Mariners Take Majority Ownership of ROOT SPORTS NW
We’ve known for a while that the Mariners had an opt-out in their agreement with ROOT SPORTS, and were going to be able to renegotiate their contract based on the fact that television revenues for Major League teams are skyrocketing right now. Because live sports are mostly DVR proof and not (legally) available through streaming sites, cable companies are investing very heavily in exclusive long term contracts for sports franchises, especially baseball, because it offers 162 broadcasts per year.
Instead of re-signing to a new deal with ROOT — currently owned by DirecTV, by the way — the Mariners have bought a majority stake in the network. What this means is that instead of simply licensing their television rights, the Mariners will generate revenue directly from the network, much like the Yankees do with YES. Wendy Thurm laid out all the different television contract arrangements in a great post at FanGraphs last year, so you can see there that the Mariners will join the Yankees (YES), the Mets (SNY), the Red Sox (NESN), and the Orioles/Nationals (MASN) as owners of their own RSN, rather than striking a licensing deal with an existing cable network.
The big advantage of owning your own network is having a separate entity in which to hide revenues and keep them from going into the revenue sharing pool that MLB takes a 34% cut from to distribute among the lower revenue clubs. If the Mariners had signed a deal that simply caused DirecTV to cut them checks for their broadcast rights, the team would have had to disperse 1/3 of that to MLB. As owners of the network, the Mariners will simply be able to claim that revenue as ROOT SPORTS revenue and not Mariners revenue, and thus won’t be subject to the same revenue sharing rules. It’s a loophole, but it’s one that MLB has not yet seen fit to close. It doesn’t mean they won’t close it eventually, but it’s more difficult to track revenues of affiliated companies than it is to track what the teams have to disclose as income, so it’s likely that this partnership will result in the team being able to keep a larger percentage of their television rights money than if they had struck a pure licensing deal.
What this will mean is that the Mariners are going to have a significant increase in revenues going forward. Under their current television deal, the publicly available information has the team bringing in about $45 million per year, or at least that was the average during the life of the deal – it might be higher at the moment if the deal was backloaded. Every team who has signed a new licensing agreement with an RSN over the last few years has done significantly better than that AAV, ranging from $60 million per year (plus a 20% equity stake) for the Padres to $280 million per year for the Dodgers. That the Mariners chose to take a controlling stake instead of signing a licensing deal means that they believe they can make even more money by controlling the RSN than they would have by signing those rights away, so while we’ll never know exactly how much the team will get from owning a good chunk of ROOT, you can bet it’s going to be a sizable raise.
So, yes, the Mariners payroll is going to go up, and probably go up a good amount next year. Pretty much every new TV deal has been met with a payroll increase for the team that signed the contract, even among the lower revenue teams. The Indians just signed Nick Swisher and Michael Bourn over the off-season in large part because of the deal they struck to sell SportsTime Ohio to Fox Sports. Don’t be surprised if the Mariners are among the most aggressive teams in free agency next winter. This is generally how things work after a team signs a new TV deal or creates their own RSN.
But, at the same time, you have to realize that this isn’t a Mariners specific thing. The Mariners are taking part of a trend that is pushing up the revenues and the payrolls of every Major League team. Relative to the rest of the league, the Mariners had to do this just to keep pace. Having their own RSN doesn’t instantly make the Mariners into the Yankees. They’re just jumping onto the wave that is lifting all Major League clubs at the moment, and so they’re going to have more money to spend, but when everyone has more money to spend, players just get more expensive.
And, as we’ve talked about, free agency is changing. The wave of long term extensions for players like Felix Hernandez and other teams’ versions of Felix mean that premium young talents aren’t getting to FA early in their careers any more. Money that used to go into luring away star players is now being used to keep star talents with their original organizations, and so the players who actually change teams are of lesser quality — or are just older — than they used to be. The Mariners may very well go into this coming off-season with a lot of money to spend, only to find that the best players available are Jacoby Ellsbury and Matt Garza. Franchise saviors aren’t hitting the market much anymore.
It doesn’t make that money useless, though. In my opinion, the new advantage of financial resources is going to come through a heightened ability to make trades. While MLB teams haven’t traditionally sold off their best players, I wouldn’t be surprised if teams like the Rays and Marlins begin to look for some kind of financial compensation when they put David Price and Giancarlo Stanton on the trade block. The commissioner’s office might not go for large cash transfers, but there are creative ways that low revenue teams can get teams flush with cash to provide them some financial flexibility. Maybe instead of just asking for five good prospects, the Rays would want the Mariners to sign Taijuan Walker to a guaranteed six year contract with a bunch of team options for $40 or $50 million guaranteed and then agree to pay Walker to pitch for the Rays for the next decade. Would MLB go for this? I don’t know, but this is the kind of thing that a team with money to burn and no obvious free agent targets could try.
And now the Mariners are going to be that kind of team. The payroll is going to go up, and they’re going to be more aggressive in player acquisition than they have been. This isn’t an unexpected gift from the heavens, as they’ve known this windfall was coming and it was part of the motivation behind the Felix Hernandez extension, but it’s still going to be a financial boost to the team. It doesn’t make them the richest team in baseball or anything, but you can bet that the team almost certainly isn’t going to run an $85 million payroll again next year.
One final note – if your plan is to respond to this post with a rant against ownership being cheap bastards who are just pocketing all the money and screwing the fans because they don’t want to win, don’t bother. In fact, go away. You don’t know what you’re talking about. The perpetuated myth that the team is intent on screwing you out of your money by putting a bad product on the field is stupid and wrong. Winning teams make more money than losing teams. If the Mariners were completely and utterly intent on maximizing profits with no regard for anything else, they’d have invested more heavily in the product, because winning breeds revenues. It isn’t a lack of desire to win, or a preference for profit over winning, that has caused the team to stumble the last decade. They just made a bunch of bad baseball decisions that ended up doing real long term harm to the franchise. It is as simple as that. They aren’t losing on purpose. Stop believing that crap.