MLB, Liberty Media Last Bidders Standing for 21 Fox RSNs

JohnWallStreet

Major League Baseball and Liberty Media (backed by Platinum Equity and Twins owner Jim Pohlad) have submitted non-binding tenders - prior to the yesterday’s deadline - to purchase the 21 regional sports networks that the DOJ has required the Walt Disney Company unload to complete their acquisition of 21st Century Fox’s entertainment assets. It was believed that the Sinclair Broadcast Group (with backing from Apollo Global Management) had also submitted an offer, but CNBC has since reported that the pair is out of the bidding - at least as a package; the story indicated that Sinclair could join another bid. Bloomberg reported that the bids submitted valued the lot between +/- 6-8x EBITDA, roughly half of what Disney had expected when it agreed to the $71.3 billion deal with Fox.

Howie Long-Short: 21st Century Fox sold Disney 22 RSNs, but the lot for sale only includes 21 as the Yankees intend on reclaiming control of the YES Network (currently own just 20%). YES, once thought to be worth $5 billion-6 billion, is now expected to fetch just $3 billion-4 billion.

At 6-8x EBITDA, the value of the RSNs is closer to $10 billion than the $22 billion analysts had initially projected. When the likes of Comcast, Discovery and Fox are out of the bidding - and the tech giants show minimal interest, as Dan Cohen, SVP Global Media Rights Consulting at Octagon explains, “you’re left with the next set of potential buyers; and there's large gap between Sinclair and Fox or Verizon.”

Dan isn’t so sure that Disney (DIS) would be willing to take that kind of bath on the sports networks though. He suggested that if the bids came in sub $10 billion, DIS could approach the DOJ about taking the negotiations private again - as opposed to spinning off the RSNs and ceding operational control (another rumored potential solution). Disney could “claim that the DOJ forced a public sale to the detriment of the company, that they would be taking a massive loss on the deal and that they should now be allowed to run the sales process the way any private company normally would. Remember, DIS overpaid on the Fox acquisition - by a lot - thinking they would have a $20 billion asset to re-sell that would help to offset acquisition costs; they need to recover that premium.”

Fan Marino: MLB’s interest in acquiring the RSNs is to “take control of their own destiny with regards to content distribution (remember, they already control the streaming rights). Adding 21 RSNs makes MLB network more attractive from a content perspective and packaging the network with the lot of RSNs would give the league a lot of leverage in the marketplace when they go to negotiate carriage deals. Baseball is the life blood of these RSNs. They provide the most content, the most live programming.”

MLB has backing from the Canada Pension Plan and seeks a strategic partner to help with carriage distribution, but you won’t find them partnering with any of the cable distributors. That’s because “MLB wants to remain agnostic so they have leverage in the marketplace when they go to negotiate against Comcast, Verizon, Sinclair, Liberty and everyone else. If they tie themselves to one distributor, they're kind of pegging themselves to a discounted carriage rate; that has the potential to negatively impact the carriage rates and carriage fees they’ll be able to drive out of the other MVPDs.”

Baseball fans in small markets (think: Minnesota) should hope MLB ultimately owns and operates the networks because the alternative is not pretty. “A private Equity firm (like Platinum Equity) will come in, streamline operations, strip the business down to its bare bones and then sell it. We are in an age where content is changing so rapidly and requires such a large investment to make it meaningful (think: upgrade to HD or 4K distribution, adding enhancements to graphics, interactivity, more shoulder programming). P.E. is not going to pump a ton of money into these channels and operate them as best in class. They're going to put money in where they need to be strategic and cut costs where they don't. The RSNs that don't drive value are going to be ignored and their broadcasts will suffer accordingly. Private Equity is not going to try to grow small markets like they would New York or Los Angeles.”

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