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A View Into the Miami Heat’s Local TV Deal

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Update (11/24/14): The Miami Heat announced the signing of a new deal with Sun Sports that will extend the partnership for another seven years, through the 2024-25 NBA season. Details of the extension are not yet known.

Update (04/17/15): For the 2014-15 NBA season, the Miami Heat produced an average rating of 5.02 on Sun Sports, good for fourth in the NBA despite the team losing LeBron James, suffering through a rash of injuries, and missing the playoffs. That means an average of 82,000 of the 1.63 million TV households in the Heat’s primary designated market area (Miami-Ft. Lauderdale) were tuned into Heat local TV broadcasts.

“This is a hobby of passion, it’s not a business… The reality is we’re not a big market team. Where we find ourselves struggling is our local TV revenue is smaller than big markets…”

That was Heat owner Micky Arison in July of 2012, describing the difficulties of producing a winning basketball team while maintaining some semblance of profitability under the auspices of the new and far more restrictive Collective Bargaining Agreement.

Local rights deals for sports franchises are in the midst of a tremendous boom in the television landscape that social media sculpts, as regional sports networks (RSNs) bid up prices to secure access to one of the few remaining DVR-proof properties.

In 2011, the Los Angeles Lakers signed the richest local television rights deal in NBA history; the 20-year contract with Time Warner Cable included the launch of two new regional sports networks – one English channel and one Spanish channel – and averages a payout to the Lakers of approximately $200 million per year, for a total value of $4 billion!

To give you an idea of just how astronomical that is: It’s roughly 10x the $20 million payout the Heat currently generates from its own longstanding TV rights deal. In fact, the average annual payout on the Lakers’ deal is more than what the Heat currently generates in total revenues!

The Heat is at a substantial disadvantage when it comes to negotiating the payout on its local TV rights deals. That’s because the size of a team’s local TV rights deal is directly proportional to the projected number of TV households tuned into its broadcasts. The Heat, by the NBA’s own definition, is a small-market team.

It may shock you to know just how small the Heat’s designated market area (DMA) truly is. The Heat has just 1.66 million TV households in its primary DMA, which includes Miami and Ft. Lauderdale. By contrast, the New York Knicks and Brooklyn Nets have 7.46 million in their shared DMA, the Lakers and Los Angeles Clippers have 5.67 million in their shared DMA, and the Chicago Bulls have 3.53 million. Even the Minnesota Timberwolves have a larger DMA. The Heat’s primary DMA is good for just 17th overall, among the league’s 30 teams.

Miami-Ft. Lauderdale may be small, but it is powerful. Despite the nightlife and weekend distractions that come with such a desirable area, an average of 6.85% of its 1.66 million TV households tuned into locally-broadcasted Heat games on Sun Sports last year. That may not sound like much, but it is. It was the third highest such percentage in the NBA last season, behind only the San Antonio Spurs and Oklahoma City Thunder. To put it in proper context, the playoff-bound Nets had just 0.77% of the TV households in its DMA tune into its broadcasts on YES Network. The Clippers on Prime Ticket averaged just 1.27%, despite being widely considered as favorites to reach the NBA Finals. The Lakers on SportsNet LA, despite the massive new TV deal, averaged just 2.15%. The Knicks, even though they were in playoff contention until the season’s final week, produced ratings on MSG of just 2.18%.


Despite its small market size, the Heat consistently produces above average local TV ratings.

The very high percentage of a very small number of TV households has produced some nice total viewership figures for the Heat. An average of 114,000 TV households in Miami-Ft. Lauderdale tuned into Heat games on Sun Sports this past season. That was good for third in the NBA. The Knicks and Lakers, on the strength of their massive markets and despite declining viewership percentages, averaged 163,000 and 122,000, respectively.

On the strength of similarly strong numbers, rumors began to surface in June 2012 that the Heat was negotiating the terms of an extension with Sun Sports for the carriage of its local television broadcasts.

The Heat has had a successful partnership with Fox’s regional sports network(1), formerly called Sunshine Network, that dates back two decades. Heat games were first televised on the network in the 1993-94 season.

The current deal was originally executed in March 2004, establishing the network as the exclusive regional carrier of Heat games throughout the team’s designated broadcast territory, which includes a total of 2.99 million TV households in the metropolitan areas of Miami–Fort Lauderdale (the Heat’s primary DMA, with 1.66 million TV households), but also West Palm Beach–Fort Pierce–Port St. Lucie (810K) and Fort Myers–Naples (518K). It called for an eight-year term, covering the 2004-05 through 2011-12 NBA seasons.

