The Lakers have signed a 20-year, $3 billion deal with Time Warner Cable. Here's how it will affect your viewing experience, the team's bottom line and the product on the court.
The Lakers' already well-stocked piggy bank received a few extra coins this week. On Monday, the team announced that it has signed an agreement with Time Warner Cable covering the distribution of all locally available games for 20 seasons starting in 2012-13. TWC will broadcast the games on two newly created regional sports networks, one in English and one in Spanish. Neither the team nor TWC has confirmed how many dollars are changing hands, but all reports indicate that the deal is in the neighborhood of $3 billion. That's one hell of a neighborhood.
Writing at Forbes, Mike Ozanian puts this figure in context: the $150 million annual average is an increase of $116 million over what the team received for local TV rights last season. As Ozanian notes, the real value of the deal depends in part on the payment schedule, which could be front-loaded or back-loaded. The sooner the team gets paid, the richer the deal. There could also be contractual provisions that, say, increase or decrease the payments based on ratings. But whatever the fine print, there's no question but that Time Warner has agreed to cut a whole lot of very big checks to the Lakers over the next 20 years. And the already wealthy Buss family just got a whole bunch wealthier.
Why should Laker fans care about this? Let us count the ways.
1. KCAL is getting dumped.
Right now, home Laker games that aren't carried nationally can be found on Fox Sports, a cable network, and road games that aren't carried nationally can be found on KCAL, a free-to-air station accessible via rabbit ears. When the Time Warner deal kicks in, Fox Sports and KCAL are out. No one's shedding tears over losing Fox, which does a fine job with their Laker content but got outbid in this process. The shift of content away from KCAL, though, has some in high dudgeon, including our city's foremost peddler of cheap outrage, Bill Plaschke.
According to Plaschke, there are 620,000 households in the Southern California area without pay-TV service. Whoever lives in those households will either have to get cable, subscribe to NBA League Pass Broadband, find a sports bar or just go without the Lakers games except when they show up on ABC. Laker fandom will thus become a slightly more exclusive and upscale pastime. There's no way to defend this without sounding like Marie Antoinette, but allow me to offer some mitigating thoughts.
First, the proportion of households without pay-TV service is going to shrink over the life of this deal. The primacy of free-to-air programming collapsed years ago, and complaining about it is a bit like worrying that rotary phone manufacturers are being put out of business. Progress has costs, and this is one of them.
Second, the Lakers are in the business of fielding championship-level squads, and doing so requires maxing out revenue streams. You can complain exorbitant ticket prices and KCAL's banishment or you can demand that the Lakers maintain one of the highest payrolls in the league, but you don't get to do both. The Buss family can't serve champagne on a PBR budget.
Finally, and not to put too crude a point on this, but KCAL is a joke. Their production values have fallen far below what fans have come to expect out of NBA telecasts in the year 2011. Their picture is dimly lit, their signal is glitchy, and they have a ridiculous practice of trying to mute on-court profanity five seconds after you hear it on the telecast. For most viewers, KCAL won't be missed.
2. There's a chance -- a small one, but a chance -- that your cable or satellite provider won't carry the new Laker networks.
Time Warner will create these two Laker channels, and if TWC is already your cable provider, the new channels will show up somewhere on your dial. But let's say you subscribe to DirecTV, Comcast or something else that's not Time Warner. Odds are, you'll get to see Laker games same as always, but there could be hitch.
Here's how it'll work. Time Warner will call up Comcast and say, "Hey, we've got these shiny new Laker channels. Want to provide them to your customers? They're all yours, once you kindly fork over a wad of bills." The trick is that the two sides have to agree on how big that wad's going to be. It's typically expressed as an amount (say, a few bucks) per subscriber. If they can't or won't agree, that's when you're out of luck.
Stare-downs aren't unusual in negotiations of this kind. When the NFL Network and the Big Ten Network launched, some providers took a while to reach carriage agreements. Given the gargantuan amounts that TWC has agreed to pay out in this instance, they won't be giving the content away cheap, and if there are extended standoffs, some viewers could miss games. But for TWC to profit from this content, they have to sell it, so eventually these deals will get done.
That's the good news. The bad news is, whatever your provider pays for the new networks, most or all of that charge is getting passed on to you. No one said back-to-back championships come cheap.
3. The Buss family will be rolling in cash, which could mean more money to spend on player salaries.
After announcement of the TWC deal, some have speculated that it will allow the Buss family to retain ownership of the franchise after Jerry dies. The guaranteed cash flow, this theory goes, will fund payment of the inheritance tax, which otherwise might've forced a sale of the team. On Tuesday Sports By Brooks made this argument, which was then repeated by Kelly Dwyer of Ball Don't Lie. Although it's based on a vague remark Jerry made to Los Angeles Times Magazine back in 2009, I'm not really buying it.
Not that I think the Buss family will have to sell the team. I don't. But I don't think the TWC deal has much to do with it. If, when Jerry dies, his descendants want to retain ownership of the franchise but happen not to have sufficient liquid assets to pay off the inheritance tax, there's an easy enough solution: borrow the money, using the team assets as collateral. The Lakers are a luxury property, and there are plenty of banks that would be willing to extend the necessary credit lines. Unless there are massive liabilities we don't know about that will render the Buss estate insolvent, continuity of ownership isn't what the Lakers are getting out of this deal.
What they are getting is a huge addition to their bottom line. Again, Mike Ozanian of Forbes breaks it down helpfully:
A $1 billion valuation . . . would not only easily push the Lakers ahead of the New York Knicks to the top of our NBA franchise valuations, but at a minimum would also make the Lakers more valuable than 17 NFL teams and every MLB team, except the New York Yankees. Jerry Buss, the majority owner of the Lakers, is now on his way to becoming a billionaire.
How much of this new cheddar could be plowed back into player payroll? It depends on how negotiations over the league's new collective bargaining agreement unfold. Unfortunately for Laker fans, all indications are that the "soft" salary cap will get harder under the new CBA, so that there'll be fewer and less lavish exceptions the Lakers could use to transform their financial advantage into an on-court competitive advantage. But to the extent that cap exceptions are retained, money will be even less of an object for the Laker front office than it is now.
So when the team does a sign-and-trade for Dwight Howard in the summer of 2012, we should all remember to send a little thank-you note to the generous folks at Time Warner Cable.
Follow Dex on Twitter @dexterfishmore.