Fox's Dodgers TV Deal on Hold as MLB Talks Continue Over Splitting $6.1 Billion

2012-28 FEA Dodgers Fans in the Stands H

Live sporting events are arguably the most valuable content on TV. They deliver a consistent audience, are largely DVR-proof and can be a decisive reason to maintain a pay-cable subscription.

The baseball team and the broadcaster would launch a new regional sports network under the tentative deal, which Dick Clark Productions might manage. MLB wants its cut of the entire package.

Los Angeles Dodgers owners have reached a tentative deal on a new TV contract with Fox Sports that includes creation of a Dodgers-branded regional sports network that could be managed by Dick Clark Productions, according to sources.

However, the new TV rights contract remains in limbo as discussions between the Dodgers and Major League Baseball about how much of an estimated  $6.1 billion the deal will generate during the next 25 years must be shared with the league.

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The Dodgers reportedly are trying to structure the deal with Fox in such a way that the team keeps more of the money, but MLB is said to be insisting on getting its full cut of revenue sharing from any TV deal. The Dodgers as of Tuesday had not presented any TV licensing deal to the league for approval, according to a source.

Both the Los Angeles Times and Forbes have reported in recent days that the Dodgers are trying to avoid a conflict with MLB that would end up back in U.S. Bankruptcy Court, which has the final say over how the team’s TV money is distributed. It was the bankruptcy court that oversaw the record-breaking $2.15 billion sale of the Dodgers by Frank McCourt to Guggenheim Baseball (which is primarily backed by Guggenheim Partners, a investment group that also owns Dick Clark Productions and Prometheus Global Media, parent of The Hollywood Reporter).

Under the deal that the Dodgers and Fox have negotiated, according to sources, the first $84.5 million of TV licensing revenue (with annual increases of about 4 percent) is subject to being shared with the league. That cut is spread among all teams to help supplement small-city teams that do not have as big a media market to tap. The revenue-sharing amounts to almost $400 million this year.

Forbes reported that one possible scenario would have the Dodgers and Fox joining together to create the regional sports network. Fox would handle the money (ad sales) and pay the team the $84 million annual rights fee, plus the annual increases, but also would pay a guaranteed dividend of $100 million a year. It is that bonus payment that the Dodgers and baseball are at odds over, say sources. MLB argues that the payment is part of the TV revenue and therefore is subject to profit sharing. But the team believes it is a payment for the risk the owners took when they bought the team and that the payments could vary along with the value of the team, so MLB should not be able to claim it.

Either way, the Dodgers are about to close a lucrative TV deal. Over 25 years, $3.5 billion would be paid for TV rights and $2.5 billion would be paid in dividends, bringing the total potential value of the deal to $6.1 billion.

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To make its case that all $6.1 billion is a guaranteed payment that should be shared, MLB can point to a $3 billion deal in 2010 involving the Texas Rangers and Fox, which pays that team about $20 million a year. The Texas deal was also structured with a rights payment and a bonus, all of which is subject to the same 34 percent revenue sharing with MLB.

Dick Clark Productions, the company that produces the Golden Globes, the Academy of Country Music Awards and many others, is being discussed as production partner following the September acquisition of the company by another affiliate of Guggenheim Partners.

The Dodgers current TV deal with Fox, which pays the team about $39 million a year, expires after the 2013 season. Fox had an exclusive negotiating period with the Dodgers on a new contract but that period has ended. While the Dodgers also have met with Time Warner Cable about the rights, indications are that Fox is now on track to close the deal.

Once a deal is done, Fox will also have to work out agreements  with regional cable systems and national satellite providers, which will be asked to pay a subscriber fee for the rights.

Fox, owned by News Corp., has a great deal at stake. After losing the L.A. Lakers, the Pac 12 and other sports to Time Warner Cable, which in October launched two new sports networks (in English and Spanish), Fox needs more programming to drive its existing sports networks and help launch a new national network called Fox One that may compete with ESPN.

Guggenheim, Fox Sports and Major League Baseball, through spokespersons, all declined to comment.