Article: The Bubble in Pro Sports
Posted 29 November 2012 - 12:57 PM
Any economics minds have thoughts on the bubbles being created in pro sports by these gigantic TV deals? Is
another taxpayer funded bailout looming?
Posted 30 November 2012 - 08:44 AM
Posted 30 November 2012 - 08:57 AM
Posted 30 November 2012 - 10:07 AM
Posted 30 November 2012 - 10:14 AM
Posted 30 November 2012 - 10:44 AM
Yeah, no one watches baseball, that's why it has over $6 billion in revenue per year.
this is a pretty poor argument since it includes all kinds of stuff from ticket sales, concessions, apparel and everything else in addition to TV revenue. I guess I just don't think of many of my friends and family back home making it a priority to make it priority to watch a baseball game on TV after work or staying inside on weekend. And imo it falls far behind the other multimedia choices that people have.
Posted 30 November 2012 - 11:04 AM
The Fox deal with the Dodgers is between 6 and 7 bil (no exact figure yet). Say 6.5 bil. Over 25 years, at an average inflation rate of say 3%, that works out to about 6 billion even in today's money, that's guaranteed.
I don't know the specifics of the fee schedule, but if its close to linear, that would work out to about 240m / year in fees charged. TimeWarner is the big fish in LA I think, with 1.7m subscribers. Asssume they are the one to ink a deal with Fox. Assume further, that Time Warners subscription go up to an even 2m as an average over the next 10 years. That's $2.4 billion to be charged to 20 million yearly subscriptions for Fox Sports. Works out to a $120 fee per year per subscription over the next 10 years just for that channel.
As stated above, only about 812,500 watch a game. Barely a third.
Time Warner (assuming the reach an agreement with Fox) would quickly have to adjust their packages if they are going to keep those 1.2 million subscribers who aren't tuning in to watch the Dodgers. They'd have to make Fox Sports an opt-in, or break it down into a partial package type deal. Whatever Time Warner does, they're going to have to raise the rates on the people who are subscribing for Fox Sports.
Just as a comparison, its like $160 for the full mlb.tv package right now. Although I hardly think MLB will let MLBAM ever charge less than what the networks are charging to cable providers, so that price will go up too.
The net result, I think, is that people just tune out, ratings fall, and Fox can't make its payments. Especially if the Dodgers aren't perennial WS contenders.
Edited by Willihammer, 30 November 2012 - 11:06 AM.
Posted 30 November 2012 - 01:04 PM
I assume the payout increases over time. But for a simple example, let's say the Dodgers get $250 million per year, every year for 25 years. The present value would be around $4.35 billion.
Using industry-standard discount rates, and assuming the payments are at least a bit graduated, the present value of the deal is $3 billion or so, maybe as little as $2.5 billion if there is some back-loading.
There is a lot more to the economics of the deal itself, but the general trend is that cable companies, premium channels, and other media entities are worried about their ability to hold onto a strong subscriber base. Sports rights are very valuable because they are exclusive, perpetual, largely unaffected by pirating, and require no real promotion on the part of the media entity. The math is way more complicated than dividing dollar amounts by households.
Posted 01 December 2012 - 09:49 AM