Assessing The Impact Of The Phillies’ New TV Deal

We learned recently that the Phillies had reached agreement with Comcast SportsNet on a 25-year, $2.5 billion TV deal that also grants the club an equity stake and rights to ad revenue. (Though the advertising split is not yet known, that is a somewhat unusual provision that could add significant value, note Matt Gelb and Bob Fernandez of the Philadelphia Inquirer.) The deal, which kicks in for the 2016 season, had long been rumored to be in the works.

The new, $100MM average annual revenue stream certainly promises to provide a boost over the $35MM average the club enjoyed under its previous deal. But the cash flow will not jump to nine figures overnight: by my calculations, with somewhere between a 3 and 4% annual bump built into the deal, the Phils will start out drawing something in the realm of $65MM for 2016. (And, of course, the future revenue streams must be discounted in assessing their present value, though that fact is equally true of other teams' deals.)

Comparing the $100MM average across the league, Philadelphia's deal seemingly places it in roughly the position that was expected for the size of its market. (Click here for an earlier update from Wendy Thurm of Fangraphs on league-wide TV deals.) When factoring in revenue, equity, and other components, the Philadelphia pact falls in the realm of the Rangers' and Angels' recent deals, according to Maury Brown of Forbes. Thurm tweets that the terms are "in line" with expectations given the market size, while noting that the MLB franchises in Los Angeles, New York, and Boston all have greater packages when network equity is accounted for. (Twitter links.) Gelb and Fernandez call the deal "commensurate with recent packages across baseball." 

Ultimately, however, the deal does not appear to provide a basis for a serious leap in the club's current or future payroll as against the rest of the league's well-off franchises. As Ryan Lawrence of the Philadelphia Daily News wrote just over two months ago, it seemed possible that the new deal would boost the previous $35MM annual revenue figure to over $200MM per year, with an annual figure above $150MM "highly probable." Those kinds of numbers would have outpaced other recent TV contracts.

Though Lawrence acknowledged that predicting deals based on recent comparables constituted "guesswork," his earlier discussion indicates that the Phils did not ultimately break new ground with their deal. In other words, it does not appear that Philadelphia landed the "Dodgers-esque" deal that some observers thought possible — at least in terms of impact on relative spending capacity. With the club's ratings dropping a remarkable 40% in each of the last two seasons, going from first in the game to seventh in the process, one can't help but wonder what impact the team's on-field downturn may have had on negotiations.

Depending upon one's perspective, then, the deal could be seen as something of a disappointment. But there is value in holding serve, especially with some predicting a looming bubble. It could be that the run-up in the TV deal market is at an end, and at a minimum the Phillies appear to have secured their market position as one of the league's top spenders. 

As Lawrence reports, the team seems to be characterizing the deal as a continuation of its current trajectory. According to team president David Montgomery:

"[The new contract] might not represent quite a significant change as what occurred in other markets. But we continue to believe, thanks to the tremendous fan support, that we'll continue to be one of the top five clubs in payroll each year. … But, as we proved last year, payroll alone doesn't guarantee success. We want to focus on making the best player decisions possible." 

Montgomery echoed those comments in explaining that the club's payroll was not expected to undergo major changes, as Gelb reports:

"I don't see us going any higher than where we've been. For us, the secret is to spend it well, not necessarily tied to how much. Since we moved in here, we have been able to be a club that is substantial in its payroll. I assume we will continue to be in the top four or five of the game. Hopefully we'll make some good decisions and people will see an improved club in 2014. That's what we believe."

Indeed, as those comments would indicate, Philly has pursued a strategy of fairly measured offseason spending. While time will tell how the new TV deal impacts the Phillies and the broader market, the early indication is that it will not provide a dramatic new infusion of cash into the marketplace, but will allow Philadelphia to retain its foothold amongst the more financially flexible MLB clubs. 

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