One MLB team in Southern California -- the Padres -- lost its RSN contract last year that paid an average of $65 million per year. Last week, the team traded star player Juan Soto as part of a move to trim salaries.
Another MLB team in SoCal -- the Dodgers -- has an ironclad RSN contract that pays an average of $334 million per year through 2038. Last week, the team signed star two-way player Shohei Ohtani to a record-setting 10-year, $700 million deal. There’s no need to trim salaries in Chavez Ravine. In fact, the Dodgers pledge to add more all-stars.
These two situations are interconnected and demonstrate -- at least in the short term -- that MLB’s divide between the haves and the have-nots is getting wider thanks to even greater discrepancies in local media money.
The Dodgers local TV deal is considered by many to be the most team-friendly pact in baseball. It is not affected by the cord-cutting headwinds that are roiling the rest of the media business. The deal was set up so that Charter will pay the Dodgers’ rights fee in full regardless of how many subscribers it loses with SportsNet LA. Let’s say cord-cutting leaves the RSN with just two paying subscribers. Charter still will owe $334 million annually.
Here’s how it works. Bally Sports San Diego was losing money on its Padres deal and wanted to get out. Like most RSNs across the country, the San Diego one was run through an LLC. That makes it easier for media companies to get out from under money-losing deals. It’s relatively easy for those LLCs to go into bankruptcy, or at least threaten it.
Bally Sports San Diego’s LLC did not go into bankruptcy. But the use of an LLC operationally made it easier for the media company to get out of the contract.
The Dodgers’ RSN has no LLC attached to it. That means that Charter -- the $55 billion parent of the RSN -- would have to go bankrupt just to get out of that RSN deal. That’s not going to happen.
Adding complexity to the RSN deal, the Dodgers own SportsNet LA. Charter has a services agreement with the RSN where it gets all the ad revenue and affiliate revenue. But it also means that Charter is on the hook for the $334-million-per-year rights fee that it must pay the team.
