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Red Wings, Tigers owner explores creating regional TV sports network

The best drama on local TV may be one local station.

Southfield-based Fox Sports Detroit has seen ratings for its core product, Detroit Tigers games, plunge as the team struggled to rebuild. Meanwhile, the team’s popular longtime on-air announcers were jettisoned after a fight over the summer. Oh, and the network is for sale.

And Thursday, Tigers ownership added a new wrinkle to the drama when it announced that it’s considering launching a sports network of its own to air games.

The Ilitch family-owned Detroit Tigers and Red Wings, along with the separately owned Detroit Pistons, have been on Fox Sports Detroit since 1998. If it loses those teams, odds are the network could be out of business.

Or maybe it’s just a leverage ploy by the Ilitches to extract better terms out of Fox Sports in their next broadcast rights deal. The network pays the Tigers $50 million annually to air games, and $25 million for Red Wings broadcasts.

Greg Hammaren, FSD’s senior vice president and general manager, deferred comment to Andrew Fegyveresi, senior vice president of communication at parent Fox Sports network.

“We value our long-standing relationship with the Ilitch family, the Detroit Tigers and the Detroit Red Wings. We look forward to continuing our relationship and providing comprehensive team coverage for years to come,” Fegyveresi said via email.

The Ilitch organization said in a statement earlier Thursday that “it is exploring the creation of a new regional sports network” to air “Detroit Tigers, the Detroit Red Wings and additional sports- and entertainment-related content.”

The Ilitches, who say their business holdings generated $3.6 billion in revenue in 2017, said the “extensive exploratory process will begin immediately, and no deadline has been set for completion.”

What that process is remains unknown. They haven’t made anyone available to answers questions beyond what was said in Thursday morning’s news release.

“Fox Sports Detroit is a great partner and we look forward to discussing renewal and extension possibilities,” Chris Granger, group president for sports and entertainment at Ilitch Holdings Inc., said in the statement. “At the same time, we have two perennially highly-rated and historic franchises, which provide compelling year-round content and programming. As such, we feel our organization is uniquely positioned to explore the launch of what we believe could be a highly successful regional sports network.”

The current Tigers/Red Wings/Pistons broadcast rights deals were jointly announced in May 2008. They were billed as a combined $1 billion over 10 years. The network and teams have declined to say when the deals started and when they end, but sources have told Crain’s that the deals end in 2021. It’s unclear if talks on extension or replacement local TV rights deals have begun.

The Tigers are expected to add tens of millions of dollars in annual revenue in their next local broadcast rights deal, perhaps even doubling their current amount, matching a trend across baseball.

Fox Sports Detroit airs almost all of the Tigers’ 162 games, and most of the Red Wings and Pistons’ 82-game seasons. Some games for each team air on national network channels.

The Pistons organization declined to comment through spokesman Kevin Grigg. The NBA team, which gets about $25 million annually from FSD, is owned by private equity billionaire Tom Gores, who bought the club for $325 million in 2011 and relocated it as a tenant alongside the Red Wings last year at new Little Caesars Arena that the Ilitches built with public and private money. Gores and the Ilitches also have a joint business entity called 313 Presents that handles entertainment bookings at Little Caesars Arena and their other venues.

Launching a regional sports network would be new ground for the Ilitches.

“As leaders in the rapidly evolving sports and entertainment industry, the creation of a new network would be a natural business extension for our organization,” Granger said. “Live sports remain some of the most sought-after content on television and across digital platforms. We look forward to exploring how a new network could be of a positive benefit to our teams, fans and community.”

The Ilitch family built their fortune from launching the Little Caesars pizza chain in 1959. Under chain co-founder Mike Ilitch, they acquired the Red Wings for $8 million in 1982 and the Tigers for $85 million in 1992. Both teams have experienced success, particularly with the Red Wings winning four Stanley Cup championships and the Tigers until recently being a high-payroll powerhouse in the American League.

