About three or four years ago, as Phil Castellini tells it, the Cincinnati Reds began researching an eye-opening idea. With their broadcast deal with Fox Sports Ohio set to expire after the 2017 season, baseball’s oldest franchise began looking into the notion of cutting out the middle man by establishing and operating their own regional sports network.

The Reds hired a consulting firm to explore that avenue, but ultimately decided they were better served by sticking with FSO. On Wednesday, the network and the Reds cemented a new 15-year pact that will run through the 2032 season, and comes with an equity stake in the network for the Reds.

The size of that ownership stake was not disclosed, nor were any other terms of the deal. Castellini, the organization’s chief operating officer, said it represents a “nice increase” in yearly television rights fees, but is still a small-market deal when compared to other recent TV deals. The Reds’ current deal has guaranteed them $30 million a year since 2007.

“We’re still a small-market team that has a rights deal comparable to the size of our market, versus the deals that the bigger markets have,” Castellini said.

That could still represent a significant increase over their previous fortunes. Sports broadcasting deals have ballooned in recent years, with live sports representing one of the few DVR-proof types of programming. It’s also seen as one of the few things keeping viewers from dumping their cable packages for streaming services.

The St. Louis Cardinals, who play in the 21st-ranked U.S. television market, have a TV deal with Fox Sports Midwest beginning in 2018 that will pay them more than $1 billion over 15 years. The San Diego Padres, in the 28th-ranked U.S. market, signed a deal in 2012 with Fox Sports San Diego worth $1 billion over 20 years.

The Reds play in the 34th-ranked television market, according to StationIndex.com, ahead of only Milwaukee. Some observers have suggested that the TV-rights bubble is poised to pop, with more a la carte services being offered to compete with more expensive and unwieldy bundled cable packages, but Castellini is confident the Reds didn’t miss that train.

“We’re very pleased with our deal, especially with the uncertainty in the marketplace,” Castellini said. “It’s all relative to our market size. As such, we’re very pleased with the deal we have with Fox, and I think our timing was excellent.”

The Reds have been anticipating that boost for some time, but not before looking into doing it all themselves. Working with TV rights consulting firm Bevilacqua Helfant Ventures, the organization poured lots of research into what it would take to get their own network up and running.

Ultimately, the task was deemed too difficult, especially in terms of negotiating distribution fees from cable providers and putting their network in enough homes within the market. By re-upping with Fox Sports Ohio, the Reds can take advantage of its parent company’s large distribution network and experience running regional sports networks across the country. Adding an ownership stake gives both parties “skin in the game,” Castellini said.

The Reds have not been competitive the last couple years after entering a rebuilding phase, but Castellini said the on-field fortunes of the team did not much affect the negotiation of the new deal. But he did suggest that lagging interest did take somewhat of a toll.

“We had a dip in attendance, and as such a dip in revenue,” Castellini said. “So it’s not quite the windfall we hoped it would be, but as we progress back up the competitive ladder, as you all know we budget this team to break even. We don’t pull any money out of the franchise.

“So we will continue to reinvest all topline revenues back into the product, and we define the product as player development, scouting and the major-league payroll, everything that goes into what (general manager) Dick (Williams) does to put the team on the field as well as the game-day experience at Great American Ball Park. The partnership with Fox is really going to help us continue that work.”

The baseball operations department has been planning for that boost the last couple of years. Each successive year should bring more money to play with, as the deal comes with a yearly escalator clause, although there’s “no quantum leaps in any given year,” Castellini said.

That doesn’t mean the Reds are abandoning the rebuild for a big-spending approach to the major-league roster just yet.

“We’re still very much committed to the rebuild,” said Williams. “We’re excited about the progress we made, especially off the field this year. A lot of good stuff to talk about that bodes well for our future. I’m really pleased they were able to get the TV deal done because that helps the revenue side.”

 

Source : cincinnati.com

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