Keeping Grounded Regarding The Texas Rangers' Future TV Money

I know Jeff was writing in jest when he said the Texas' upcoming TV contract was enough to let them purchase Europe, but it's a topic that hasn't really been broken down here. We had the initial freakout when the first news came from USA Today that it was $3 billion over 20 years, and then a small sigh of relief when it came out that it was actually about $1.6 billion.

Obviously it's a lot of money, and it's a lot more money than the Mariners are getting for their TV rights, but there are some qualifying issues that can put the situation in a more manageable light - the first perhaps being the most important.

ISSUE 1: Inflation

Over time, inflation is a steady force devaluing payments. In present value terms, $80 million in 2033 is nearly certain to be worth less than $40 million today. In fact, if you project out the next 24 years, through the Rangers' current and next TV contract, the average yearly present value of the contract is likely to be between $40 (5% inflation) to $50 (3%) million depending on where the inflation rate ends up.

Note that this assumes a constant, $80 million-per-year payout. If the payouts are structured progressively (as you often see in player contracts), then the present value is even less.

ISSUE 2: It might not be as much of an increase as you think

Much was made about how dramatic of an increase this new contract was for the Rangers. A number I saw quoted often was that the Rangers make only $20 million from TV right now so this is a four fold increase. That certainly would be a huge increase, but it does not appear to be accurate.

The Rangers are currently bringing in only about $20 million per year for their cable television rights. However, according to the Dallas News article linked above and noted elsewhere, the Rangers also got another $15 million per year for non-cable TV rights when they signed their current deal. There's obviously a lot of complexities involved, but perhaps $35 million per year is a more accurate figure for what the Rangers currently are at. In which case, their new deal is a little more than double the average yearly rate, not quadruple.

Incidentally, the Mariners are locked in to a contract signed after 2007 that runs through 2020 and pays them an average of $35-40 million per year. In other words, the Mariners and Rangers had pretty similar TV rights deals for the past couple seasons, leading to issue 3.

ISSUE 3: Texas' payroll has been significantly smaller than ours

We don't really care about how much revenue a baseball team brings in. We care because it is a proxy for future outlays of player and staff payroll, but it's that -- the payroll -- that we actually care about. Going by Cot's figures, over the last five years the Rangers have averaged $67 million per year in payroll. The Mariners are at $100 million. That's a $33 million advantage that Seattle has had. 

If the Rangers take the additional $45 million a year they'll reportedly get through TV and invest 100% of it into player payroll (unlikely), the Rangers will have end up with a higher payroll than Seattle, but only by about $10-15 million. And that is only for six seasons until we see what the Mariners deal post-2020 looks like.

ISSUE 4: Texas' deal runs for 20 years and doesn't kick in for another four

Seattle's TV contract expires in 2020, the Rangers' not until 2034. The Mariners will sign one, possibly even two TV deals in that time. TV rights lend themselves to market comparisons, so the Rangers getting a fat TV paycheck gives the Mariners leverage when it comes time to re-negotiate with FSNW or Root NW or whatever it will be called. We have already heard about the Angels being next in line for a market-busting deal thanks in part to Texas' figures. It would be a complex task to guess how much the Mariners might net, but it will almost certainly be a higher figure than they currently receive. There again, Texas' nominal advantage is eaten into. 

Texas' upcoming deal makes things more difficult for Seattle. That seems clear. But it does not make it impossible nor does it make success even improbable in my view. We do not become the Rays to the Red Sox and Yankees. We're not even the 2005-10 Rangers to the 2005-10 Mariners. The Mariners will be behind the Rangers in TV revenue five years from now. That says nothing about other streams of revenue, how much of that revenue management deems fit to invest in the team or how it will look in ten years.

A lot can change. A lot will change. Texas has the capability now to be a bona fide player in the various free agent markets. That will make winning more difficult for Seattle. But the Rangers did not just discover the Sim City money cheat. I will repeat because I think it's the key point:

The average yearly present value of the Rangers TV rights over the next 24 years is likely to be between $40-$50 million. The Rangers right now bring in about $35 million. Don't let the $1.6 billion figure mislead you. I don't believe the Rangers are actually getting all the much richer. More secure, but perhaps not much richer.

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