for the WGN portion of its 70 or so games.  According to sources, WGN, which is losing an estimated $200,000 per game on the current deal because of sliding Cubs ratings,offered the team a continuation deal, but at a much lower license fee. The Cubs rejected the idea. Tribune also suggested a "revenue sharing" partnership, which the Cubs also rejected.

Comcast, the team's cable partner for the rest of the telecasts, has stated that it has no programming room to add 70 Cubs games to its schedule. 

The Cubs continue to play hard ball on the their over-air broadcast games. The Cubs make the case that the team can be ratings winners, as evidenced in 2008.  But that evidence of their potential to deliver big ratings was with a successful, competitive team. The Cubs have slid to the bottom of the NL Central. Ratings have slid even further.

But the Cubs hang their hat on "hope" for the future. There was evidence when Javier Baez's debut on Tuesday did a 2.0 rating (92,000 homes), up 43 percent for the Cubs' season average on CSN. However, it appears that that ratings spike was short lived, like Baez's batting average.

WGN and the Tribune are well aware of the Cubs' rating "potential," but the sting of baseball programming as being a lost leader in a highly revenue channeled industry like television will get executives fired for incompetence. The Cubs losing track record is the only thing any television operator can use to reasonable predict the next few years of Cubs baseball interest.

As the Tribune has reported previously, the Cubs also are looking at the possibility of airing their non-cable games on a multicast station, which is a sub-channel for local over-the-air broadcast stations. That would provide the Cubs the opportunity to start some sort of a team-branded channel. The Cubs would produce the telecasts and sell and keep all the advertising revenue. It might be their only option beyond WGN because the Cubs are locked in for their cable games with CSN through 2019. However, this option requires the Cubs to invest a great deal of capital to build out their own television production team. And, by all indications, Ricketts is adverse to spending money other than on redeveloping the real estate around Wrigley Field.

The Tribune reports that the team is looking to partner with a Texas private equity firm "to maximize" local broadcast rights. However, the blueprint for creating a Chicago version of the Yankees YES network is trying to lock the barn door after the horses have fled to greener pastures. Comcast is the predominate cable provider in the Chicago metro area. It is not likely to give a new Cubs channel access on its system prior to 2020, if at all. Subscribers have balked on paying additional monthly fees for new sports channels, such as the Dodgers in the LA market. This option also seems to be DOA for 2015.

Which brings the team back to crawling back to WGN. I don't think the business side of the Cubs have the stomachs to crawl back on WGN's terms. The lone alternative is Fox, which owns Channel 32 (a network O&O) and Channel 50 (a UHF station). The Cubs are not a priority for local Fox station as it has to run national programs (including its weekly Saturday baseball package).  Channel 50 does not have the marketing sweep of a WGN, so the license fee would be smaller than what WGN would offer the Cubs.

Without a broadcaster for 70 games next year, the Cubs are probably losing $14 million or more in gross revenue. The new signage and advertising deals at Wrigley is not going to make up for this lost revenue. The Cubs have painted themselves into a corner with the prospect of 42 percent of their games not being broadcast in Chicago. With ratings so low, fans may not even notice the missing games. But you have to realize that $14 million is equivalent to a front line starting pitcher.