MLB Plays Hardball, Terminates ESPN

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New York — The simmering feud between ESPN and Major
League Baseball over September Sunday-night telecasts boiled over last week, when the
programmer filed suit against the league after MLB terminated its six-year cable agreement
with the network.

The dispute couldn't have come at a worse time for
ESPN, which announced a new round of operator rate increases two weeks ago. Industry
executives said the network would be hard-pressed to pursue any cost hikes if it loses
high-profile baseball games after the current season.

But operators could still face licensing increases down the
line if a bidding war for MLB games breaks out between such networks as ESPN, Fox Sports
Net, USA Network or Turner Network Television.

ESPN filed suit against MLB in federal court here last week
in an effort to secure continuation of its agreement with the league through the 2002
season.

The league notified ESPN April 21 that it was terminating
the current deal after ESPN attempted to move three Sunday-night telecasts to ESPN2 to
make room for its eight-year, $600 million National Football League package.

“They clearly do not have the right to do that, but we
do have the right to pre-empt their games,” ESPN senior vice president of programming
Dick Glover said. “We want our contractual rights enforced.”

But MLB argued that it would have to approve any
pre-emption of a Sunday-night telecast, and that it never granted one during its 10-year
relationship with ESPN.

Last year, the league pulled three September games from
ESPN and distributed them on a regional basis, instead of opting for carriage on ESPN2,
which, at 64.5 million subscribers, is in fewer households than 76.2 million-subscriber
ESPN.

“We have been negotiating with ESPN for more than a
year to reach a reasonable and amicable resolution of its willful violation of our
contract,” MLB president and chief operating officer Paul Beeston said in a prepared
statement. “We must now move on and explore other options.”

The terminated agreement does not include six to 12 playoff
series ESPN is contracted to carry through the 2000 season.

The league also said it provided several offers to remedy
the situation, but they were “rejected out of hand.” It added that no ESPN offer
“has ever addressed their deliberate breach.”

But Glover vehemently stated that the terms of the deal
clearly allow ESPN to pre-empt as many as 10 MLB games at any time during the season.

In fact, Glover added, the league had agreed to several
non-Sunday-night pre-emptions in the past, and it already gave ESPN the OK to pre-empt a
June 2 telecast for a potential National Hockey League playoff game.

“It was not set up to have any restrictions,”
Glover said.

On a ratings basis, it's easy to see why ESPN wants to
keep its NFL games on the main channel. ESPN's first season of the full Sunday-night
NFL package averaged an 8.1 Nielsen Media Research rating, compared with ESPN's 1.5
rating for its last four September baseball games in 1997.

Glover also said baseball's proposals to resolve the
issue were “completely out of whack.” One called for a $350 million increase
during the remaining three years of the deal, as well as an extension, which would have
been “triple” the current rights fees, Glover added.

“They agreed to a deal that anticipated this very
scenario,” Glover said. “To insist otherwise is just disingenuous.”

Operators will no doubt keep a close eye on the
proceedings. If ESPN loses a major marquee product such as baseball, it would be
hard-pressed to go through with its proposed 20 percent license increase effective Aug. 1.

“Obviously, this is a big deal,” one top 10 MSO
executive said. “This will certainly significantly impact our willingness to pay a 20
percent increase.”

But Glover added that ESPN's vigorous attempts to
retain its MLB contract would be viewed as a positive by the industry. “I would
assume that everyone will look at this as ESPN taking positive actions to live up to, as
well as enforce, its contract obligations,” he said.

ESPN and some industry observers believe the league —
after seeing major increases in the last NFL, National Basketball Association and even NHL
cable deals — is attempting to get a better deal for itself, either from ESPN or
another cable network.

Glover pointed out, however, that the current $40
million-per-year deal, signed in 1996, was the first of the huge professional-league cable
deals, and it came during a time when MLB was still suffering a major backlash from the
1994 players' strike.

“This is just about money, but in reality, they were
the first league to sign a huge contract,” Glover said. “They were the first to
get the huge rate increases.”

An obvious option is Fox Sports Net, which already offers a
national Thursday-night game via its regional sports networks, as well as a Saturday-night
game on FX.

While Fox Sports Net would have difficulty offering another
weeknight national game due to the regional networks' commitment to local teams, it
could conceivably distribute the exclusive Sunday-night telecast, which rarely conflicts
with local games.

Fox would not comment on the “prospect of any
programming that may or may not be available in the future.”

USA could also be a suitor for at least part of the MLB
package. The network carried a national baseball package in the early 1980s and bid on the
current ESPN deal in the mid-1990s.

Representatives from USA would not comment on the matter.

Turner Sports, which lost the Sunday-night NFL package to
ESPN, might make a push for part of the MLB package, according to industry observers.

While Turner Sports currently has a long-term deal with the
NBA and is planning to launch a rival pro-football league, it certainly wouldn't turn
its back on baseball if the deal was right, sources said.

A Turner Sports spokesman declined comment on the matter.

If any or all of the aforementioned networks get into a
bidding war for baseball, it could push already-high surcharges for sports programming
even higher for operators.

“I'm getting sick of the whole sports-programming
battles,” one top 10 operator said.

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