Comcast Preparing to Divest 22 Fox RSNs, To Submit 2nd All-Cash Bid by July 27th  

Comcast

Comcast (CMCSA) is reportedly lining up buyers for 21st Century Fox’s (FOXA) regional sports networks to alleviate anti-trust concerns, as it prepares a bid that would be favorable to The Walt Disney Company’s (DIS) $71 billion dollar offer (cash and stock) for FOXA film & TV assets. CMCSA is open to divesting all 22 RSNs, but believes just 8 overlap with the existing Comcast sports footprint. Reuters is reporting that the company has held conversations with publicly-traded buyout firms Apollo Global Management (APO) and Blackstone Group (BX). Just 2 weeks ago, the U.S. Department of Justice approved DIS’ bid after reaching a settlement with the mouse house to rid itself of the regional sports networks.

Howie Long-Short: It’s been assumed that the RSNs will fetch $20 billion+ (Comcast’s first bid placed a $24 billion valuation on them), so selling them off will help Comcast coffers as the company prepares to submit a 2nd all-cash bid (no dollar amounts given). FOXA shareholders are scheduled to vote on the DIS bid on July 27th, Comcast will submit their bid prior.

Rumors of P.E. firms taking down the RSNs is relatively surprising as most of the discussions surrounding potential landing spots having focused on telecom and media companies. Everyone from Amazon (AMZN) and YouTube (GOOGL) to AT&T (T) and Dish Network (DISH) has been mentioned.

I asked T.K. Gore, sports media consultant, advisor and professor, for his thoughts on who lands the RSNs?

T.K.: The RSN world is a tricky business and experience — coupled with deep pockets — matters. Look for groups like Liberty Media and AT&T to get involved given their experiences.

MSG is among the companies that has been associated with having interest in the regional networks. James Dolan has said that he’d be interested in acquiring the assets “at the right price”, noting they’re highly profitable now but a “slow, declining revenue stream.”

Fan Marino: The 22 RSNs collectively control exclusive broadcast rights to 44 NFL, NBA, MLB & NHL franchises, including teams in Detroit, Southern California, Dallas, Cleveland and Miami. The YES Network is the most valuable of the lot, worth an estimated $4 billion; the Yankees are likely to re-acquire that network.

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BT to Carry Amazon Prime Sports Content on Cable Television

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BT has signed a carriage agreement with Amazon that will bring sports content from the Prime Video library (along with movies and television shows) to cable television (BT TV). Effective immediately, BT TV subscribers will receive complimentary access to the Amazon Prime Video streaming service, ensuring British soccer fans can to watch every ’19-’20 EPL match via their set-top boxes; Amazon recently acquired the exclusive rights to broadcast 20 matches/season in the U.K. and Ireland, beginning in 2019-2020. Financial terms of the Amazon carriage deal were not disclosed.

Howie Long-Short: It was just 3 weeks ago that the EPL announced Amazon (AMZN) and BT Sport (BT) had won exclusive rights (in U.K. and Ireland) to the last 2 broadcast packages available for 3-year period beginning in ’19-’20; each containing 20 games/season. While terms of the Amazon deal were not disclosed, BT Sport reportedly signed a pact worth $40 million/year. Back in February, the EPL announced BT won package A ($409.3 million/season, for 32 matches/season), while SKYAY took home packages B, C, D & E ($1.655 billion/season, for 132 matches/season). Content sharing agreements with both BT Sport and Sky Sports ensure BT subscribers have access to all EPL games.

As for AMZN, the company posted its most profitable quarter ever in Q1 ’18. It grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter. AMZN shares are down 5% since SCOTUS ruled states and local governments can collect sales tax from online retailers (’92 ruling said internet was a tax-free haven) back on Wednesday June 20th, closing on Monday at $1,663.15.

Fan Marino: In addition to the EPL, Amazon has exclusive broadcast rights (in U.K. and Ireland) to the U.S. Open Tennis Championships (through ’22) and ATP World Tour. BT subscribers will also receive access to those events at no additional charge.

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Facebook Unveils FB.gg to Compete with Twitch

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Facebook has unveiled a homepage for streaming gaming content to supplement its Gaming Creator program. The new destination FB.gg, designed to compete with Twitch (think: social network for gamers), aggregates gaming videos, suggests live streaming feeds, showcases creators (discoverability is an issue on Twitch) and enables users to search content by game title. The social media giant also announced that it would be introducing functionality offering viewers the opportunity to tip ($.01/per) broadcasters, giving emerging creators the chance to monetize their work. The Level Up program has not yet been rolled out, but a select group of gamers have been allowed to charge fans ($5) to subscribe to their channels.

Howie Long-Short: Facebook is looking to take its cut of a video game streaming market that generated $4.6 billion in revenue last year; 37% of which was controlled Twitch. The company will profit from FB.gg by taking a percentage of the transaction amount when a viewer buys Facebook Stars, the virtual currency used to tip streamers. The percentage will range from 5%-30%, depending on the number of stars included within the “pack” (more stars = lower percentage).

