Not that long ago, regional sports networks (RSNs) were the beachfront property of the pay-TV industry. RSNs had exclusive rights to air local sports teams’ games in their markets and rabid fans willing to pay virtually any price to watch (especially if the local team was having a winning season). But the icing on the cake was that even non-fans were often paying for pricey RSNs, because their fees cleverly became inseparable from the most popular TV packages. In short, RSNs practically had a license to print money.

But few things last forever, and RSNs have become the latest example of the Internet’s disruption. Yesterday, the NY Post reported that AT&T’s auction of four of its RSNs, in Denver, Houston, Pittsburgh and Seattle, has drawn meager interest. AT&T was looking to sell the group for around $1 billion, but the bids have come in “around or below $500 million.” A big red flag was the four RSNs’ financial performance - an expected drop in earnings from $115 million in 2019 to just $55 million in 2020.

The shortfall is due to fundamental changes in the RSN business: teams want more money for broadcast rights, pay-TV operators want to pay less, cord-cutting is cutting the number of homes that receive RSNs, fan interest is flagging particularly in certain areas where teams’ performance is woeful, etc.

As if all that’s not enough, the Internet has brought massive competition for viewers’ time. The proliferation of high-quality entertainment options in the current “Peak TV” is unprecedented. Night after night, in tens of millions of American homes viewers are asking themselves, how much of the 3 hour game (if any) do they want to watch, instead of binging the latest greatest show on Netflix, Amazon, Hulu, etc.? Even if they start watching the game, if it quickly becomes one-sided, the interest level wanes further.

The net result is that RSNs are being boxed into a corner where eventually only the hardest-core fans will tune in for any meaningful period of time. The lower the ratings, the lower the monetization (both ads and fees) that the RSNs will receive. This is the problem that all prospective RSN buyers understand. How do you value a business where every macro trend is against it, and accurately predict the timing/impact of these trends on the business’s fundamentals?

Nearly 9 years ago, in “Expensive Regional Sports Networks Are Becoming Pay-TV’s Achilles Heel” I wrote about RSNs’ vulnerability, especially given their rising costs. Still, RSNs hummed along for a while, milking their cash cows for everything they were worth. Reality is now hitting AT&T and others in the RSN ecosystem.