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October 25, 2013

If the World Series goes the distance, with the Boston Red Sox and St. Louis Cardinals needing a seventh game to decide a champion, Major League Baseball's free agents may file paperwork a week from today, on Friday, Nov. 1. If the Series ends sooner, the free-agent period gets underway sooner, too. Free agents may file a day after the season officially comes to an end.

After sitting out their second straight postseason, the Phillies could be major players in the free-agent market in an attempt to reclaim their former status as a National League power. One development that could go a long way in helping the Phillies is the massive influx of cash that will come their way when they agree to a new TV contract. Earlier this week, sportsonearth.com reported that a Phillies TV deal is expected to be finalized in the next 30 days. If that's the case, at baseball's Winter Meetings in December, Ruben Amaro Jr. and Co. could strut around inside Walt Disney's Swan and Dolphin resort with a sack of money that would make Scrooge McDuck blush.

The implications of a new television deal cannot be overstated. When a new deal is signed - the team's current deal with Comcast SportsNet expires after the 2015 season - the Phillies will be one of the richest teams in baseball. According to data from sportsbusinessjournal.com, the Phillies' current deal yielded them an average annual rights fee from Comcast of $35 million. It's not out of the realm of possibility that a new deal could be six times as large. And it's highly probable that a deal would be in the neighborhood north of $150 million annually. How so? Consider the market.

In 2014, the Los Angeles Dodgers will begin a 25-year TV deal with Time Warner that will pay them approximately $320 million annually. Of course, Los Angeles is the nation's second-largest TV market, with more than 5.6 million TV homes, according to data from the Nielsen Co. According to Nielsen, Philadelphia is fourth, behind New York, LA and Chicago, with more than 2.96 million TV homes. But unlike the three cities above them Philadelphia is home to only one major league baseball team. The Texas Rangers might be somewhat comparable to the Phillies, as they are home to the fifth-largest TV market in the country. Three years ago, the Rangers signed a 20-year TV contract with Fox Sports Southwest that nets the team $150 million annually. The Los Angeles Angels also make $150 million annually from their local TV deal.

While using other teams and markets as examples isn't a bad route for comparison's sake, predicting the value of the contract the Phillies eventually will sign is nothing more than guesswork. Regardless, the Phillies will be the latest team to benefit from the booming business that is local TV rights for baseball teams. In April 2012, Forbes had Dodgers All-Star Matt Kemp on the cover in a suit and tie with the headline, "The New Moneyball," calling local TV sports rights the "hottest media property in America." In the age of the DVR, on-demand services and companies such as Netflix, fewer people watch regular TV programming live. One of the results is the ability in some instances for the viewer to skip through commercials, which is not good news for a network's ability to yield money from advertisers. Sports programming, however, is the exception. People watch games live - and, yes, with commercials. And major league baseball is especially unique since each team airs 162 games a year during a 6-month season in which a game is on nearly every night of the week.

In sports-crazed markets such as Philadelphia, people obviously tune in to many of those games. While suffering through their first losing season since 2002, the Phillies saw their ratings drop 39.4 percent this season. It was the second straight season the Phillies' ratings dipped by close to 40 percent, although they still ranked seventh in baseball in 2012. In 2011, however, Comcast SportsNet and the Phillies were atop the baseball world in local regional sports network ratings. According to sportsbusinessdaily.com, the 2011 season was the ninth straight season the Phillies experienced a spike in ratings, with an overall growth of 176 percent during that time. Of course, putting a winning product on the field helps, because it's also a watchable product. But the catch works the other way, too. With more spending money, teams have a better chance to build a winning roster. While spending the most money doesn't always guarantee success - see the free-spending Los Angeles Angels, for example - it's not a coincidence that three of the four teams left standing in baseball's playoffs ranked in the top five in payroll. The St. Louis Cardinals, meanwhile, were just outside the top 10, at 11th among Major League Baseball's 30 teams.

Despite finishing with the seventh-worst record in baseball, the Phillies had the third-highest Opening Day payroll in 2013. Although a team still needs to spend its money wisely, having that money to spend is still more advantageous than not having it in the first place. In the very near future, the Phillies should have a heck of a lot more to spend when their new TV deal is completed. Philadelphia-based Comcast would benefit from striking a deal in the short run, before the current contract expires, because that would allow it to avoid competition for the Phillies' broadcasts. Philadelphia Inquirer

The Federal Communications Commission is considering softening the decades-old 25% foreign-ownership limit on TV and radio stations, a move that could open up new sources of investment capital at a time of frenzied consolidation in the television station sector.