In 2014, the family leveraged its business and sports success when it announced the 50-block District Detroit plan to build a new entertainment arena surrounded by new office, retail, residential and green spaces — an ongoing project that’s seen some promised components finished and others not. The Ilitches say they have invested $1.4 billion in the district.

What’s not been among the Ilitch business competencies is operating a cable network. Someone else has always done that for them.

Fox Sports Detroit has aired Tigers, Red Wings and Pistons games since 1997-98, when it won the broadcast rights from the now-defunct Pro-Am Sports System, which had been owned by Domino’s Pizza founder Thomas Monaghan until he sold it to the Washington Post Co.’s Post-Newsweek Stations Inc. in 1992. That’s the same year he sold the Tigers to Mike Ilitch, who died last year at age 87. Son Christopher Ilitch has run the family’s day-to-day business operations for years.

The cable marriage has largely been a success for the teams and the network, with the Tigers and Red Wings dominating local prime-time ratings. The local TV rights deals are important because they generate a notable slice of team revenue, and they provide the exposure platform that advertisers seek. FSD has about 3.6 million subscribers in Michigan. Fewer than 2,000 Michigan households don’t have access to the network, the network has said.

One longtime local TV industry observer isn’t surprised by the Ilitch announcement, mainly because the regional sports network industry is changing thanks to cord-cutting and the rise of streaming.

“To prepare for a likely new world order of some sort, it makes sense for team owners to explore all options for distributing and capitalizing on their live games via media, including getting into the broadcasting business at some level,” Matt Friedman, a former news producer at WDIV and co-founder of public relations firm Tanner Friedman in Farmington Hills, said via email. “There would certainly be risk for the Ilitches. That’s why this is no sure thing. But it makes sense to at least explore it and see how the landscape has changed and how it could be potentially advantageous.”

Friedman thinks it makes sense for the Pistons to follow the Tigers and Wings to a new broadcast home.

“It’s pure speculation, but it would seem that if the arena-sharing business relationship remains healthy, that a TV sharing arrangement could follow,” he said.

Still, while such sports networks generate a lot of money from advertising and subscriber fees, they’re also are expensive to operate.

Data from Kagan, a media research group within S&P Global Market Intelligence based in New York City, predicted before the 2018 baseball season that FSD would generate $240 million in overall revenue against $190 million in operating expenses, with the majority from Tigers games.

It seems a safe assumption that launching a new network would require an infrastructure investment in equipment, talent, and facilities, but also potentially equally expensive work to secure carriage agreements to put the network on cable and satellite providers.

At least through 2016, Fox Sports Detroit said advertising revenue had been growing annually for seven years and regularly boosting ad rates. It didn’t disclose totals.

As lucrative as advertising may be for regional sports networks — major local advertisers on FSD include Southfield-based Sam Bernstein Law Firm and Allen Park-based Belle Tire — a major revenue generator is subscriber fees. Fox Sports Detroit charges an average of $5.80 per subscriber as the fee for cable and satellite providers to carry the network, according to Kagan. The fee is passed to consumers in their monthly bill, and FSD’s average is second-priciest after only the $6.40 a month charged by the YES Network, a regional sports network that carries New York Yankees and Brooklyn Nets games.

Detroit’s fee tops the $5 monthly average charged by Spectrum SportsNet LA, co-owned by the L.A. Dodgers and Charter. The team will be paid $8.35 billion over 25 years by the network in a deal that began in 2014. Cable and satellite providers will try to keep those fees as low as possible because they’re the ones that hear consumer complaints and have to do the work to retain subscribers.

It’s impossible to know if subscriber fees would go up, down or remain the same under an Ilitch-owned sports network.

Traditional regional sports networks remain lucrative because while younger viewers are fueling a cord-cutting trend, live sports remains an audience bastion attractive to advertisers. And the networks, including FSD, have invested in streaming and mobile technology in a bid for eyeballs.

Still, cord-cutting is a threat, especially as the local teams are mired in losing cycles.

