Sports fans are being sidelined as RSNs fight the decay of pay TV

Jackson Wieger has been a Denver sports fanatic for 20 years. He loves the Nuggets, who are led by reigning NBA most valuable player Nikola Jokic, and grew up watching the NHL’s Colorado Avalanche.

“Both the Nuggets and the Avalanche play 82 games, and I’d say I used to watch 65 games a year,” said Wieger, 27, who lives in Lakewood, Colorado, just outside of Denver.

Two years ago, his fandom was crushed. Comcast stopped carrying Altitude Sports, the regional network that owns broadcast rights for both teams, because the two sides couldn’t reach a carriage agreement. Comcast said at the time that more than 95% of its customers watched the equivalent of less than one game per week.

Wieger was in the 5%, along with many people he knows. Sports for them are different now.

“My friends and family used to be so passionate, but now that you can’t watch, you’re not as in tune with what’s going on,” Wieger said. “You’re not as excited. You’re not as engaged.”

The local sports saga is playing out in markets across the U.S. as cable and satellite TV companies abandon regional sports networks, or RSNs. Rather than accept large monthly subscription fees, pay-TV providers like Comcast, DirecTV and Dish, and digital providers such as YouTube TV and Hulu, are increasingly walking away to keep costs down.

They’ve decided the amount they have to pay to keep RSNs in the bundle no longer makes economic sense, given how few people watch them and how much they charge.

Other than ESPN, RSNs are the most expensive networks in the bundle. Many charge more than $5 per month per subscriber, according to research firm Kagan, a subdivision of S&P Global. Cable bills have to rise to support the added cost, which leads to more cancellations.

Since 2012, about 25 million U.S. households have cut the cord on traditional pay-TV. Media executives expect subscriber numbers to fall by another 15 million to 25 million by the end of 2025. Meanwhile, monthly bills continue to go up.

The result is a lot unhappiness. Fans are shut out. RSNs are bleeding money. Teams and leagues are losing their most valuable asset: their audience.

A potential escape from the vicious cycle is subscription streaming, where media and entertainment companies are focusing their attention. That push accelerated during the pandemic as consumers looked for ways to cut costs and, for several months, had no live sports to watch while stuck at home.

But RSNs haven’t yet figured out a streaming solution, and professional sports leagues are starting to consider their future options.

“As an investor, I would short RSNs,” said Leo Hindery, former CEO of New York’s YES Network who now works in private equity and recently formed two special purpose acquisition companies. YES broadcasts New York Yankees baseball games and Brooklyn Nets basketball games. “The cost of sports is the main reason people are cutting the cord on cable. We’re learning to live without sports,” Hindery said.

Chris Ripley, CEO of Sinclair Broadcast Group, is feeling the pain. Sinclair is the majority owner of 21 RSNs, more than any other company. Its networks broadcast live sports from 43 teams across Major League Baseball, the National Basketball Association and the National Hockey League.

Sinclair acquired the RSNs for about $10 billion in 2019 after Disney purchased the majority of 21st Century Fox and divested the sports networks. The deal shocked the business world, because Sinclair owns nearly 200 local broadcast affiliate stations across the U.S. but wasn’t in the RSN business at all before the transaction.

With a market cap below $4 billion, Sinclair had to borrow $8 billion to do the deal using a separate entity called Diamond Sports, and also tapped Byron Allen’s Entertainment Studios for some financing help.

“I’ve always thought that consolidation of the rest of the industry makes sense,” Ripley said earlier this month during his company’s third quarter earnings conference call.

Ripley’s dream of an industry-wide rollup would also amount to a bailout of his investment. While Sinclair shares initially soared 35% on news of the deal and briefly topped $60, the stock has since plunged by more than half to around $24. Its market cap has fallen below $$2 billion, and bonds for Diamond Sports have plummeted.

Last year, less than 15 months after closing the acquisition of its RSN portfolio, Sinclair wrote down the value of the assets by $4.23 billion.

