Cable as Victim

ANDY GROSSMAN

Rights fees and ticket prices are rising much faster than cable rates.

Can the industry help keep sports rights fees down? Earlier this month, my 18-year-old nephew wanted to attend an NBA game - I won't single out the arena - and tried to get a pair of mid-level seats. Jeffrey learned a painful economics lesson in being a sports fan in 2001: Each ticket cost $63.

To pay for Manny Ramirez, the Boston Red Sox announced they are raising ticket prices from $11 to $15. The Yankees, with their $100 million payroll, raised upper deck box seats from $26 to $33 even though they are getting $52 million from the MSG Network this year.

According to Paul Kagan Associates, the average NBA ticket rose 53% from 1995-1999. Baseball is up 40.7%, hockey up 31.2% and the NFL 27.4%. Of course, that doesn't count the price of hot dogs. At the same time, the average expanded basic cable rate is up only 25.4%.

After the fans, cable operators are next in line.

"As a group, sports programming is increasing at a faster rate than other cable programming," says one top 10 MSO executive.

ESPN is raising rates to operators by 20% annually, and many regional sports networks are passing along similarly stiff increases that will subsidize their ballooning rights payments to teams.

It's time to stop the madness. This never-ending cycle of ever-rising salaries, rights fees and license fees must come to an end before they wreck sports, MSO budgets and ultimately the spirit of the fans.

Fans now get it in two directions, from the teams in the form of ticket prices and - somewhat more modestly - from cable operators. Fans are lucky DBS competition presses MSOs to keep rate increases relatively modest.

The fans are as complicit as everyone else in this ring of destruction. They gripe, gripe, gripe but can't stay away from the parks or from buying the merchandise that feeds the bubble in salaries. Fans call up those silly and ignorant radio sports talk hosts and scream about everything - salaries, prices, cable rates - but are so spoiled and pampered they refuse to make even a symbolic gesture and sacrifice just one month of cable for their cause.

Now, I'm not advocating that at all. I'm just pointing out fans lack the fortitude to help kill the bubble.

But the fans might be starting to stir. Attendance at NBA games is down as fans are weary of paying more for tickets than the home team's final score.

Ratings on the World Series keep dropping faster than fans' eyelids as the games end past midnight.

If it weren't for gambling, do you think Sunday Night Football, Monday Night Football and all the other games would get such high ratings? Overall, football ratings are falling as well. Many apologists for the networks point out all network viewership is declining due to people having more choices, but try telling that to the folks at top-rated Lifetime Television.

Still, baseball attendance has climbed back to pre-strike levels, and the regional sports networks' ratings are flat, indicating fans are still there, although at the stadiums I suspect corporate season-ticket holders account for a high proportion of the attendance.

"Sports is one type of programming there is no substitute for," says one analyst who noted ad rates for sports keep rising.

While cable operators have no leverage, the networks can't resist going after the high-profile programming, knowing they can pass higher rates onto MSOs and advertisers.

Sports owners have tremendous leverage because they have sweetheart stadium and arena deals that give them more flexibility in paying star players, and they can freely pass on ticket fees. Few cities have competition for pro sports teams.

So what can be done?

Congress might have to intervene to stop some of the more lucrative municipal bond deals that sports teams receive.

Or ways must be found to increase the amount of sports in order to change the supply and demand equation against the sports teams. That's what happened with college football in the 1980s. The NCAA dominated football until Oklahoma and Georgia sued to end the NCAA's TV dominance.

More supply, lower prices. Look at the fledgling XFL, which starts play next month, where player salaries are very modest and rights fees similarly low. Sports needs more competition like that, and cable operators should support any new leagues that compete with the existing monopolies. Cable operators should support expansion since the same amount of wealth would be spread around to more teams, lowering the salary structure.

Overall, cable has to get more vocal and organize in ways that will prick the bubble of escalating salaries and rights fees. The industry can't play the victim forever.