It’s been a big week for the New York Yankees. First the team won a bidding war for Japanese pitching phenom Masahiro Tanaka. Then, today, Fox announced that it will raise its stake in the team’s YES regional sports network to 80% from 49%. When the deal closes, expected by the end of March, YES Network will be consolidated into Fox’s financials. The companies didn’t disclose the size of Fox’ investment; it paid $3.4B for its minority stake in 2012. But it “underscores our commitment to growing our global sports portfolio with offerings that are exceptional and unique,” says Fox Deputy COO James Murdoch. The entity that owns the baseball team — the Steinbrenner family’s Yankee Global Enterprises — will own the remaining 20% of the network. The group’s chairman, Hal Steinbrenner, says that it’s “eager to continue working with 21st Century Fox as we explore ways to take YES to even greater heights.” It has a lot of ground to make up: YES’ ratings plummeted more than 31% in last year’s baseball season as the Yankees, beset by injuries, fielded comparatively few stars and failed to make the playoffs. But Fox is making a long-term bet on sports. Last year it converted motor sports network Speed into a general sports channel Fox Sports 1, and turned Fuel TV into Fox Sports 2. COO Chase Carey calls sports “the most powerful programming out there” although he recognizes that the high costs for licensing …
Looks like News Corp’s trying to boost the Deputy COO’s profile on Wall Street: James Murdoch’s appearance today at the Morgan Stanley Technology, Media and Telecom Conference was his second high-profile presentation to investors this month. (He was also on News Corp’s latest earnings call.) Rupert’s son, who last year had to defend himself against allegations that he was at least partly responsible for News Corp’s UK hacking and bribery scandals, seemed to relish the largely friendly questions about the company’s plans. He assured the audience that the company won’t go overboard in buying rights to sports programming amid reports that News Corp plans to create a national sports network. “It’s important to have a portfolio of rights where you can walk away,” Murdoch says. For example, the Los Angeles Dodgers wanted payments that were “too rich for us,” leading the team to create its own regional sports channel.
It sure looks that way. If the current arrangement breaks apart, giving way to a system where consumers can buy just the programming that they want, then high-priced channels such as the YES Network could lose their slugging power faster than, well, New York Yankees’ aging star Alex Rodriguez. That doesn’t seem to have factored into Rupert Murdoch‘s thinking for his deal today to buy 49% of the nation’s top regional sports network. The agreement values YES at $3B, or 15 times its annual cash flow. It also gives Murdoch an opportunity to buy 80% of YES with the channel valued at $3.8B, or 19 times cash flow. How high is that? If you applied the same back-of-the-envelope formulas to ESPN, it would be valued anywhere from $45B to $66.5B, Bernstein Research’s Todd Juenger estimates. Either number is far more than investors figure ESPN is worth; Disney’s entire market value — including ABC, the theme parks, and the studios — is $87B.
YES Network has local media rights to the New York Yankees and Brooklyn Nets and becomes the newest regional sports network for News Corp. The network commands almost $3 per subscriber per month in fees, according to SNL Kagan, making it among the most lucrative RSNs in the country. (Time Warner Cable’s new LA channels that carry the LA Lakers get a reported $3.95 per sub per month.) The News Corp-YES deal means current owners Yankee Global Enterprises, Goldman Sachs and others will reduce their stake, and News Corp has the option to acquire an additional stake after three years that could give it up to 80% of the network. No other deal terms were announced, but the acquisition is reportedly valued at $3 billion — lower than the $4 billion sellers had suggested. Here’s this morning’s release:
NEW YORK – November 19, 2012 – News Corporation (NASDAQ: NWS, NWSA; ASX: NWS, NWSLV) and Yankee Global Enterprises today announced an agreement that calls for News Corporation to acquire a 49 percent equity stake in the Yankees Entertainment and Sports Network (YES). The YES Network delivers exclusive live local television coverage of New York Yankees baseball and Brooklyn Nets basketball, as well as other leading local and national sports-related programming. The YES Network also announced a media rights agreement that will keep Yankees baseball on the YES Network through 2042.
The media rights agreement is subject to Major League Baseball approval. The investment is expected to close by the end of the calendar year.
News Corp’s impending purchase of up to a 49% stake in the New York Yankees’ YES Network values the regional sports service at $3 billion, the New York Times reports. That’s lower than the $4 billion sellers had suggested YES was worth. News Corp prefers 100% ownership of its regional networks but even a minority stake in YES would be lucrative. YES is the most valuable of the regional sports networks, and the Times said the deal would include a route for News Corp to gain control of YES within 3 to 5 years but at a higher network valuation of $3.5 billion. The price for a stake in YES further illustrates the soaring figures paid for sports. The Yankees own 34% of YES; another 40% is owned by Goldman Sachs and Providence Equity, and the remainder is held by former owners of the Nets through an entity known as Community Youth Organization. The Yankees and News Corp have a family connection, the Times noted. The late George Steinbrenner and Rupert Murdoch were friendly and James Murdoch sits on the board of the team’s holding company Yankee Global Enterprises. YES also televises Nets basketball games.
Rupert Murdoch’s company is nearing a deal to buy out stakes in the New York Yankees’ regional sports network that are owned by private equity companies including Goldman Sachs and Providence Equity Partners, I’m told. The sellers are said to have wanted to value the network at as much as $4B, although News Corp deemed that way too high. But a deal with YES would add immeasurable strength to the company’s collection of sports networks which include Big Ten Network, Fox College Sports, Fox Soccer, and Speed. YES reaches more than 12M pay TV homes, and generated $474.3M in revenue last year, SNL Kagan estimates. About $69M came from advertising with the rest from pay TV affiliate fees of about $3 per subscriber per month. The private equity firms own about 66% of the network while Yankee Global Enterprises — which includes the Yankees — controls the remaining equity. News Corp Deputy COO James Murdoch sits on the Yankee Global Enterprises board. The private equity firms had been eyeing a possible exit for a while, but their interest in a deal grew this year when they saw the Dodgers attract $2B in its sale to Guggenheim Baseball Management, which includes former Los Angeles Lakers star Magic Johnson.