Obligation to Cut Down on Debt Load Has AT&T Exploring Sale of RSNs

JohnWallStreet

AT&T is reportedly exploring the sale of the four regional sports networks (AT&T SportsNet Pittsburgh, AT&T SportsNet Rocky Mountain, AT&T SportsNet Southwest and Root Sports Northwest) that it acquired in its $85 billion takeover of Time Warner, Inc. The company has struggled to assimilate the well-established WarnerMedia assets into its portfolio and could use the cash that the RSNs would fetch to acquire additional live broadcast rights or pay down debt; the telecom giant is more than $180 billion in the red and CEO Randall Stephenson is intent on eliminating $8 billion in liabilities before the end of 2019. Bloomberg reported that AT&T is yet to start "a formal process to sell the networks and there are no guarantees a deal will be announced.”

Howie Long-Short: AT&T is considering dumping the four RSNs because they simply don’t fit with Turner Sports’ sales strategy any longer. Octagon SVP (global media rights consulting division) Dan Cohen explained that "the RSNs controllocal broadcast rights, which makes them difficult to bundle with national broadband, national mobile and national pay-TV packages.” AT&T's digital approach to the RSNs - limiting viewership to those using the company’s streaming service - also conflicts with today’s “be everywhere, all the time” mentality. Cohen said that “while limiting carriage makes sense as a method of driving MVPD subscriptions, its counter-intuitive to how millennials and Gen-Z’s want to consume content” - on the digital distribution platform of their choice.

Should AT&T decide to sell the lot of RSNs, they're likely only going to fetch upwards of $1 billion. The inclusion of some less desirable markets (see: Rocky Mountain, PNW, Pittsburgh), the pending expiration of several T-1 media rights agreements (and the anticipated increase in price to retain those rights) and a limited pool of potential buyers have all contributed to the networks’ depressed valuation. The Pirates, Rockies and Jazz (3 of the 8 big four teams that have local broadcast deals with AT&T) are all either currently re-negotiating terms, or will be soon with agreements expiring no later than 2020-2021.

While it’s unclear how AT&T would spend proceeds from a sale of the four RSNs, Chris Lencheski (a private equity executive, a former Comcast-Spectacor executive and the CEO of Winning Streak Sports) believes that the company has an obligation to “their board and the people who trade the paper, to take what is effectively free capital from the sale and cut down on their debt load.” Lencheski reasons that the losses of David Levy and Richard Plepler also make it less likely that the company would pursue the few highly desirable properties (think: NFL Sunday Ticket) that are coming available as the prior mentioned execs had a great "lens" to the "narrative" to sell the leagues, viewers and their respective advertiser bases.

JohnWallStreet readers have been aware that AT&T’s lot of RSNs were on the market since we noted in Early Entrants Vol. XI (June 24) that Sinclair Broadcast Group (SBGI) was “desperately trying to buy” the cable channels. While that remains the case - the company has a bridge loan in place with J.P. Morgan so that it can close - Cohen says that he’s not sure SBGI is a shoe-in to take down the lot. “If the Sinclair-Disney deal goes through, they’re going to be sitting on 23 RSNs. The DOJ could certainly oppose their pursuit of four more.”

Lencheski - who was the first to peg Sinclair as the most likely landing spot for the Fox RSNs back within JWS’ Nov. 19th newsletter - doesn’t even think AT&T's assets are worth Sinclair’s trouble. He said, “the company is in the driver’s seat on a transaction that would reshape the live sports broadcasting space. Why jeopardize that upside to buy four small [relative to market size] RSNs?

SBJ’s John Ourand noted in his weekly media column that Comcast would be another logical acquirer. The company already owns 8 RSNs (+ a stake in SNY) and the four AT&T networks all reside in Comcast cable markets. Acquisition of the lot would position Comcast behind only Sinclair Broadcast Group in an industry where scale is everything. It’s unclear if Liberty Media Corp. - another bidder for the lot of Fox RSNs - would pursue these channels. The BIG3 group is unlikely to get involved in the bidding unless the Fox lot were to hit the market once again (i.e. DOJ rejects the SBGI deal).

Fan Marino: It’s worth noting that Lencheski doesn’t believe AT&T will retain Sunday Ticket. He believes that ship has sailed, saying “they knew they weren’tgoing towin the rights again - otherwise they would have included it in their preps; plus they had access to what the package did numbers wise for DirecTV.” In other words, they know the new costs outweigh their upside with AT&T's business model.

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