In expanding into regional sports, Sinclair bet that airing local games would continue to command high pay-TV carriage fees because passionate fans of MLB, NBA and NHL teams have no other way to watch on days when there’s no national broadcast.

Sinclair was also angling to tie future RSN negotiations with the company’s other networks, which are affiliates of ABC, NBC, CBS and Fox — channels that customers would loathe losing. Nearly 85% of Sinclair’s RSN revenue comes from pay-TV subscriptions.

During the two-plus years since Sinclair dove into the RSN market, the company’s rationale has been undermined by two major events.

First was the pandemic.

The other was the decision by Dish to stop carrying Sinclair’s networks. Dish dropped the 21 RSNs in July 2019, a month before Sinclair closed its transaction. Dish, the fourth-largest U.S. pay-TV provider, has about 11 million subscribers nationwide between its satellite TV product and digital Sling TV, and some of them live in Sinclair territories.

Dish’s decision to move away from RSNs goes beyond Sinclair. Dish dropped Comcast’s NBC Sports RSNs in April and AT&T’s RSNs in September. In Denver, near where Dish is headquartered, the company doesn’t carry Altitude Sports, the network that’s home to the Nuggets and Avalanche. Both teams are controlled by Altitude owner Stan Kroenke.

Altitude says on its website that Comcast and Dish “continue to ignore the wishes of their customers and our fans” and “have demonstrated a level of greed that is clearly out of touch.”

Dish’s billionaire founder and chairman Charlie Ergen refuses to budge. On the company’s quarterly earnings call in August, Ergen described RSNs as a tax on subscribers. When there are no live games, most of the networks air low-rated programs like sports documentaries and reruns.

“We don’t have any customers calling us on RSNs today,” Ergen told analysts. “We’re happy to talk about anything that’s creative and doesn’t harm our customers, but we’re not interested in taxing our customers when they don’t watch the channel. That doesn’t make any sense.”

Comcast’s NBCUniversal owns seven RSNs. AT&T and Charter each own four. The rest are independently owned by a variety of companies, including Madison Square Garden, Cox Communications and sports teams.

Comcast wants to sell its RSNs. AT&T considered selling theirs before agreeing to merge WarnerMedia with Discovery earlier this year. Comcast shut down its NBC Sports Northwest RSN on Sept. 30, after losing the broadcast rights to air games from the NBA’s Portland Trail Blazers.

As the RSN industry reckons with an existential threat, the potential downstream effects have America’s major sports franchises justifiably on edge. RSNs provide billions of dollars to sports leagues, which use the revenue as one way to pay player salaries and invest in the organization.

There’s also the future of fandom. If fewer people are exposed to local sports because they’re no longer available on their bundle and consumers can’t find them outside of pay TV, younger audiences may have little interest in going to games or buying hats and jerseys.

Warnings signs are already present. Research shows that younger Americans are far less likely than their parents to watch live sports.

“Forget the actual teams and regional sports networks, it’s not going to be good for the sport or the leagues,” said Michael Schreiber, CEO of Playfly Sports, a sports marketing and media company. “The trick is maintaining high exposure of live games across the U.S. at the same time as creating new, innovative ways to access the content.”

Sinclair’s near-term plan is to build a direct-to-consumer subscription service, allowing local fans to get streaming access to games outside of the cable bundle. The company laid out its streaming strategy in an SEC filing in July.

In the document, Sinclair predicted that allowing fans to watch their hometown teams over the internet could “potentially generate $2 billion+ in annual revenue” with an estimated 4.4 million subscribers by 2027. The filing hints at opportunities in sports betting, fantasy and non-fungible tokens, all hot topics that may or may not produce actual revenue. Sinclair rebranded its RSNs using the Bally’s casino name earlier this year to more closely align the networks with gambling.

The biggest obstacle for a streaming service is affordability. Based on contracts with pay-TV operators, Sinclair would be forced to charge much more for a direct-to-consumer product than the amount that Comcast, DirecTV and Dish pay the company. One industry insider told…