Nationally, Varietyreported recently the number of U.S. consumers who have ever canceled traditional pay-TV service and do not resubscribe will climb 32.8 percent to 33 million adults, according to estimates from research firm eMarketer. Conversely, over-the-top, internet-delivered video services keeps growing, Variety reported, with the leaders in monthly access being Netflix (147.5 million people), Amazon Prime Video (88.7 million), Hulu (55 million), HBO Now (17.1 million) and Dish’s Sling TV (6.8 million).

Fox Sports Detroit has declined to share its online numbers but has said it has steady growth with its streaming audience for games and related content.

There’s great value proposition in live sports, Friedman said.

“Live games are the most valuable advertising real estate in sports and are arguably the most valuable in all of television,” he said. “There are very few other forms of programming where the audience will sit through commercials to move from content piece to content piece. Also, live sports is portable. For fans, watching on a phone or tablet or laptop fills the void when they can’t be in front of a TV.”

That technology evolution has had a seismic effect on TV.

“We are about to see change like we haven’t seen in a generation,” Friedman said.

Streaming content is increasingly important to teams and their rights holders. While the Tigers remain the top local programming in metro Detroit, they don’t command the baseball-leading audience they did a few years ago. They and the Red Wings remain the No. 1 and No. 2 rated prime-time broadcasts in the market, the Ilitches said.

Tigers ratings slipped 44 percent year-over-year through the All-Star break in July, with games averaging a 3.0 household rating, according to Nielsen Co. viewership data provided by the regional sports network’s Los Angeles-based network parent, Fox Sports,

That ranked 17th among the 29 U.S. regional sports networks (Toronto isn’t included).

One household rating point in the Detroit market equates to about 18,000 households, and there are nearly 1.8 million TV households in the region. So, about 53,300 local households were tuning into Tigers games airing on Fox Sports Detroit during the summer. Five years ago, it was more than 170,000.

FSD’s 151 Tigers broadcasts for all of last season averaged an overall 4.48 household rating, sixth among MLB’s 29 U.S. teams. The Tigers peaked with a Major League Baseball-best 9.59 average rating in 2013, an astounding number that coincided with their last trip to the American League Championship Series.

The ratings slide stems from team performance. And it’s interesting that the news that the Ilitches may launch their own network comes as the Tigers and Red Wings both are struggling in the win-loss column. The Tigers, who have lost 98 games each of the past two seasons, began a long-term rebuilding process in summer 2017 that saw high-profile talent traded and player payroll slashed by more than $70 million. More austerity could be in the works as the team replaces its old strategy of signing or trading for high-priced veterans and instead attempts to develop young, cheap talent using modern baseball analytics and scouting.

The Red Wings, a hockey playoff fixture from 1990-2016, have missed the postseason the past two years and have begun the current season with a 1-6-2 record despite one of hockey’s larger payrolls.

Conversely, when the teams are good, people go to games and watch on TV and listen on radio. Both FSD and a theoretical Ilitch network would enjoy having year-round content with the teams because their seasons would overlap the entire year. If the Pistons join them, that provides additional content for audiences and advertisers.

“I know from talking to advertisers that they have really liked two things about being on FSD, in addition to working with a very professional operation there,” Friedman said. “One is the DVR-proof nature of live sports, particularly local sports where fans follow game-to-game. That means spots don’t just air, they get watched. Also, they like that they can purchase multiple markets with one buy. FSD runs in every market in Michigan and by writing one check after one negotiation, they can reach fans at once, wherever they may be watching.”

The Ilitches aren’t alone in mulling their own network. It was reported in August that the Chicago Cubs are thinking about dropping their 20 percent ownership stake in Comcast SportsNet Chicago, which airs games from four teams, in favor of launching their own network in 2019.

Industry insiders have said that a team could outright own, build, and launch its own local channel, or it could partner with a third-party to do much of the heavy lifting.

