The Sports Cable Bubble

What is the Sports Cable Bubble? It's the unseen economic engine that increasingly powers the sports and television industries alike, all-important and omnipresent, a little like the Force in "Star Wars," only with money instead of Jedi Mind Tricks. It's a value balloon that keeps going up, up, up, launched and inflated by America's collective cable and satellite bill, a perfectly legal shell game built on high-stakes deal-making, entrenched corporate interests and overlapping near-monopolies. It's the reason why investors paid $2 billion for the Los Angeles Dodgers; why schools have taken to conference realignment like swingers at a 1970s key party; why ESPN is the golden goose of the Disney empire; why Fox Sports 2 is basically a foregone conclusion even before Fox Sports 1 launches; why Solomon was so ridiculously ticked; and why so much of what happens in sports happens.

Next to college sports restraint of trade amateurism, this might be the world's greatest business model -- in what other field do millions of people who neither use nor care about a product still have to pay for it as if they were, you know, customers? -- and judging by the great big garbage bags of cash being tossed around, no one involved expects the Sports Cable Bubble to pop anytime soon.

Which, of course, is exactly what makes it a bubble.

Let's try an exercise. Turn on your television. Grab a notepad. Make a list of every sports channel you receive. ESPN. NFL Network. Big Ten Network. MSG. All of 'em. If you get TNT and TBS, add them, too - both carry extensive, expensive sports programming.

All done? Good. Now go to the website What You Pay For Sports. (...)

Add it all up, and big time sports are taking a minimum of $84.90 out of my pocket, year after year. Before I buy a jersey. Or a licensed video game. Or even a single game ticket. Just because I have pay television. Moreover, that amount doesn't include what I'm paying to conferences, leagues and teams not on the list. (Think the soon-to-be-rebranded Speed and Fuel channels, or regional sports networks like Comcast SportsNet Washington, which has local broadcast rights deals with the Washington Wizards and Capitals.) Nor is that 85 bucks even close to the total annual amount I'm forking over for sports programming, given that the same all-sports and sports-heavy networks paying for those megabuck league and conference rights are collecting hefty monthly fees from cable and satellite providers -- costs that are then passed on through monthly bills to customers like you and me. As The Atlantic's Derek Thompson explains:

… your cable bill -- $80 or $90, or whatever it is -- is best understood as two prices. The programming (i.e. the channels you watch) and the distribution (i.e. the infrastructure and profits for the cable companies). Every time you pay a cable bill, the channels collect a small fee. It's called an "affiliate fee." The most in-demand channels tend to negotiate the highest fees. And those tend to be sports channels …

Take ESPN. How can the network afford to spend hundreds of millions of dollars on college and pro basketball rights, and more than a billion a year for "Monday Night Football?" Simple. ESPN is a cash cow, earning roughly $10 billion annually. And where does that money come from? According to an Atlantic article citing a report from Wunderlich Securities, the network brings in about $3.5 billion from television advertisements, and about $900 million from digital and magazine ads. No surprise there. The rest -- a staggering $6.5 billion, about two-thirds of the company's revenue -- comes from cable and satellite affiliate fees.

Here's how it works:

by Patrick Hruby, Sports on Earth |  Read more:

Image: uncredited