Yankees, with Help from Amazon, Sinclair (and others) Reclaim YES Network

JohnWallStreet

The New York Yankees, Amazon and Sinclair Broadcast Group (along with Redbird Capital, Blackstone Group and others) have agreed to buy Disney’s 80% stake in YES Network for $3.47 billion. YES is considered the crown jewel of the 22 Fox RSNs that Disney (DIS) acquired for +/- $20 billion as part of a $71.3 billion purchase of Rupert Murdoch’s entertainment assets. The Yankees, which already owned 20% of the regional sports network, will become YES’ new majority shareholder as the club’s interest grows “close to 30%.”

Howie Long-Short: When DIS agreed to buy the Fox RSNs, it presumed that on an open market YES would command bids between $5-6 billion and that the remaining 21 networks were worth upwards $15 billion (they’re likely to fetch closer to $10 billion now), so DIS certainly wasn’t planning on taking a loss in its efforts to comply with antitrust regulations. But as the TV bundle continues to fray and the number of cord cutters/cord-nevers opting for streaming services grows, they’re simply not as valuable as they once were. The shift in perception has taken place over the last 5 years. When Fox increased their stake in YES back in ’14, it was valued at $3.9 billion - up from $3.4 billion, when the Yankees initially sold them a minority stake in ’12.

YES Network would have commanded significantly more money if it held nationwide streaming rights to Yankees games - or local streaming rights past ’19, but with MLB in control of them and no indication that they’ll be re-assigned to the individual franchises, one can understand why the purchase price was underwhelming. Harvey Schiller, former CEO of YankeeNets, told me that concerns about the viewing habits of the younger generation - whether you’re talking about cord cutting or the likeliness that they’ll follow baseball like the generations prior” may have also impacted bid prices.

Youth baseball participation is on the rise (we’ll have a story on it later this week), so I’m not particularly concerned about Gen-Z taking an interest in the game, but a perception exists - at least amongst Wall Street investors - that there’s limited demand for sports programming within that demographic. Some say that Amazon’s participation in the deal is a positive sign for the future of sports media, but that seems optimistic; Harvey says it’s more likely the company sees the deal as a “way ofsumming what they already have.”

The Bronx Bombers were wise to align with both Amazon and Sinclair Broadcast Group (SBGI) from a strategic standpoint. Sinclair gives the franchise the opportunity to continue to grow linear distribution, while Amazon provides them with the streaming capabilities (Prime Video) to increase OTT viewership. Harvey believes that “there’s also a sponsorship component to be made.”

On the other side of the deal, YES (has rights to Yankees, Nets and NYCFC games) provides SBGI with leverage in negotiations with New York area distributors (for channels like Stadium and Tennis Channel), while Amazon picks up the chance to “cross market their products to 4-8 million new households (it’s the most watched RSN), in a very attractive area; it’s a model I [Harvey] believe the other digitals - Hulu, Netflix – will look to follow as they seek to grow viewership.”

Now that DIS has found a buyer for YES, look for the company to unload the remaining 21 RSNs in short order. We first suggested Sinclair as a potential landing spot on Nov. 19th and their decision to take equity positions in both YES and Marquee Sports Network have done little to quail our suspicions; neither have reports that the company is “sitting on a lot of cash” and maintains the lowest debt level in company history, for that matter.

Fan Marino: MLB is among the bidders for the lot of 21 RSNs, not because they foresee a revenue growth opportunity, but out of fear that a PE buyer looking solely at the bottom line wouldn’t invest in the promotion and marketing of its small market teams. Their 2nd round bid was reported to be worth +/- $10B.

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