At its Nov. 14 meeting, the FCC will vote on a measure to encourage foreign ownership of struggling broadcast stations, according to an agenda released Thursday. The 25% ownership limit is rooted in federal law, although the FCC has always had the authority to waive the rule for individual companies. It rarely uses that ability, however. The FCC hopes next month's declaration will encourage broadcasters to consider applying for a waiver, rather than simply assuming the Commission would reject expanded foreign ownership.

FCC acting chairman Mignon Clyburn said the measure would make clear the commission's "intention to review, on a case-by-case basis, proposed transactions that would exceed the 25 % benchmark," reversing a de facto ban that has been in place since World War II. Ms. Clyburn said in a news release that the proposal "clears the way for increased access to capital and potential new investors for the broadcast sector." Another FCC commissioner, Ajit Pai, in a prepared statement also signaled his support for the proposal. With two of the three sitting commissioners in favor - two FCC commission seats are vacant-the proposal appears to have a strong chance of approval next month.

The move could have far-reaching consequences for some in the media sector, including Spanish-language broadcaster Univision Communications, which is controlled by private-equity firms but whose shareholders include Mexican media giant Grupo Televisa SA B. Televisa owns 8% of Univision's equity and debt that is convertible into more equity, a deal that was structured around the 25% foreign-ownership cap. Should the FCC soften its treatment of the cap, Televisa could become a potential suitor for Univision-a boon to the private-equity firms, which are considering a potential Univision IPO in the first quarter of 2015, according to people familiar with the matter.

The proposal could ease headaches for broadcast-owning companies such as Rupert Murdoch's 21st Century Fox, which until June was part of News Corp. , a company with Australian roots that has had issues with the rule a couple of times in the past. Mr. Murdoch, originally Australian, became a U.S. citizen in the mid-1980s, ensuring he could get approval to buy the stations that formed the basis of the News Corp.'s Fox broadcast network. While that acquisition was approved, a second review in the 1990s led to a ruling by the FCC that News Corp. wasn't in compliance with the rules. The FCC decided to waive the breach on public-interest grounds, the only waiver industry executives can recall being granted. News Corp. later reincorporated as a U.S. company.

Then last year News Corp. suspended half the voting rights of its foreign shareholders after discovering an inadvertent breach of the foreign-ownership rule. The Fox TV stations, like other entertainment properties, were carved off into 21st Century Fox when News Corp. split in two in June. While 21st Century Fox continues to suspend part of its foreign shareholders' voting rights, it recently reduced the proportion suspended to 35%. (The Wall Street Journal is owned by News Corp.)

A loosening of the FCC's stance on foreign ownership could add fuel to an already hot market for U.S. television stations. So far this year, 211 full-power television stations have changed hands, the most in over a decade, representing nearly $10.2 billion in deal value, according to a report issued this week by the anti-media consolidation group Free Press. Among those pressing for the change was advocacy group called the Coalition for Broadcast Investment, made up of media companies including CBS Corp. , Walt Disney Co. , and Univision as well as minority groups like the Minority Media & Telecommunications Council. Ms. Clyburn has consistently pushed to increase diversity in media ownership.

The coalition filed a petition with the FCC in August of last year asking it to clarify its rules on foreign ownership. FCC began requesting public comment on the matter in February. "The proposed ruling would enable broadcasters to access capital on the same terms as their cable, wireline, wireless and online counterparts, and could be especially important to minority and women broadcast entrepreneurs," said Mace Rosenstein, a spokesman for the Coalition, which applauded the chairwoman's action Thursday.

Whether a particular station would be allowed to exceed the cap remains uncertain, since the FCC's only criteria for awarding a broadcast license is whether doing so serves the public interest. The FCC would work closely with national security agencies in reviewing the transactions, similar to how it handles mergers and acquisitions in the wireless market. Companies would also have to structure their deals to work around a ban on foreign direct ownership of broadcast stations by instead investing in their parent company. If the FCC's comment period is any indication, the proposal is unlikely to generate significant opposition ahead of the Nov. 14 vote. Wall Street Journal

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