Another approach has been to take an equity stake in a network. That’s been a trend for some years in regional sports network deals, which often are quite lucrative. The New York Yankees have a 20 percent stake in the YES Network that will be part of the Disney deal. Other examples are the NBC Sports Bay Area that’s jointly owned by NBCUniversal and the San Francisco Giants, and NBC Sports Chicago that’s co-owned, in part, by the owners of the Cubs, White Sox and Bulls.

The Yankees may buy back the YES Network from Fox because a clause in its deal allows that option if the network is put up for sale, Bloomberg has reported.

Some networks have been entirely team-owned, such as Mid-Atlantic Sports Network (the Baltimore Orioles own 90 percent and the Washington Nationals own 10 percent).

Some attempts to bring games in-house have failed. One notable example is Victory Sports One, the regional sports network launched by the Minnesota Twins in 2003. The team failed to land enough carriage rights deals across the state and by 2004 had returned to Fox Sports North.

It’s unclear how many people work at Fox Sports Detroit, but it’s safe to assume that if it loses two or all three of the Detroit pro teams, the station would shed jobs or shut down. Some or all of that staff could be hired by the theoretical Ilitch network, especially those with in-demand technical skills.

“It would seem that FSD, without live pro sports rights, would not have a long-term future. We have seen what happens to sports radio stations without live game broadcast rights. Live games are where the audience and money both reside,” Friedman said.

Also hanging over Fox Sports Detroit’s future is its ownership. They’re owned now by Twenty-First Century Fox Inc., but that company is in the process of being bought for $71 billion by the The Walt Disney Co.

To get the blessing of federal antitrust regulators, Disney has agreed to sell Fox Sports Detroit and 21 other regional sports.

It’s unclear if the networks will be sold off as a group, in clusters or individually. Candidates that already have regional sports networks include Philadelphia-based Comcast Corp. (through its NBC Sports Group); Stamford, Conn.-based Charter Communications Inc. for its Spectrum Sports arm; and Dallas-based AT&T Inc.’s AT&T SportsNet.

The buyer may not end up being a traditional network. There’s been industry speculation that there could be interest from private equity firms and companies seeking sports content, such as Amazon, Apple or even a content-savvy brand such as a Red Bull.

The stable of Fox RSNs have 61 million subscribers and local broadcast rights deals with 44 teams across Major League Baseball, the National Basketball Association and the National Hockey League. The 22 networks reportedly generate about $1 billion to $2 billion annually for Fox.

Under the publicly announced terms of the deal, Disney will get 21st Century Fox’s movie and TV studio, cable channels FX and National Geographic, Fox’s 30 percent ownership stake in Hulu and its stake British satellite service Sky, Indian satellite TV group Star India and other assets. Those assets generated $19 billion for Fox last year, the Justice Department said.

What’s left of Fox will be Fox News Channel, Fox Business Network, the Fox broadcast network, FS1 and FS2, and the Big Ten Network.

Finally, the Ilitch announcement comes on the heels for a low point for Fox Sports Detroit. The network was back in the news last month when Tigers play-by-play man Mario Impemba and analyst Rod Allen were suspended and then fired from Fox Sports Detroit in the wake of their Sept. 4 physical confrontation after a game in Chicago. No replacements have been announcement.

Local TV apparently is playing another role in the operations of the Tigers and Pistons teams: Ilitch-owned Olympia, which operates the Red Wings, announced on Oct. 8 it would begin to replace all of Little Caesars Arena’s 18,000 red-colored bowl seats with new black covers, ostensibly so that sparsely-attended games wouldn’t have such obviously stark optics on Fox Sports Detroit broadcasts. That process, set to begin in December, is slated to take several months. Olympia said the network was part of the discussion about replacing the seats.

Fans and pundits have been critical of the teams for their poorly attended games that seem to defy formal attendance numbers, with the official line being that many fans are enjoying the new arena’s plush private clubs or are exploring the concourse rather than sitting in their seats.

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