Long NBA lockout would trigger RSN rebates
Long NBA lockout would trigger RSN rebatesPublished October 3, 2011
Regional sports networks will take a significant financial hit if the NBA lockout extends beyond 20 games, according to several media sources.
That’s because of a clause in most of the regional networks’ affiliate contracts that’s known as a “product guarantee provision,” which mandates that RSNs repay a portion of their affiliate fees if they fail to deliver a specific number of NBA games.
The Spurs had the highest cable rating among NBA teams last season.
Outside of ESPN, RSNs typically are the highest-priced channels, commanding anywhere between $2 and $4 per subscriber per month, according to figures from SNL Financial. Any rebate would be a negotiated percentage of the monthly affiliate fee that could be anywhere from 10 to 50 percent.
On the flip side, RSNs will be made-good and not have to pay teams for games that aren’t played.
The industry has no standard product guarantee provision language. The clauses are individually negotiated and generally dependent on how many sports an RSN carries. For example, an RSN like Cox New Orleans would be affected more than most because its main programming comes from one NBA team: the Hornets. But an RSN like Comcast SportsNet Chicago is less likely to be affected since it carries the Cubs, White Sox and Blackhawks in addition to the NBA’s Bulls.
The clauses typically won’t kick in if an RSN misses one or two games. They will kick in if an RSN loses 10 percent of the minimum number of games it guaranteed, sources said.
“Most regional contracts have a 10 percent buffer,” said one executive who has worked on these deals. “So if an RSN commits to 70 games, they would only be required to rebate money if they provide 63 games.”
Some RSNs have gotten around this clause by guaranteeing a certain number of games, without specifying which sport. But distributors have recently demanded that the clauses become much more specific.
“Sports rights have become so expensive that operators are requiring that RSNs make specific guarantees for each team,” another executive said.
The NBA is coming off a hugely successful season in terms of local TV ratings, when about half of the NBA’s 30 teams saw double-digit increases in cable ratings.
“Live programming is what the RSNs are all about, so they are going to take a hit in fees and also in advertising revenues,” said Brad Adgate, senior vice president and director of research for Horizon Media. “You have 82 games to fill along with the studio and ancillary shows.”
The San Antonio Spurs finished the season with the highest cable rating, a 10.19 local rating for its games on FS Southwest, up 52 percent from the previous season. The high-profile Miami Heat, which saw its local ratings on Sun Sports nearly double to a 4.94 average, was the third-best in the league, with the Heat posting a 99 percent increase in its average rating from last season.