Sports Teams: The End of the Affair
In earlier and more expansive times for media—and very good times they were—the industry's moguls fantasized about hitherto unforeseen advantages to be squeezed from all manner of assets. So many snapped up sports teams. News Corp. (NWS) bought the Los Angeles Dodgers. Disney (DIS) grabbed the Anaheim Angels and hockey's Mighty Ducks (unquestionably the only team to pinch its moniker from an Emilio Estevez film). Cablevision (CVC) bought New York's Knicks and Rangers. I could go on. The argument advanced was a variation on the (now wholly discredited) "synergy" theme then taking root: Take your programming. Run it through your distribution. Get richer faster.
This was the thesis, even if sports ownership often hinges on the retrograde, high school-ish desire to hang with the jocks. (For any real or wannabe tycoon, owning the team is even better than owning the newspaper.) Today, the only moves media companies make in sports happen when they bail. Tribune is finalizing a deal to sell the Chicago Cubs. New York Times Co. (NYT) seeks to unload its stake in the Boston Red Sox' parent company. Those are distress sales, and it helps that you can almost always find a greater fool when selling your team. But reality has long shown that the psychic income of team ownership doesn't overcome what makes it lousy business.
One cannot overstate the ego aspects of this. Ted Turner, back in his buccaneering days, wasn't satisfied with owning the Atlanta Braves. He wanted to manage them, too. (Turner set another bad example. Starting in the late Seventies, when the economic models were much more forgiving, he did what no one else could replicate: Programming provided by his Atlanta teams helped establish his TBS cable network nationally.) As with much that moguls most desire, a business justification doesn't lag far behind. Thus, sports teams were—yes!—a particularly valuable form of content. It was easy to find blithe blue-sky quotes like this one, from Chicago White Sox Vice-Chairman Eddie Einhorn, who in 1998 said: "What are we in baseball if not programming and software for media companies?"
But a team is not a content business. It's more like a concert business. "Substantially," says Leo Hindery, managing director of InterMedia Partners (and pal of Tom Daschle), whose bid for the Cubs failed, "it's a butts-in-seats business." And teams come with a host of ungovernables. Being in a league makes you but one voice of many in determining business rules and conditions—a big problem for those who like control. Your stars go crazy off the field, but nowhere near as crazy as the salaries they command. Media companies might—might—scale back movie star pay, but good luck doing so in sports. It has a different talent ecosystem, with built-in scarcity stoked by the blunt measuring tool of the won-lost record. Do you want your most hated rival to sign the guy who can singlehandedly crush your offense, or do you offer more? It's not just winning and losing, you see. It's what the latter does to the bottom line. A franchise's wild ups and downs do not mesh prettily with a public company's demands. You can find top media executives still in the team business who privately concede that it's not worth the trouble.
All this was obscured in simpler times. The more refined version of the Ted Turner model was that of the regional sports network: Owning the right teams and their programming rights could make establishing a regional sports cable channel (forgive me) a slam dunk. But as the realities of team ownership sank in, and once that network had been established, why not just get the programming rights without the hassle of owning the team? (So went News Corp.'s thinking when it sold the Dodgers in 2004, after buying it less than six years earlier.)
These days, media companies will get smaller, not bigger, and stick closely to what they know, not take flyers on glamorous new ventures. Especially at the vertiginous price tags teams command today. In 1976, Turner bought the Braves for about $10 million. Tribune is selling the Cubs for $900 million. The math is now simple: Teams are one of the few assets media companies have that someone else will still spend big for.