Will The Salaries In Major Sports Crater?

There is big money in professional sports. This is something that is bovious to anyone who follows it. Over time, the price of television contracts, salaries, and ticket prices far outpaced inflation.

It is something that has accelerated over the last couple decades. The question is whether it will continue?

Most thing it is a given. After all, we now have the likes of Apple and Amazon entering the bigging on broadcast rights. This is pumping billions in television contracts into the different leagues.

Hence it is business as usual. Or is it?

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Diamond Sports Group Files Bankruptcy

We had a situation that arose this Spring which could be a prelude of things to come.

Diamond Sports Group, the largest owner of regional sports networks, announced on Tuesday that it has filed for Chapter 11 bankruptcy. The move comes after it missed a $140 million interest payment last month.

Diamond, which owns 19 networks under Bally Sports Regional Sports Networks banner, said it has about $425 million in cash on hand to continue operating during bankruptcy. Those networks have the rights to broadcast games from 42 professional teams — 14 baseball, 16 NBA and 12 NHL.

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If there is so much money in professional sports, why would the largest operator of regional sports networks file bankruptcy? Logicially, it is because it was a money losing proposition.

This is only one piece of the puzzle. Regional contracts affect baseball and hockey more than other sports. The NFL operates exclusively on national contracts and the NBA has done a find job of that.

However, are the regional networks just a prelude of what national broadcast networks face. In other words, how much longer can ESPN, a major player in the sports entertainment realm, hang on?

Rapid Demise

The regional networks of Diamond were part of the sale of Fox networks to Disney. That deal was in 2019 for $71 billion. The regional networks accounted for about $20 billion in the deal.

Due to monopolistic concerns, the US Government made Disney sell the regional stations. This was an immediate haircut of more than $10 billion. They were sold for $9.6 billion in May of 2019.

So it unfolded like this:

• $20 billion (2019)
• $10 billion (2019)
• bankruptcy (2023)

This was swift to say the least.

Here we have an example of what can happen to these broadcast networks. We know cord cutting is happening. The Millennials are not broadcast television watchers. Instead, they are glued to their devices.

For this reason, most professional sports leaves are looking into streaming. There is just one problem: there is no way to generate the same revenues they receive from their broadcast partners.

Ripple Throughout The Industry

What would be the fallout of something like this? As they say, follow the money.

If the sports leagues lose billions in revenues, having to accept lower totals due to streaming, how will teams adapt. It is likely they will look to cut costs.

One area this could affect is salaries.

The reality is the Baby Boomers are starting to die off. This is affecting cable news along with broadcast sports. Thus far, more than 30% of that generation has passed on. We have the first one hitting 77 this year. While they are a long way from extinction, the numbers will continue to drop. This is akin to what the Nightly News broadcasts experienced a couple decades back as their viewers died off.

In short, broadcast television is dead. It is only a matter of time before the demongraphics force a new model. Unfortunately, this appears to include lower revenues to these leagues.

Could they make the money up elsewhere? That is possible. We have no idea what ingenuity and creativity will emerge. However, the present business model is moving towards the end.

Perhaps the technology companies will step in. However, do not be surprised if networks such as Fox Sports and ESPN keep seeing declines. As ratings drop, advertisers refuse to pay the high prices, making the broadcast contracts tough to justify.

Where will this filter through to? Only time will tell.

The next decade is going to see changes in professional sports. It should be interesting to watch.

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