One major sports media story to watch this month is ESPN’s decision regarding its current deal with Major League Baseball. ESPN, which pays around $550 million per year for media rights, is expected to opt out and seek a renegotiation at a lower price. Recently, reports indicated that MLB warned ESPN it could “walk away” if the option is exercised, though many view this as an empty threat given ESPN’s long history of airing MLB games since 1990.
Despite the skepticism, LightShed Partners believes MLB may not be bluffing and that there could be several prominent bidders for a new national MLB package, including Comcast (NBC), Paramount (CBS), Amazon, and Netflix. They argue that stepping away from MLB would be a strategic misstep for ESPN, especially with the impending launch of its direct-to-consumer streaming service “Flagship.”
“Considering the totality of Disney and ESPN’s streaming ambitions, we believe an opt-out would likely be a mistake. Of course, from a near-term P&L perspective, it would be accretive to Disney. Whether ESPN has MLB content or not, it will not have any discernible [sic] impact on their affiliate/retrans fees, as those are driven entirely by NFL/CFP rights.
“Given Disney’s longer-term ambitions, especially tied to ESPN Flagship DTC streaming service, the calculus around MLB changes considerably… ESPN Flagship needs robust year-round programming, which implies a consistent flow of games. If Disney had focused solely on maximizing near-to-intermediate term ESPN profitability, there was no need to renew the NBA, as its affiliate/retrans fees remain unaffected and profitability could have soared without the NBA. However, once they decided to build a year-round sports streaming service, they not only need the NBA, but also MLB.”
If ESPN loses MLB rights, its summer programming would rely heavily on entities like the WNBA and the Little League World Series, not precisely a strong lineup. Furthermore, if ESPN aims to become the hub for all live sports in the U.S., it must establish itself as a year-round destination for sports fans.
LightShed anticipates that MLB could also be appealing to NBCUniversal and Paramount. With the addition of NBA rights next year, NBC could use an MLB package to fill the gap between basketball and football seasons while Paramount, soon to be under new ownership, might seek to invest more in sports. Both of these moves would significantly increase MLB’s broadcast exposure compared to its current arrangement, although national games might end up behind a paywall on Peacock or Paramount+.
Among the other two contenders, Amazon and Netflix, LightShed suggests that Amazon is more likely to be interested. With its upcoming NBA deal, MLB could complement Amazon’s summer sports calendar, thereby reducing churn on Prime Video. While Netflix’s interest has been categorized as “unlikely,” they’ve recently shown interest in adding live sports properties.
Despite the array of potential partners, MLB is still expected to accept a lower rights fee in any renegotiated deal. “While all four entities would struggle to justify the current ESPN price of $550 million/year, we suspect MLB is open to a lower price and/or additional rights to expand baseball’s reach beyond the declining cable television,” LightShed notes.
The hard truth for MLB is that its current agreement with ESPN represents an overpayment. For 30 regular-season games, the Home Run Derby, and a single Wild Card series, ESPN’s payment is just $178 million less than Fox’s, which covers the World Series, LCS and LDS, and the All-Star Game with a regular-season package.
Ultimately, MLB faces a hit, yet it appears the league has promising options beyond ESPN if it chooses that path.
