Lamenting Local Rights

It's rare that I agree with Knicks owner Jim Dolan.  This is one of those times.  Dolan is not a fan of the NBA's new media rights deal with ESPN/ABC, NBC and Amazon, which is all but finalized.  He's so against it, in fact, that he sent a letter to the NBA Board of Governors and the other 29 owners criticizing the deal and the league's business model.  And, frankly, he's got a point!

The new contract is for 11 years and $76 billion starting with the 2025-26 season.  Notably absent is Turner Sports, the NBA's longtime TV partner, which has an option to match that it will reportedly be exercising.  Whether that will actually make a difference is anyone's guess, but the impression I've gotten is that it won't.

Under the new deal, each network will have an exclusive national window...and each will have their own night of the week.  ESPN would keep its Wednesday and Friday blocks, as well as the Saturday night window on ABC.  NBC will get Sunday nights after football season ends to go along with a Monday night package on Peacock.  Amazon Prime will also have the NBA take its football spot after the NFL season is over, streaming games on Thursday nights and getting exclusive rights to the NBA Cup.

One of Commissioner Adam Silver's main priorities with the new contract was to increase the NBA's exposure on streaming platforms...which is something that he certainly accomplished.  However, the increase in the number of exclusive national windows, as well as a team's maximum number of national television appearances are what really irk Dolan.  Under the new deal, the maximum number of national appearances will go from 12 per team to 18.  That's roughly a quarter of their schedule.  Or, as Dolan sees it, six fewer games for teams to air on their own regional sports networks.

As streaming has become more and more prominent, regional sports networks have suffered the most.  We've already seen it in baseball, where MLB had to take over the local broadcasts for the Padres and Diamondbacks because of Bally Sports' bankruptcy.  RSNs have already seen a massive reduction in revenue as cord-cutters ditch the traditional cable bundle, but still have some value as the broadcaster for the majority of the local team's games.  The fewer games available to them, though, the lower the value, while they'll still have to pay rights fees while not bringing in as much revenue (both from reduced cable subscriber fees and fewer sponsorship dollars).

In addition to the Knicks and Rangers, Dolan owns MSG Network, which broadcasts both teams' games (as well as the Devils and Islanders).  The Knicks and Lakers, who (obviously) play in the two largest markets in the league, have the highest local TV ratings in the league.  They also generate the most revenue from local broadcasts.  Both teams reportedly earned $3 million per game this season.  So, shifting six games from the local broadcasters to the national TV partners, that's a loss of nearly $20 million per season.

Dolan, understandably, considers the new TV deal a threat to the RSN model.  In his email, he even argues that it could make the RSN model unsustainable.  With the inclusion of streaming partners (and no blackouts), fans would potentially have the option of completely bypassing their local broadcast while still being able to see the game.  While the NBA counters this next point, he also argues that the new deal offers no protection for RSNs and that the league has no plan for a comparable replacement should one become necessary.

Another big issue that Dolan has regarding the new TV contract is the revenue sharing element.  Dolan is very critical of this aspect.  Teams like the Knicks and Lakers generate the most revenue locally, but they wouldn't get to keep it since the league would pool all teams' revenue and redistribute it equally.  If that sounds similar to the NFL's model, it should.  Because that's exactly what the NBA is going for.

There's one major difference between the NFL and the NBA, though.  Since 1961, the NFL has had a federal antitrust exemption that allows the league to negotiate a broadcast package on behalf of all teams collectively.  That antitrust exemption also requires all games to be available free over-the-air in the participating teams' local markets.  That rule still applies, so Monday and Thursday night games are on a local broadcaster, as well as ESPN or Amazon Prime (or Peacock or Netflix or NFL Network).  

More significantly, every NFL game is nationally televised.  The only exception is the preseason, where games that aren't nationally televised are produced by the teams themselves.  So, at most, teams will have three preseason games broadcast only locally and that's it.

That's only the case in the NFL.  In the NBA, NHL and MLB, a majority of a team's regular season games are broadcast locally in a deal that's negotiated directly between the team and their TV partner.  All of the deals are different, but the important thing to note is that while the local broadcasts are the team's responsibility, they also get to keep all the revenue.  So, Jim Dolan stands to lose a lot of money should the NBA's local TV revenue suddenly be pooled.

While the Knicks and Lakers stand out as the two teams that would be the most significantly impacted, Dolan said that the other owners should still consider how it will affect their franchise, particularly as it pertains to local revenue.  That seems to be the crux of his argument.  Not only will he stand to make less money under the new TV deal, the Knicks would also generate less since there wouldn't be as much coming in from local sponsorships...a situation that would be the same for every team since they'd all have less inventory to offer.

He accused the NBA of greed since a majority of the money in the new TV contract will be kept by the league (although, the NBA disputes his figures).  Dolan also claims that the league and other owners don't care since franchise values will continue to rise.  A very sarcastic (and true) point Dolan made in his letter was that the NBA is deemphasizing and depowering the local market and suggested that teams' only concerns will be ticket sales and the color of next season's jersey, since they'll be guaranteed to make money either way.

Ultimately, nothing will come of Dolan's legitimate concerns.  They've been working on the new media rights deal for too long, and too many owners are aligned with Silver to go against what he wants.  Dolan did make some good points, though.  Hopefully the other owners realize that before it's too late.