With plenty else to chew on during this busy week of earnings, stock volatility and political strife, the media business now enters the weekend with a fresh round of speculation about a key piece of the overall M&A puzzle.
The portfolio of 22 regional sports networks owned by 21st Century Fox must be divested by Disney as a condition of federal regulators’ approval of its $71.3 billion purchase of most of Fox. A CNBC report today, citing anonymous sources, asserted that Fox is in pole position to re-acquire the assets, and likely at a significant discount to the current valuation around $20 billion.
It is very early in the process. As Sports Business Journal reported, Disney has only recently circulated deal books. While the Disney-Fox deal is just weeks away from its expected closed, Disney can divest the RSNs up to 90 days after the closing date. The Department of Justice also could grant additional 90-day extensions for the transaction.
Reps for Fox and Disney did not respond to Deadline’s request for comment.
New Fox makes the most sense of any potential buyer, mainly for the reason that no one else would have the cash, wherewithal, regulatory path or incentive to shell out billions for the entire string of networks, which includes YES in New York. The networks are considered beachfront property in the media business given that they air thousands of NBA, NHL and Major League Baseball games a year — a rare draw for live viewing and therefore a boost to advertising and carriage fees — as well as high-profile college games. For Fox, the RSNs would complement the Fox broadcast networks and all-sports cable operations FS1 and FS2, just as they did before the Disney deal.
Among the other major broadcast players, NBCUniversal’s parent Comcast is in the midst of digesting its $40 billion Sky deal, and combining the RSNs with its other sports holdings could raise alarms in Washington. CBS is keen to emphasize sports, but has other priorities in its post-Les Moonves makeover amid delicate interactions with controlling shareholder National Amusements. On the cable side, Turner is now part of AT&T, which is battling debt loads of four times earnings, to Wall Street’s consternation. Another big M&A deal is not in the near-term cards.
Contrary to some early speculation, insiders say it is unlikely that technology giants like Amazon or YouTube would get involved in bidding, because of the limitations the leagues place on professional games. Milwaukee Bucks games, for instance, can’t be broadcast beyond the 1.5 million people who live in and around the city. The same is true of New York Yankees games, whose YES Network coverage is restricted to the metropolitan area, to carve out exclusive national broadcast rights for major television networks.
One high-ranking digital executive at a major company told Deadline the business model of the RSNs is at odds with those at multi-national tech companies, who are focused on scale. “The carriage fees are the highest at the center of these regional markets, where fans are likely to tune in,” the executive said. “Outside of those avid fans at the center of the bull’s eye, there’s not a lot of reason to take these networks on because you’d have to charge customers a lot to stream these networks.”
On the other end of the spectrum, the players who could still have, as lawyers like to say, motive and opportunity includes Sinclair Broadcast Group. At the NAB Show New York last week, Sinclair CEO Chris Ripley said the company is considering a bid for the RSNs and doesn’t consider the FCC’s thwarting of its $4 billion Tribune Media buyout as any kind of overhang. Other prospective bidders have signaled preliminary interest, including buyout firms such as Blackstone Group, Capital Partners and Apollo Global Management.
Industry insiders say Sinclair has a compelling interest in the RSN’s because of its stake in Stadium, a multi-platform sports network that provides around-the-clock collegiate sports programming for broadcasters and digital platforms.
Sinclair tried to build an old-fashioned syndicate of television stations, assembled market by market, to air college games. The venture struggled for success. Last year, Sinclair combined its American Sports Network, with its rights to distribute live NCAA Division I games, with two other entities, 120 Sports’ studio programs, with Campus Insiders’ college-focused website and internet streaming, to form Stadium. Stadium’s equity partners include BAMTech, the NHL, the PGA Tour and Meredith local stations.