Chicago Sports Media Market
3.4 Million Television Households
In 1999, Jerry Reinsdorf and Bill Wirtz negotiated jointly with Liberty-owned Sports Channel Chicago for a blockbuster 20 year cable deal for Bulls, White Sox, and Blackhawks games. The remaining games appear on broadcasters WGN and WCIU. Shortly therafter, the Cubs joined the party by negotiating with SportsChannel for basically the same terms as the White Sox, but only for 72 games. These deals allowed for "openers" every five years, giving the teams the opportunity to seek external bids for their rights.
Fox acquired a non-controlling 50% of Sports Channel Chicago through its Liberty partnership, with Cablevision controlling the other 50%. Fox also owned 40% of CVC's stake, so in essence Fox had 70% of the equity in FSN Chicago but not management control. In December 2003, Fox sold its 50% ownership stake to Cablevision to partially resolve this issue. For more history on this, see this post.
In 2004, the Chicago teams took advantage of their "look" period and shopped their rights around. Not surprisingly, they found an eager partner in the form of Comcast, the dominant MSO in the region. Comcast delivered a 15 year deal giving the teams a 70% stake in a new network that Comcast would manage. I am assuming the ownership stake is based on the number of games contributed by each entity (under the old contract, each game was given equal value). Under this deal, each team will have the following number of games: White Sox - 95, Cubs - 72, Bulls - 42 (+ playoffs), Blackhawks - 39 (+ playoffs).
This deal makes all the sense in the world. Comcast gets to cut out the middleman and in doing so can theoretically split what would have been Fox Sports Net's profit margin directly with the teams. An equity stake in the regional network will also mean a higher business valuation on the individual teams when it comes time to sell (ala NESN).
So the Fox/Cablevision partnership is going see the value of this asset dry up to nothing at the same time its New York properties get worked over.
Comcast is very likely to drop FSN Chicago at its first opportunity to do so. I believe this has already happened on the non- AT&T systems, but the AT&T systems may need to wait a couple of years before dropping FSN due to the terms of their affiliate agreement. FSN network content (Big XII football, Pac 10 and ACC basketball) just isn't compelling enough in that area of the country to keep the FSN network distributed. Interestingly, Fox-owned DirecTV dropped FSN Chicago on December 31, 2004 and replaced it with Comcast SportsNet. This indicates that Fox has basically given up on their own network which is now only airing Chicago Rush (AFL) and DePaul basketball games in addition to the network feed.
But having an MSO as your partner could potentially be a double edged sword for local teams. The partner teams will need to ensure that Comcast continues to pay fair affiliate rates to the JV over the long term. Comcast is also likely to resist adding new games to the venture, because it would mean paying increased affiliate fees for games that it is currently getting for "free" from local broadcasters. The only situation where more games would make sense for Comcast is if the JV could surcharge other local operators (like Mediacom) for these incremental games without having to pay itself, if can make a profit on the advertising vs rights fees alone, or the JV simply chooses to not pay any significant rights fees to the teams for the "left over" games (why not keep the ad revenue in house?).
One oddity in the Chicago market is Tribune & the Cubs. Cubs games have been on WGN for decades, and since the late 1970's "Superstation" WGN has been distributing Cubs games nationally. In 2005 WGN will distribute 70 Cubs games and 25 White Sox games (exluding Cubs/Sox matchups) to over 56 million subscribers nationwide.
WGN, TBS (Atlanta), and WWOR (New York) carved out a unique niche as Superstations in the late 1970's as local broadcast channels with national distribution via cable. By distributing professional sports games nationally, they increased the value of their own teams by popularizing them over vast territories. The Braves, for example, were portrayed as "America's Team." Of course, as cable TV became more prevalent some order had to be restored to the system by the league. Otherwise all teams would naturally try to seek national distribution of their own games. This scenario would would have greatly decreased the league's ability to negotiate for national cable rights, and would also create an unfair advantage for teams owned by media companies. TBS and WGN were basically grandfathered in (WWOR eventually stopped national cable distribution) but no other teams were allowed to distribute games outside of their territories under the local rights granted by the league.
When WGN-9 became a WB affiliate in 1999, Tribune decided to cut back the number of Cubs games it would air on WGN due to network rules and programming conflicts. It sublicensed 72 of these games to Fox Sports Net. This decision was always suspect in my mind. As a television station operator with a popular baseball team, Tribune appeared to be the ideal candidate to start its own regional sports network. It could have just moved most Cubs games to a new sports network separate from WGN (leaving a few broadcast games there for those without cable). So why didn't they do this?
I don't know that there is a good answer. Perhaps AT&T had warned them that they would not pick up another sports network so the risks appeared too great. But it seems that AT&T shouldn't really care whether they paid FSN for basically 2 networks (an extra channel was often made available for overlapping games) or FSN for one channel and Tribune for the other. Perhaps the decision came at a time when Tribune was saving its cash for other investments, such as the acquisition of local TV stations, and a new RSN was not a strategic imperative. If anyone has any insight on this perplexing strategy (or lack thereof) by all means let me know.