The rumors were pegging the value of the extension at between $80 million and $100 million per year. Although that represents less than half the amount the Lakers are getting from Time Warner Cable, it would nonetheless have been the second-richest local TV rights deal in the NBA, multiplying the Heat’s current take at least times four!

It all seemed to make perfect sense. The current TV deal could not have been hand-picked to expire at a better time – just after the Big Three construct had secured its first ever NBA championship, in the midst of vastly increasing local television ratings, having increased from a 2.48 share in 2009-10 to a 4.94 share in 2010-11 to a 6.59 share in 2011-12.

The 6.59 share for the 2011-12 NBA season represented approximately 104,000 TV households in its primary Miami-Ft. Lauderdale DMA (and perhaps as much as 180,000 total TV households, when including the 1.3 million additional TV households within the full reach of Heat broadcasts on Sun Sports in West Palm Beach–Fort Pierce–Port St. Lucie and Fort Myers–Naples), and rising quickly.

That’s more than 40% (and potentially a lot more when including all TV households within the full reach of Sun Sports) of the 258,000 TV homes averaged by the huge-market Los Angeles Lakers at the time they signed their deal. Is it all that difficult, then, to envision the Heat negotiating for a deal roughly 40% of the size of that of the Lakers, supported by what at the time was presumed to be a long-term relationship with the NBA’s biggest television-watching guarantee in superstar LeBron James? Perhaps not so coincidentally, that equates to an average local TV rights payout of at least $80 million per season. The rumors, then, seemed to have at least some logical validity.

But rumors of such negotiations were quickly shot down by Fox. “There’s no truth to that report whatsoever,” said Chris Bellitti, Vice President of Communications for the Fox Sports Network. “We are in the middle of a long-term deal with the Heat that has several years remaining.”

In perpetuating the rumors, what many may not have realized was that in 2008, just four years into the current eight-year term, Fox and the Heat had executed a six-year extension to their local TV rights contract, to run through the 2017-18 NBA season.

Which begs the questions: Why would Arison sign such an extension? And why did he sign it when he did, with so many years still remaining on the existing contract?

This was a privately-negotiated transaction. It would be impossible to fully comprehend the circumstances surrounding the execution of the extension. But a couple of facts are known:

1. The extension was executed in 2008, after the Heat had just completed its worst season in team history and, in turn, produced the lowest local TV viewership totals it had ever experienced under the contract. Which begs the following follow-up question: Why would Arison sign an extension to a contract four years prior to its expiration, at a time when his counter-party had such incredible leverage, with the Heat having produced such awful viewership totals?

2. At the time of the execution of the extension, the Heat were already well into their plan to rebuild for the summer of 2010. Which begs another follow-up question: If your general manager is putting all of his efforts into a massive rebuild strategy predicated on creating a title contender for the summer of 2010, wouldn’t you want to align your financial concerns with such a plan?

As it turns out, Pat Riley’s vision did come true. The Big Three era did become a reality.

So when Arison was speaking to the Heat’s local TV revenue being smaller than in big markets, the timing for which he chose to do so – July of 2012 – was rather interesting. The Heat’s small market size, as he suggested, does significantly limit the size of any new local TV rights deal. At the same time, however, he was speaking while knowing that he could have at that very moment been negotiating a new local TV rights deal, possibly worth as much as $80 million per year, had he not elected to sign the six-year extension in 2008.

Arison wound up costing himself big money by signing the extension. How big?

Any incremental revenues from a new local TV rights deal beyond the current $20 million would seemingly contain very little if any incremental associated cost, and thus presumably flow straight to the bottom line.

The NBA, however, imposes its own measure of cost on any new such revenues, in the forms of player salaries and revenue sharing.

Collectively, NBA players are guaranteed to receive roughly 50% of league-wide revenues in the form of salaries and benefits. Therefore, roughly 50% of any increase in the Heat’s revenues would need to be shared with the players. That cost, however, is not guaranteed on an individual team basis but rather by the league as a whole. With 30 teams in the league, the incremental cost to the Heat itself would be negligible (approximately 1/30th of 50% of such new revenues). So whatever incremental revenues the Heat generates, it would lose approximately 1/60th of it to player salaries and benefits (which amount could be lower or higher depending upon the Heat’s spending as compared to the league average).

Revenue sharing represents a potentially more substantial cost. The NBA’s current revenue sharing plan is rooted in a philosophy of including locally generated dollars from the big-market, high-revenue teams to be spread among the low-revenue teams. The core of the plan calls for all teams to contribute an equal percentage, roughly 50%, of their total annual revenues, minus certain expenses such as arena operating costs, into a revenue sharing pool. Each team then receives an allocation equal to a 1/30 share of the pool. Smaller market teams with lower revenues will typically contribute less than they receive, and will be net beneficiaries under the plan. Large market teams will typically contribute more than they receive, and will be net payers under the plan.

