The Potential Value of a Local TV Contract

Last week at Piratefest, Pirates Prospects was part of a backstage Q&A with Frank Coonelly.  One of the questions we asked him was if local TV contracts were the next frontier for revenues, judging by the recent TV deals signed by the Angels and Rangers.  The video is courtesy of Tom Smith from Rumbunter:

Coonelly’s answer was that revenue sharing was implemented originally in the early 1990’s to counteract the disparity of local TV revenues, specifically the Yankees’ $40 million/year TV contract which at the time was “astronomical”.  A portion of that money was shared with all teams that were without their own mega-deals.

Here we sit on the cusp of 2012 and now $40 million is dwarfed by the recent deals of the Angels ($150 M/year for 20 years) and the Rangers ($80 M/year for 20 years).  There are some teams, the Yankees and Red Sox for example, that have formed their own networks in recent years to control their own financial destinies in the media market.

One item for consideration when you hear about these deals is that the team doesn’t receive the full whack of the yearly revenue shown above.  A portion of it is put back into the revenue sharing pool for recipient teams, such as the Pirates, to receive.  So as Frank Coonelly says at the tail end of his answer, “It’s still beneficial for the Angels to sign that contract, but they don’t receive all of the dollars payable under that contract.”

While that may be true, it would sure be better to get $145 million out of the Angels’ contract, instead of the $5 million that the Pirates may potentially receive.  But not every market or team can command that type of yearly deal.  Things like competition among other networks (Fox v. Time Warner in Los Angeles) and market size are factors, as well.

This raised a question for me — “Is there a correlation that can be drawn from these recent deals to what the Pirates could potentially command in this market?”

By and large, there is very little publically available information on the yearly value of local TV contracts.  The Pirates signed a 20 year deal with ROOT Sports in April 2011, but no terms were disclosed.  Forbes did an article in April 2009 on the 10 largest local TV contracts at that time, so it was used as the source point of research for this article.  Using that article, plus the info on the Angels and Rangers, gave a spread of $28 million/year for the Orioles and Nationals (Mid Atlantic Sports Network) to the Angels recent $150 million/year with Fox.

However, once you introduce market size into the mix, things become a little clearer.  Using Wikipedia’s list of 2010 Census numbers for major metropolitan areas in the United States, you can start to see a pattern developing:

When you divide the yearly total of local TV revenue by the metropolitan population of the team’s city, most likely the target audience within the TV station’s viewing range, you can see that the dollar amount/person is clustered around the $7 to $10 range.  The recently signed deals by the Rangers and Angels have forged new territory into the $11 to $12 range, but it is safe to say that those deals are striking new territory.  I don’t think anyone is shedding tears over the Yankees and Mets having a seemingly low dollar/person amount, especially since the Yankees are part owners in the YES Network and the other abundant media opportunities that exist for these teams in the largest city in the United States.

Using the Wikipedia figure of 2,356,285 people for the Pittsburgh metro area, we can assume that the recently signed deal with ROOT Sports should be somewhere between $16.5 M/year (using the $7/person amount) to $23.6 M/year (using the $10/person amount).  These figures are just my speculation, of course, but it at least gives us a figure to wrap our heads around regarding the potential amount of revenue received per year by the Pirates.

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