How will the Sinclair purchase of Fox Sports Kansas City affect the Royals?

Fox Sports Kansas City (FSKC) was created in 2008 to replace the ill-fated Royals Sports Television Network. For the last decade they have broadcast Royals games, showing both 100-loss seasons and the championship season of 2015.

In 2018, Disney agreed to a massive $71 billion purchase of 21st Century Fox assets including 20th Century Fox film and television studios and their intellectual properties (X-Men, The Simpsons, Deadpool), several cable channels such as FX and NatGeo (not the Fox network, Fox Sports Network, or Fox News), and 22 regional sports networks (RSNs), such as FSKC. However, concerns over a potential sports programming monopoly for Disney (which owns ESPN) caused the Department of Justice (DOJ) to require Disney sell off the RSNs as part of the deal.

Amazon, Liberty Media, and MLB were reported to be interested buyers at one point, as well as some private equity firms, with rumors that even Fox could buy back the networks. But the market dried up a bit, and with the Yankees network (YES) allowed to negotiate their own deal, the remaining sports networks were purchased by the Sinclair Broadcast Group this week for around $10 billion, significantly less than many were expecting. Those 21 networks combined for $3.8 billion in revenue last year based on 74 million subscribers with broadcast rights to 42 NBA, NHL and MLB teams.

The Royals are currently in their last year under the terms of their long-termdeal with FSKC, and have already begun negotiations on a new deal. How does the Sinclair purchase affect those negotiations and fans hoping to tune into the Royals?

Will the Royals still get a lucrative new deal?

The Royals currently have one of the lowest-paying television deals in baseball, far below the current market value. There has been a spate of lucrative new local television deals in recent years, even for smaller market clubs and teams that haven’t been all that successful on the field. With their deal finally expiring this year, the Royals are hoping to cash in.

The current negotiations have taken place while FSKC has been for sale, so the Royals should not be caught off guard by the Sinclair purchase. This is also a complicated deal that isn’t quite finalized yet and will require DOJ approval that could take months. So more than likely, the Royals will have a new television deal done before Sinclair officially takes over.

The fact the RSNs were purchased for some $6-8 billion less than expected should give pause to expectations that the purchase price for sports programs will continue to go up and up. Some industry experts feel that pricing for sports programming is based on a model that may be on its last legs. The current model has an RSN like Fox Sports Detroit charging a monthly fee $6.69 per-subscriber for any cable or satellite carrier to carry the channel. All subscribers to that carrier end up subsidizing that cost by paying for a tier of networks.

But distributors may begin to balk at those high fees and offer “skinny bundles” to compete with online streaming content providers such as Sling. And even if they don’t, traditional cable and satellite distributors have seen steady erosion in their subscription numbers as more and more consumers “cut the cord”. Financial analyst Craig Moffett of MoffettNathanson put the situation in the most dire terms for RSNs.

“The best scenario is that RSNs are carried on the basic tier and they lose half their distribution,” he said. “Their worst scenario is that they become a premium tier and they lose 75% of their distribution. It’s really hard to see any good outcome for an RSN.”

Navigating the new landscape of content distribution is ultimately a problem for Sinclair, not the Royals. Sinclair is making a big bet on sports to make a splash in the industry, much like Fox did in their early days when they made a huge play to outbid CBS for the NFL. They did not purchase Fox Sports Kansas City only to lose the rights to the Royals and render the channel worthless.

But to get Sinclair to pay up, the Royals will need competition for their services. The market for bidders at this time is unclear. AT&T has partnerships in RSNs for the Mariners, Pirates, Rockies, and Astros, and could seek to expand their footprint. Charter Communications has RSNs in Ohio, Milwaukee, and Los Angeles, and already has a channel in Kansas City, Spectrum Sports. NBC Sports has RSNs in Boston, Philadelphia, San Francisco, Portland, and just signed a deal to broadcast White Sox games in Chicago. And streaming platforms like Amazon, Hulu, or Youtube have dipped their toe in sports proramming, although they may be less likely to take the plunge on a cable model that may be outdated.

There is always the possibility the Royals try again with an in-house channel, especially with streaming rights an issue. Currently, MLB teams own the rights to stream games, despite the broadcaster. But as Craig Edwards at Fangraphs points out, the rights issue has caused some thorniness.

The streaming rights are a potential ace-in-the-hole to make sure fans can still watch games if Sinclair, NBC, AT&T, Time Warner or whichever entity broadcasts the games doesn’t negotiate a deal with cable providers. However, the broadcaster is the one creating the broadcast to be streamed, and creating a second broadcast isn’t feasible. That quagmire is why it might have made a lot of sense to purchase the RSNs themselves in order to retain control over both negotiations with cable providers, ensuring the team’s broadcast is available along with the ability to have games streamed should those negotiations break down.

If Sinclair and FSKC end up retaining the rights to broadcast the Royals, those negotiations with cable providers could have an impact on viewers. By having 21 RSNs, as well as ownership of the most local television stations in the country, Sinclair, who are already known as tough negotiators, should have significant leverage with carriers. They can bundle FSKC with Sinclair-owned stations in Omaha and Wichita, as well as other channels they own like NatGeo and FXX and demand that carriers agree to the rights fees or lose all of the programming. You will be asked to “call your local cable company and demand they carry the Royals” and if the carrier relents on the fees, the cost could very well be passed on to consumers.

How will this affect Royals broadcasts?

Sinclair does have a reputation of cutting costs, and that could affect the broadcast if investments aren’t made to enhance the programming. Some fans may be wary of Sinclair’s conservative leanings, made famous by videos showing anchors at Sinclair news stations all reading the same conservative political message. However, that seems unlikely to infiltrate the sports networks - after all, FSKC was owned by Fox, run by conservative media mogul Rupert Murdoch, and yet the sports side of Fox was largely apolitical.

Sinclair seems to be making a big bet on sports gambling. The company projects $1.5 to $2 billion in ad revenue from sportsbook operators and CEO Chris Ripley plans to provide on-screen prop bets for fans to make wagers.

“If you’re interested in gaming, we’re going to add on extra stats, the ability to do prop bets in the game, pitch by pitch, play by play,” he said. “You can play along and wager while you watch.”

We are entering a new world in sports broadcasting with streaming and sports gambling among many new factors that make projecting the landscape very difficult. The Royals actually might be fortunate to have their deal expire this year, as baseball rights deal are still going up, before uncertainty clouds the industry. Baseball is still a ratings winner at the local level, and sports is especially enticing as live programming since viewers are less likely to fast-forward through commercials. The Royals will likely be fine, but consumers have reason to be concerned going forward.