ESPN, Baseball Make Up With 6-Year, $815M Kiss

Author:
Publish date:
Updated on

New York -- In January, ESPN cried "extortion"
after Major League Baseball proposed a new $765 million, six-year contract that would have
ended a dispute between the network and the league. Instead, baseball threatened to cancel
ESPN's rights deal, and the two parties ended up suing each other.

Funny how things work out: On Nov. 5, the day before the
ESPN-MLB jury trial was to begin, ESPN agreed to a six-year, $815 million baseball-rights
deal -- costlier than January's $765 million plan and more than triple the annual $40
million rights fee under an agreement that would have expired in 2002.

ESPN president George Bodenheimer called the deal a
"win-win" for both sides.

In the weeks leading up to the settlement, ESPN lost three
key pretrial motions involving evidence that it hoped to show the jury. That may have
prompted the network to settle, Paul Kagan Associates Inc. analyst John Mansell said.

"They lost three very important pretrial motions,
which probably showed them which way the wind was blowing," Mansell said. "That
probably gave baseball the leverage to get a better deal for itself."

Bodenheimer noted that the new contract and the January
offer weren't an "apples-to-apples" comparison, since that January offer
involved only television rights, while the new contract includes rights for ESPN, ESPN2,
ESPN Classic, ESPN Radio and ESPN.com.

"It's hard to compare different deal points at
different points in time. All of these negotiations are unique, and this one certainly had
to factor in the lawsuit," he added.

The new contract -- which includes a $100 million signing
bonus -- runs from 2000 through 2005. ESPN's and ESPN2's regular-season game and studio
coverage will increase from 500 hours in 1999 to 800 hours annually under the new deal.

The original dispute was over ESPN's attempt to shift some
Sunday-night baseball games to ESPN2 to make room for National Football League contests.

In addition to arguing that ESPN's move constituted a
contract breach, MLB said ESPN broke their deal on four other fronts. The league said ESPN
repeatedly ran unauthorized MLB footage in various telecasts; it said ESPN.com's
transmission of MLB footage and real-time pitch-by-pitch accounts was unauthorized; and it
argued that ESPN's unauthorized use of MLB trademarks also violated the contract.

Some of the ESPN actions that MLB previously said were
contract breaches are permitted under the new contract. ESPN.com will be able to run a
daily four-minute video-highlight package, and ESPN's SportsCenter program will be
allowed to exceed a five-minute restriction on nightly MLB highlights.

The deal also boosted ESPN2, which needed summer
programming following ESPN's recent loss of National Association of Stock Car Auto Racing
rights. "The Deuce" will carry 44 games on Wednesday nights, Sunday nights and
holidays under the new deal, and it will run a new series, Baseball 2Day, on Sunday
afternoons.

MLB will never compete head-to-head with ESPN's
Sunday-night NFL games under the new deal.

MLB gets two exposures for each of the three Sunday-night
MLB games that would have conflicted with ESPN's early-season NFL schedule. The September
Sunday-night games will move to Fridays and air on ESPN or ESPN2.

ESPN2 will add three Sunday-night games early in the
season, creating a Sunday-night "double play," since ESPN will also televise
Sunday-night games during the NFL's off-season.

Baseball executives had been miffed at ESPN for favoring
higher-rated football over baseball. But MLB commissioner Bud Selig and Bodenheimer
emphasized last week that the MLB-ESPN relationship remains strong. The executives also
praised each other for getting the deal done.

While Selig declined to lay out economics, he suggested
repeatedly that he's very content with the terms of the deal.

With the new MLB deal in place, ESPN will shell out more
than $800 million annually to pay for its top three rights deals: the NFL, the National
Hockey League and baseball.

The network's $4.9 billion, eight-year NFL package averages
an annual fee of about $600 million. Its $350 million, five-year NHL deal costs about $70
million per year. The MLB deal averages $135 million over the life of the contract.

ESPN charges MSOs monthly license fees ranging from just
under $1 per subscriber to $1.25. The network raised its license fees 20 percent in 1998
and 1999.

Bodenheimer said it's too early to discuss rate hikes for
2000. The network typically releases its new rate card each spring, he added.

"We're firmly aware that ESPN's value and rate must be
closely linked," Bodenheimer said. "Operators and advertisers understand the
value of marquee product. It drives the value of the network."

While court filings showed that MLB has asked potential
rights-holders to levy surcharges on cable operators and share revenue from the rate hikes
with the league, Selig said a surcharge "is not a part of this deal."

ESPN's rights to MLB playoff games are covered in a
separate contract that expires at the end of next year. "[Negotiations] will proceed
as expeditiously as possible," Selig said.

Related