Financial World magazine recently appraised the value of nine teams as actually lower than the $95 million that the expansion franchises are being charged. Lowest of these was the Mariners, valued at $71 million. That's bad news for Smulyan, who two years ago paid $76 million for a team that he says has lost $20 million during that time. This in spite of the fact that the 15-year-old organization is having its best season both on the field and in the stands. Smulyan does not rule out a move to another city. And while Smulyan doesn't have baseball's blessing at the moment, commissioner Fay Vincent has appointed a committee to study the conditions under which clubs can be moved. These may be different times, after all.
The panic may be keener than usual this time around because owners, accustomed to a rising revenue stream, are suddenly anticipating a drying up of one of the main tributaries. Network TV money was something baseball could count on; the rights fees generally escalated in breathtaking fashion. But that escalation may be replaced by free-fall.
When the TV contracts, both for network and for cable, for the 1990-94 period were signed in 1989, there were more than a few gasps from observers. NBC, longtime purveyor of baseball's Game of the Week, had figured a new deal to be a formality and had submitted a bid in the $600 million range. What happened next is still the talk of the TV industry more than two years later. CBS—and wouldn't you like to have these guys at your estate auction?—sort of topped that offer with a bid of $1.06 billion, a doubling of baseball's previous contract, signed in 1984. "The worst deal ever made," said then NBC chief Brandon Tartikoff of the 1989 contract.
CBS entered into the agreement with a strange agenda. In last place in the ratings race, the network wasn't buying baseball as much as the chance to billboard its fall season. It planned to broadcast only 16 regular-season games a year on Saturday and Sunday afternoons and left the rest of the regular season to ESPN, which gave baseball an additional $400 million for the right to cover 175 games a year for four years. In effect, CBS wanted the playoffs and the World Series to advertise its fall prime-time lineup. And who can forget the promotion of shows like The Flash and Doctor, Doctor during last year's postseason? O.K., who remembers shows like The Flash and Doctor, Doctor?
The idea that a struggling network might seize a must-see event like the World Series to bolster prime-time ratings isn't entirely new. But in this case it didn't work. The network, like the rest of the economy, was slammed by recession in 1990. Advertisers became scarce or dickered for lower rates. CBS, which was asking $300,000 for a 30-second commercial during the 1990 World Series, filled some spots for $240,000. Worse, because the playoffs and World Series ended so quickly, there were few spots to fill. "You can look it up, and we did," says CBS Sports president Neal Pilson. "Statistics tell you that you will not have two four-game series [the American League Championship Series and the World Series, both of which in 1990 did in fact last only four games]. I no longer believe in statistics." Had the World Series gone six games and the American League playoffs at least five, Pilson says, CBS would still have lost money but would have remained within its projections. As it is, CBS chairman Laurence Tisch has apologized to stockholders for CBS's "mistake."
Something very remarkable would have to happen in the next three years for Tisch to make that mistake again. The network is said to have lost upward of $100 million in the first year of the contract and, according to the ratings, relief is not in sight. (ESPN lost $36 million last year and will probably lose at least that much this season. Nevertheless, it professes to be happy with the high profile that baseball gives it.) CBS's deal is so bad that network executives now hold out little hope that it will ever bear fruit. "I hate to preach to baseball," says Pilson, "but even if the marketplace does strengthen, I don't think we're going to realize the revenue that we anticipated when we made the contract. It is unlikely that sports rights fees are going to increase, and it is quite likely, with respect to many franchises, there will be a decrease in rights fees, especially from the networks. Baseball has three and a half years of advance information here."
It baseball owners think one of CBS's competitors will save the day, they received a rude surprise last month when the president of NBC Sports, Dick Ebersol, told Electronic Media magazine that unless there is a significant change in the economic climate, his company would not even bid on the next contract when CBS's deal runs out after the '93 season. "Maybe baseball will come up with some really innovative plans that will add a lot more value to the package," Ebersol said. "Otherwise, we won't change our minds. We're in a business where we have to show, in the sports division, that we're clearly going to do better than break even. We won't carry any loss leaders."
Some owners may not be reacting quickly enough to this sobering news. There were no $3 million player contracts before 1990, but the owners, each collecting an extra $7 million per year from the new TV contracts, began flashing their bankrolls to admiring agents. Presumably, if you have an extra $7 million, it is no problem to sign Darryl Strawberry to a contract for $3.8 million a year. Of course, that assumes that Strawberry's team, the Los Angeles Dodgers, will still be collecting that extra $7 million in 1994, after the TV contract expires but a year before Strawberry's does. And all testimony suggests the Dodgers won't.
We refer you to the word cataclysm mentioned earlier. While Fehr argues that rights fees always go up, and that all this poor-mouthing is simply advance negotiation, there is not much evidence that any combination of network and cable broadcasting will provide the escalation in fees that the owners' current rate of spending will demand. As for pay-per-view as a source of new revenue, well, Philadelphia Phillies owner Bill Giles talked this spring about charging TV viewers $9.95 each to watch the Phils' home opener against the St. Louis Cardinals. The outrage among fans was so great that he withdrew the plan a week later.
Meanwhile salaries go up and up. "We have a system that doesn't permit owners to level off salaries of their own accord," says Steve Greenberg, baseball's deputy commissioner. "With salary arbitration, it's like a juggernaut. An owner can't just simply say, 'Well, I'm tapped out, I'm not paying you more.' If a player made a million last year and hit .270, you know he's going to make a million-five next year."