Media Firms Find Winning Strategy in Owning Teams

NEW YORK —  In 1988, MSG Network signed a record 12-year, $486-million contract to air Yankee games.

If local cable TV rights alone were worth that much 10 years ago, why not just buy the whole team?

That’s the thinking behind Fox Group’s $311-million purchase of the Dodgers on Thursday and Cablevision Systems Corp.’s reported interest in buying the Yankees.

Media companies are pushing further into sports ownership in a trend that shows no sign of reversing.

In baseball, the Dodgers join the Angels (Walt Disney Co. and ABC), Atlanta Braves (Time Warner Inc.) and Chicago Cubs (Tribune Co.) as teams with media parents. Such linkages are even more common in the National Hockey League and National Basketball Assn. The National Football League forbids corporate ownership.

The biggest motivator in the trend, experts say, is fear of getting locked out of sports. “Seinfeld” gets terrific viewership and ad rates, but if you want to sell beer, find a ballgame.

“With the explosion in distribution systems, there is greater and greater demand for product but only a limited supply,” said Irwin M. Stelzer, a Washington economist who has advised Fox chief Rupert Murdoch.

“Buying a team,” Stelzer added, “is just a surer way of buying the rights.”

But owning programming isn’t the only attraction that sports teams hold for media companies. The Ackerley Group, which owns the Seattle SuperSonics basketball team, is an outdoor advertising firm and radio broadcaster.

In the same way that newspapers promote themselves cheaply with so-called house ads in their own pages, Ackerley uses unrented billboards to generate excitement for the SuperSonics.

Outdoor advertising is predominantly a medium for building brand recognition, and sports teams are brands, said analyst Jacob Barker of NationsBank Montgomery Securities.

With player salaries and stadium and arena costs all rising exponentially, team ownership increasingly makes more sense for those who can bring such hidden value to the table.

Disney uses its movies, television shows and children’s magazine to cross-promote the Angels and the Mighty Ducks hockey team. The Ducks took their name from a Disney movie, and the Angels were spotlighted in the studio’s “Angels in the Outfield” feature.

Ownership also imparts flexibility, said Andrew S. Zimbalist, a Smith College economist and author of the 1992 book “Baseball and Billions.”

“If you own the product, you have the ability to innovate and react,” he said.

Given the rapid changes in telecommunications and broadcasting, the ability to adapt is crucial.

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For Long Island-based Cablevision, buying the Yankees would be “a preemptive strike against what happened in Los Angeles with ESPN West,” said Spencer Gaines, an analyst who follows Cablevision for Salomon Smith Barney.

He was referring to the surprise announcement in December that Disney-owned ESPN, the preeminent cable TV sports network, would create a regional sports network in Southern California. ESPN West is set to launch in October and carry the Angels and Mighty Ducks.

Cablevision, through its MSG Network, is trying to nail down as much of the nation’s richest local sports market--the New York City area--as it can before more competition surfaces. MSG already owns the Knicks basketball team and Rangers hockey team, plus the arena they play in, Madison Square Garden.

Philadelphia-based Comcast Corp., the nation’s fourth-largest cable operator, took similar steps to secure its local turf by buying two-thirds of the 76ers basketball team and Flyers hockey team. They are now the anchors of its SportsNet regional sports network.

With its Yankee contract due to expire in two years, Cablevision’s chairman, Charles F. Dolan, would love to get a permanent lock on the flagship of New York sports. “Chuck does like to control things,” PaineWebber analyst Tom Eagan said.

Cablevision bought Nobody Beats the Wiz, the big chain of electronics stores, because Dolan wanted to control future distribution of complex set-top boxes for his cable TV empire. Eagan said he can imagine the stores selling Yankee tickets if a sale goes through.

But a possible Cablevision-Yankee deal, first reported Thursday in Newsday, might not happen. Yankee principal owner George Steinbrenner on Thursday denied discussing a sale. And although Dolan had confirmed the talks to Newsday, his company issued a mild statement saying it was “open to any ideas that Mr. Steinbrenner may have.”

Some baseball experts think the Yankees could sell for as much as $500 million. Not every franchise is the Yankees or Dodgers, though.

Baseball’s hapless Cubs generate annual revenue of about $72 million, or 3% of Tribune’s total revenue, UBS Securities estimates. The Yankees get that much from local and national TV--before even counting sales of tickets, concessions, parking, programs, licensed merchandise and so on.

Besides the Cubs, Tribune owns the Chicago Tribune and other newspapers and eight TV stations, including KTLA Channel 5 in Los Angeles. It also holds a 22% stake in Time Warner’s upstart WB Network.

Tribune shook up Chicago baseball fans in January when it announced that it would pare back its local Cub broadcasts from 144 to 92 games this year in order to run more of WB’s national programming, including shows with such youth appeal as “Buffy the Vampire Slayer.”

Being a team owner helps with that decision as well. Tribune doesn’t feel pressured to run a full slate of games to recover the cost of a fat broadcast rights contract.

With WB’s programming still expanding, Tribune is growing less dependent on the Cubs to grab viewers. If it didn’t already own the team, analysts said, it probably wouldn’t feel compelled to go out and buy one--especially at the nosebleed prices that deals like the Dodger sale are establishing.

Financial World magazine last June estimated the Cubs’ franchise value at $165 million--a number that many experts say is far below what the team could actually sell for. Tribune paid only $20.5 million for the team in 1981. (The same Financial World article put the value of the Dodgers at $178 million.)

But bigger broadcasters are feeling compelled to buy in.

Westinghouse Electric Corp., owner of CBS, is another company that reportedly has expressed interest in the Yankees. Such a sale could be a satisfying climax for Steinbrenner, who paid only $10 million for the team in 1973.

The seller? CBS.