In an SEC filing, 21st Century Fox has confirmed it will not bid on any of its regional sports networks that are headed to Disney as part of the company’s acquisition of Fox assets and then sold off again per a regulatory agreement.
Disney has agreed to divest of the RSNs as a condition of getting approval from the U.S. Department of Justice for its $71.3 billion Fox deal. Regulators were concerned about the RSNs being combined with ESPN assets and creating a monopoly.
Although ratings for linear networks remain challenged, the RSNs are considered beachfront property because sports has been resistant to the secular downturn in live viewing.
Fox’s executive chairman Lachlan Murdoch, who will lead the post-merger Fox entity, said at the New York Times Dealbook conference last November that the notion of bidding on the RSNs was an “open question” and that the company “will be inquisitive” on the matter. The new Fox will control a pared-down set of assets including the Fox broadcast network, local TV stations, Fox News and FS1, prompting speculation that it would want to plug the RSNs back in given the synergies with Fox Sports and FS1.
Bidding has been vibrant for the portfolio of networks, whose value has been estimated at $15 billion to $20 billion, with dozens of suitors taking a close look. The New York Yankees are calling the shots for their network, YES, the most lucrative RSN, and are reportedly in talks for a deal involving Amazon as a streaming partner. YES is seen as likely to detach from the RSN bundle given its higher-grade financials and the national appeal of the Yankees.
Among those expressing interest in the non-YES RSNs have been a mix of private equity firms, sports leagues like Major League Baseball and station groups like Tegna and Sinclair Broadcast Group, as well as some individual bidders like Ice Cube.
A CNBC report this morning put Sinclair at the head of the pack, and certainly CEO Chris Ripley has not shied away from talk of an RSN bid in his recent public comments. Leo Kulp, an analyst with RBC Capital Markets, issued a report in response to the Fox filing that projected a boon to Sinclair stock if the company were to prevail (with help from a private equity partner, who would need to shoulder at least half of the expense). “The deal could be attractive both strategically and financially,” he wrote. “Strategically, it would diversify SBGI’s key risks around core ad trends in the near-term and reverse comp over the longer-term.”
The timing of the overall Disney-Fox deal will influence the timeline of the RSN selloff, but it needs to move fairly quickly by billion-dollar M&A standards. While regulators in the U.S., Europe and China have signed off, officials in key territories including Brazil are continuing their review the $71.3 billion merger, which the companies have projected will close in early 2019.
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. Currently the top local TV station owner in the U.S., the Maryland-based company was rebuffed by the FCC last summer in its effort to buy Tribune Media for $3.9 billion. Rival Nexstar then swooped in, setting a $4.1 billion deal for Tribune.
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 1 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.
Sports industry insiders see a Stadium’s portfolio of college sports games and commentary as a potentially successful complement to the sports rights held by Fox’s RSNs. Sinclair also owns the Tennis Channel, a niche cable network it bought in 2016 for $350 million.
While tech giants like Amazon or YouTube are disrupting the TV ecosystem across the board, one obstacle to them bidding for all of the RSNs is the set of limitations placed by sports leagues on games. Games involving the NBA’s Milwaukee Bucks, for instance, can’t be broadcast beyond the state of Wisconsin. There is also a metro-area boundary around Yankees games, whose YES Network coverage is restricted to the metropolitan area, because of carved-out national broadcast exclusives for major television networks.