There are also limits built into the new plan to protect high-revenue teams, with no team to contribute more than 30% of its total profits(2) in excess of $5 million into the revenue-sharing pool.

The Heat, as a small market team, should in theory be net receivers under the plan. In theory, money should flow from teams in larger market cities to the Heat – as it does for the Florida Panthers and Miami Marlins. However, despite its limited market size, the Heat maximizes its revenue potential better than just about any team in the NBA. Though it is nowhere close to that of the leaders, the Heat still has one of the higher revenue streams in the league. Therefore, the Heat actually becomes a net payer into the revenue sharing system rather than a net receiver. So revenue sharing doesn’t help. In fact, it hurts.

In compliance with revenue sharing rules, it stands to reason that any incremental Heat revenues that may be generated by a new local television rights deal could be reduced by as much as 30% (though hopefully by far less in the years to come, as the revenues of all NBA teams increase; under the current plan, which is subject to review for potential revision this summer, no team is eligible to receive a revenue sharing distribution that would lead it to have a profit(2) in excess of $10 million).

Using $80 million as a baseline figure for what could have been the new average local TV rights payout over a hypothetical 20-year term(3) that started with the 2012-13 season, the Heat might have received roughly $55 million in the first year of the deal, rising to about $105 million in the final year of the deal, with a hypothetical 4% increase kicking in annually.

A gross payout of around $55 million in the first year of the deal would imply incremental revenues of $35 million over what the Heat was being paid in 2011-12, the final year of its current deal. Netting out the costs for player salaries and revenue sharing, that’s roughly $24 million in incremental profits that would presumably have flown to the bottom line in 2012-13 and increasing every year thereafter.

Arison is a wealthy man. He doesn’t need the extra money. But, still, one can’t help but wonder:

How might that extra $24+ million in annual profits have changed the equation for the Miami Heat over the past few seasons?

Would the Heat have elected to waive Mike Miller via the amnesty provision, in a move that was, at the time, projected to save the team approximately $40 million over two years(4)?

Would they have utilized the mid-level exception it abstained from using last season?

How might these changes have convinced LeBron James to stay?

These are questions with answers that can never be known. It’s a past that can never be re-written.

The Heat now need to focus on their future, as they come to a critical negotiation period on what was once thought to become the team’s single biggest source of revenue. We are, again, four years prior to the expiration of the current local TV deal. Past precedent suggests a new extension is coming soon (even if it is not necessarily the wise thing to do).

Arison will face a significant challenge in negotiating a new extension, as he attempts to limit the damage from the loss of superstar player LeBron James.

James has always had a profound impact on the local television ratings of his teams.

The Heat posted the biggest local TV ratings increase of all NBA teams in James’ first year with the organization during the 2010-11 NBA season, doubling the team’s prior year’s viewership mark. The Cleveland Cavaliers, the team James left, conversely saw the biggest decrease that season, with Cavs games on Fox Sports Ohio dropping 54%.

The question for the Heat, then, is how big its viewership drop will be without LeBron, and how any such drop will impact its leverage in negotiations with Sun Sports.

Despite public perception to the contrary, the Heat has always produced strong viewership ratings, even in the worst of times. During the disastrous 2007-08 season, when the Heat had the worst record in the league by a large margin, the team still generated a better-than-average 2.02% rating on local television. Most years, Heat local TV viewership rates in the top ten across the league. But the Heat’s viewership ratings always need to be viewed within the context of its market size. Strong ratings often don’t translate to strong viewership totals for a small-market team like the Heat.

If the last season the Heat played prior to the arrival of James serves as any indication, the Heat will face a significant challenge if it desires to strike a new deal anywhere near the value it might have otherwise received. In 2009-10, despite 2.48% of TV households in its DMA tuning into its broadcasts – ninth best in the NBA – total TV household viewership was just 38,000, exactly one-third the average viewership from this past season.

The Heat may not be able to strike a similar deal to what they otherwise could have had if Arison never executed the 2008 extension, but Arison should still secure himself a financial windfall. Even without LeBron, his team’s current TV deal is still grossly undervalued by today’s standards.

Just last week, the Sacramento Kings – a small-market franchise that plays in the league’s 21st biggest DMA and produces substantially smaller ratings than do the Heat – signed a 20-year local TV rights extension with NBC Sports Group worth approximately $700 million. NBC Sports Group will pay the team approximately $25 million next year, at the start of the long-term deal that will average $35 million. Last season, the Kings on CSN California averaged just 26,000 homes per telecast.

