Report: Steve Ballmer turns down $60M per year local TV deal, eyes all-Clippers streaming service
The Los Angeles Clippers’ local broadcast rights deal is set to expire at the end of the 2015-16 NBA season. When it does, billionaire owner Steve Ballmer’s got his sights set on breaking new ground by “starting his own over-the-top streaming network” to broadcast Clipper games locally, according to Claire Atkinson of the New York Post:
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If he follows through on the plan, Ballmer, the former CEO of Microsoft, would be the first owner of a major US sports team to deliver games direct-to-consumer via a Web-based service and not through traditional cable or satellite companies, sources said.
Clippers games are now aired to roughly 5 million Los Angeles-area homes through Fox Sports’ Prime Ticket regional sports network in a deal that runs through the 2015-16 season.
Prime Ticket currently pays the team a rights fee of $25 million a year — and offered a 140 percent increase, to $60 million, but the billionaire Ballmer turned it aside.
When do you turn down an offer for a 140 percent increase in annual revenue? When you think you can do better.
As collective bargaining agreement savant Albert Nahmad of HeatHoops notes, the “bid book” put together by Bank of America and Merrill Lynch during the Clippers’ 2014 sale pegged the potential annual value of the Clippers’ next local cable rights deal at $125 million per year, just below the annual value of the 20-year, $3 billion deal that their in-house rivals, the Los Angeles Lakers, signed with Time Warner Cable in 2011. While that estimate could significantly overshoot the likely value of the Clippers’ local rights — Forbes’ Mike Ozanian and others have suggested $75 million per year as a more reasonable number — even those more conservative figures would outstrip Prime Ticket’s top annual offer.
The timing of Ballmer’s refusal matters, too. As Atkinson reports, Prime Ticket’s “exclusive negotiating window” for the Clippers’ rights closed in June. That means Ballmer and company are free to negotiate with other prospective suitors over the rights, which could A) drive up the price tag and B) put Fox in an unenviable position:
Some observers, then, view Ballmer’s reported rejection of Prime Ticket’s offer as an indication that he’s just playing hardball in search of a better deal. A Clippers spokesperson told the Post that “Steve Ballmer is exploring any and all options, including a new deal with Fox.”
Others, however, think the former Microsoft CEO is entirely serious about starting his own OTT streaming service, aiming to capitalize on the steady migration of consumers (and especially the young ones who comprise much of the NBA’s fan base) away from traditional cable bundles and toward a la carte offerings like Netflix, Hulu, Amazon Instant Video and the WWE Network. From Daniel Frankel of FierceCable:
According to the [Post], Clippers games are currently distributed into 5 million pay-TV homes in the L.A. region. If the team were to sell a [direct-to-consumer] streaming service to 10 percent of those homes (500,000) at $12 per month, the team could bring in annual revenue of $72 million.
“The rumor of Ballmer going in an unconventional route with the Clippers’ local rights has been swirling for a while too, since he has the technology background,” said Adam Gajo, analyst for SNL Kagan.
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The downside of striking out on your own, of course, is that you assume all the costs of not only creating, programming and promoting your service’s content, but must also foot the ball for the network infrastructure necessary to reliably stream it all to your subscribers’ devices, anytime, anywhere, without experiencing a reduction in the overall quality of service. Nobody likes fuzzy, jittery, constantly buffering videos, and people really don’t like paying for them.
Beyond that, while the Clippers are undoubtedly the best team in Los Angeles these days, they’re certainly not the most popular or famous team in town. Are there enough Clipper die-hards in La-La Land who are willing to shell out $12 a month — in addition to whatever they plunk down on Netflix, Hulu Plus, Amazon Prime, and whatever other entertainment packages to which they subscribe — to be able to generate enough revenue to make this a better deal for Ballmer than just taking Fox’s $60 million and letting them deal with the legwork?
And while more storied franchises like the Lakers and Boston Celtics could entice fans to happily keep footing the bill during the the offseason months by presenting hours upon hours of programming highlighting the glory days of years gone by, the Clippers … um … can’t. How does Ballmer keep those subscribers around and forking over their $12, or $9.99, or whatever during the long hot summer? (My suggestion: Every player gets a week to make whatever kind of TV show he wants, “UHF”-style. I bet Austin Rivers wouldn’t mind making me drink from the firehose.)
The reason might be that Ballmer, who came under fire during his latter days at Microsoft for a failure to fully embrace opportunities for innovation, is willing to deal with some short-term headaches in the service of going where no other NBA team has gone before and planting a questionably logoed flag. From Colin Neagle of Network World:
[…] this could be where Ballmer’s experience in the tech industry could separate him from those with experience only in sports media. Once the technology is in place — which would make the Clippers the first NBA team with such a service — it could open all kinds of opportunities. Earlier this month, The Verge ran an in-depth profile of Baseball Advanced Media (BAM), which began as a small division with Major League Baseball dedicated to building and maintaining team websites. Over time, however, the people working at BAM saw the opportunity for streaming baseball games over the internet. Now BAM has broken out as its own organization and handles streaming for HBO and the WWE. Ballmer has to see the difficulties in making a profit by launching a streaming network just for Clippers games, but he might see the greater value in being the first to market with the technology.
As was the case when Bank of America and Merrill Lynch suggested that his $2 billion bid drastically overvalued the Clippers franchise, Ballmer could view what others see as a massive overpay as simply a heavy down payment that gets him access to a high-end asset poised to explode in value.
If Ballmer can successfully build out the network technology necessary to make the streaming product work, and find a large enough base of cord-cutters convinced that combining direct streaming access to their hometown team’s games with access to League Pass (either in whole or in part) is better than paying for cable, he could find himself sitting on a goldmine of a 21st-century business model for sports teams — one that cuts out the middle man, delivers revenues straight to franchises, and gives organizations greater control over both the messages they communicate and the media through which they communicate them.
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Dan Devine is an editor for Ball Don’t Lie on Yahoo Sports. Have a tip? Email him at [email protected] or follow him on Twitter!
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