Media companies swing big bats for regional sports networks
November 21, 2012 - 9:45:36 am
LOS ANGELES/NEW YORK: News Corp's investment in the New York Yankees baseball channel YES Network illustrates the new normal in media: multibillion dollar deals, once reserved for rights to carry the Olympics or NFL football, now apply to regional sports channels as well.
Rupert Murdoch's Fox Sports said on Tuesday that it will buy a 49 percent stake in YES, valuing the local sports network around $3 billion. That is 50 percent more than the $2 billion paid for the Los Angeles Dodgers baseball franchise by a group led by private equity firm Guggenheim Partners six months ago.
While Walt Disney Co's ESPN remains the giant in the marketplace, with cable rights for many major sporting events sewn up for years, other media conglomerates are building regional sports channels that show games from local colleges and professional teams that ESPN or other national channels do not carry.
Disney's rivals are eyeing the lucrative $5.15 monthly subscription fee that ESPN can command for each customer, according to media consultant SNL Kagan, the highest among cable channels. Fox Sports North, the most lucrative of the 12 Fox regional sports channels tracked by SNL, collects $3.68 a month for each subscriber.
"The problem is that there just aren't many more high-profile sports (rights) out there," said former NBA Television and New Media Ventures President Ed Desser, whose Los Angeles-based consultancy advises on sports rights deals. "Most of them are spoken for, so when one comes up, there's the possibility of an overheated bidding market."
The YES deal follows Time Warner Cable Inc's acquisition last year of the rights to carry the Los Angeles Lakers basketball games for the next 20 years for $3 billion.
Time Warner's LA-based SportsNet said it intends to bid on a contract to carry Los Angeles Dodgers' games if Fox Sports cannot reach an agreement to extend its contract during an exclusive negotiating period that ends in a few weeks. That TV deal is expected to cost $3 billion or more, industry experts said.
The scramble for regional sports networks reflects the broader competition playing out in the national and international sports markets as well.
On the national level, Fox and Turner Broadcasting signed an eight-year broadcast deal with Major League Baseball worth up to $7.4 billion in October. And in early November, Comcast Corp's NBC won the rights to air England's Premier League soccer, reportedly offering three times more than what Fox had been paying.
Media companies justify the sharply higher sports costs by charging cable and satellite operators more to carry the channels, arguing that local teams have rabid followings and viewers are more likely to watch games live than record them on DVRs for viewing later.
In new contract talks, Fox plans to negotiate higher carriage fees for YES, which currently charges $2.99 a month per subscriber, a source told Reuters. Some of YES's biggest carriage agreements expire in the next 18 months, including ones with Time Warner Cable and Comcast, according to the source.
But there are limits to fee increases. Despite holding the Lakers' broadcast rights, Time Warner Cable was unable to get satellite operator DirecTV, the largest pay-TV operator in Los Angeles, to pay the $3.95 monthly charge it demanded for every subscriber. DirecTV agreed to pay an average of only $3.40 per subscriber, said two people with knowledge of the deal.
A DirecTV spokesman declined to comment, as did a Time Warner spokeswoman.
MORE DEALS ON DECK
Rumors are rife about other potentially large deals on the horizon.
SportsCorp Ltd president Marc Ganis, who advised the Yankees in the past on several issues, said he heard the New England Sports Network, which is owned by baseball's Boston Red Sox and the Boston Bruins hockey franchise, could be up for sale, along with the Red Sox franchise. Another potential target could be Altitude Sports & Entertainment, which provides Colorado Rockies and Denver Nuggets games to 3.1 million homes, he said.
A spokeswoman for the Red Sox, however, said its owner John Henry is not looking to sell the team or "any part of Fenway Sports Group including NESN." And Jim Martin, chief executive of Kroenke Sports and Entertainment, which owns Altitude along with several Colorado sports teams, said the company was not interested in selling.
Fox, Comcast and Time Warner Cable are potential bidders for anything that comes on the market, aiming to chip away at ESPN's dominance. Comcast runs the 24-hour NBC Sports Network and has 13 regional channels, according to SEC filings. Fox, which has 20 regional channels, is expected to launch its own national sports network next year.
"Everyone is either making a serious run at competing against ESPN, or taking a serious look at making a serious run," said former Viacom Inc and Universal Studios CEO Frank Biondi, who is a board member and investor in the Tennis Channel.
ESPN is estimated to generate more than $8 billion a year in fees and ad sales, according to SNL Kagan. Bernstein Research valued ESPN at $66 billion on Tuesday, which would be equivalent to three quarters of Disney's market value of $87 billion.
Biondi said the Tennis Channel would likely be up for sale down the road. (Reuters)