The Heat will surely look to strike a deal to take effect for the 2018-19 season that starts at more than the $30 million the Kings will be getting at the time, but will surely get nowhere close to the $70 million it otherwise might have had (i.e., the remaining life of a hypothetical 20-year deal starting in 2012-13, with a $55 million first year and $80 million average). The question now is where in that range the team will actually fall, and for how many years and with what annual growth rates the new deal/extension will be executed.

In the wake of James’ departure, Riley has reconstructed the team, centered around All-Star big man Chris Bosh, into what figures to be at the very least a playoff contender for the next two seasons, as the organization prepares for the critical free agent summer of 2016.

The promise of things to come for the summer of 2016, then, has a similar feel to what we were all experiencing in the years leading up to the summer of 2010. Only this time around, it could mean far more than just success on the court. It could form the basis for the negotiation of a new local television rights deal to follow.

For Riley, Arison and the Heat, the pressure is on.


In certain situations, local rights deals for sports franchises have gotten out of hand to such an extent that it has caused financial distress. For example, in October 2010, the Houston Rockets and MLB’s Houston Astros reached an agreement with cable network provider Comcast to launch a regional sports network, called Comcast SportsNet Houston. The network launched on October 1, 2012, assuming the rights to Rockets and Astros broadcasts from Fox Sports Houston (which shut down three days later). The Rockets have a 31% equity stake in the channel (the Astros have 46% and Comcast 23%) and are supposed to earn $1.37 billion in rights fees over the deal’s 20-year tenure, a $69 million per year average.

The price paid by Comcast was so high that it required the network to charge extraordinary carriage fees with other cable and satellite TV distributors fees to justify. Comcast was reportedly asking DirecTV, Dish Network and AT&T Uverse to pay a fee of $3.40 per subscriber per month for access to the network, far in excess of the $2.50 that Fox had previously charged for access to Fox Sports Houston. With the Astros, a main attraction for the network, collapsing on the field, demand by Houston sports fans for access to the network wasn’t there. Consequently, TV distributors refused to pay, leaving only about 40% of the Houston market able to watch Rockets and Astros games and the network in financial distress.

Though it only owns 23% of the network, Comcast, as a creditor to the enterprise, having lent it $100 million, forced the network into Chapter 11 bankruptcy in an attempt to scuttle the deal it made with the Rockets and Astros. The bankruptcy proceeding is ongoing.

(1) Sun Sports is a regional sports network that is operated as an affiliate of Fox Sports Networks, and serves the state of Florida. The channel is owned by Fox Cable Networks, a unit of the Fox Entertainment Group division of 21st Century Fox. 21st Century Fox is one of two companies created from the 2013 split of News Corporation (as founded by Rupert Murdoch in 1979); 21st Century Fox retained the previous News Corporation’s broadcasting and film assets and serves as its legal successor, while its publishing assets were spun off to form News Corp at the same time.

(2) To protect teams from backing their way into an elevated revenue-sharing payment, the definitions of both “revenues” and “expenses” for the purposes of the calculations are both strictly defined. The plan makes teams responsible for meeting revenue benchmarks, based on the DMA of the market in which they play. Any team that falls short of its benchmark is credited with excess revenues it didn’t actually collect for the purposes of the calculation – in other words, teams are penalized for underperforming, by being made to appear more profitable than they truly are, and thus requiring them to contribute more to the pool. On the other hand, in order to avoid a team spending its way out of a revenue-sharing obligation (i.e., spending excessively in order to decrease profitability, and thus cause a smaller contribution to the pool), expenses are tabulated by expensive category, each of which is limited in cases where it exceeds the league average by a large enough amount. If a team’s expense in any category is too high, then, for the purposes of the calculation, it is adjusted back down to the threshold amount, making it appear more profitable than it truly is, and thus requiring it to contribute more to the pool.

(3) The longer the deal, the lower the payout in the first year of the contract needs to be in order to get to a target average payout (assuming the payouts increase over time). So, to be conservative, I have assumed a 20-year deal.  

(4) The decision to amnesty Mike Miller was projected to save approximately $40 million over two years. As things have worked out, it will have actually saved a total of about $27 million (roughly $12 million in the first year and, after repeater tax implications, roughly $15 million in the second year). Further, because the Heat were below the tax for the 2014-15 season due to the Miller amnesty, not waiving him via the amnesty provision would have added a year to the “repeater tax” clock, which triggers if a team has paid luxury taxes four times over the past five years. The repeater tax adds $1 for every dollar by which a team is over the tax threshold, over and above the already punitive incremental tax rates. 


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