Back in late April, Facebook reported Q1 ’18 earnings increased +62% YoY (to $1.69/share adjusted) on revenue that grew 49% (to $11.97 billion), bouncing back strongly from the Cambridge Analytica scandal. Ad revenue (+50% YoY, avg. revenue per user was $5.53), operating margin (+5% YoY, to 46%) and usership (+13% YoY) also all rose during the most recent quarter. Shares popped 8.5% after FB posted Q1 ’18 financials and have steadily climbed since, closing Tuesday at $192.40.

Twitch was acquired by Amazon (AMZN) for $970 million in 2014. The company increased concurrent viewership +21% during Q1 ’18 (to 953,000), growing its already large lead in the game streaming market over 2nd place YouTube Gaming (GOOGL, -12% to 272,000); but, Facebook (FB, +103% to 56,000) also reported significant audience growth last quarter and will enter Q3 ’18 armed with an enhanced destination for gaming enthusiasts.

As for AMZN, they posted their most profitable quarter ever in Q1 ’18. AMZN grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter. AMZN shares are up 7.5% over the last 3 weeks and climbed past $1,700 for the first-time last week, before closing on Tuesday at $1,698.76.

Fan Marino: ESL (think: Dota 2, Counter-Strike: Global Offensive) signed an exclusive broadcast deal with Facebook Watch, as opposed to the market leader Twitch. Why? As World Esports Association Commissioner Ken Hershman points out, in addition to being a “tremendous streaming platform”, Facebook is “a social and engagement platform.” FB’s targeting capabilities and recommendation engine have enabled the esports federation to grow rapidly, from 750,000 viewers/mo. to more than 25 million within a year.

For those wondering, .gg stands for good game.

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Amazon Acquires Exclusive EPL Rights, First Non-Traditional Broadcaster to Carry League Games

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Amazon (AMZN) has acquired the exclusive rights to broadcast 20 English Premier League matches per season in the U.K., becoming the first non-traditional broadcaster to carry league games. The three-year pact, set to begin in 2019-2020, represents the e-commerce giant’s most significant live sports programming acquisition to date. AMZN will live-stream games on its digital Prime video service at no additional charge to Prime members (costs $119/year). Financial terms of the deal were not disclosed but BT Sport is reportedly paying $40 million/year for a comparable package. Late Thursday, with the league’s broadcast rights through the next cycle sold, Executive Chairman Richard Scudamore announced he would be resigning before the end of the calendar year. A successor has yet to be named.

Howie Long-Short: It’s important to simultaneously recognize the significance of this deal (i.e. a FAANG company lands exclusive rights!), while understanding that 90% of the broadcast rights available to media companies within this round were sold to traditional TV providers (i.e. linear television isn’t going anywhere, anytime soon). SKYAY will pay $1.655 billion/season for its four packages (128 games/season), a 14% discount on the expiring deal; while BT got the 5th package (32 games/season) for 8% less ($409.3 million/season) than it’s currently paying for the rights. BT picked up an additional 20 games/season at a discount rate ($40 million/season), earlier this week.

EPL clubs decided to sell the last two rights bundles (Amazon’s and the BT deal signed this week) at a cut-rate price after each failed to meet reserve prices in February’s auction and having concluding that Executive Chairman Richard Scudamore overestimated the interest from non-traditional broadcasters after the first five packages were sold to the old guard.

As for AMZN, the company posted its most profitable quarter ever in Q1 ’18. It grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter. AMZN shares are up 7% since May 22nd and climbed past $1,700 for the first time this week, closing on Thursday at $1,689.30.

Fan Marino: The EPL’s 20 clubs currently split international broadcast revenues evenly, but top clubs like Manchester City, Manchester United and Liverpool have been lobbying for a larger percentage; arguing it’s their presence within that attracts the foreign viewer. On Thursday, they got their wish – the league’s clubs decided that any future increases in broadcast revenues would be distributed according to final league position (from ’19-’20 season forward). It should be noted that the new formula ensures the league’s top club receives no more than 1.8x the amount of the lowest-earning club.

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NFL Provides Fans with the Worst Game-Day Experience

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The Fan Experience Benchmark: U.S. Professional Sports report (10,000 surveyed) indicates that the National Football League gives its fans the worst game-day fan experience among American pro sports leagues (included Big 4 + NASCAR, PGA, MLS, WNBA and ATP). The NFL finished last in 8 of the 9 live-event experiences tracked by the Tempkin Group, scoring the lowest in parking, concessions and bathrooms. The news wasn’t all bad for the league though, it remains the most popular sport to watch on television by a wide margin; 50.8% of those surveyed enjoy watching the league on their couch (MLB 2nd with 37.9%).

Howie Long-Short: Those surveyed rated parking as the worst part of the NFL game-day experience. The price to park your car outside of an NFL stadium varies across the league, but can cost between +/- $25 and $75 (Dallas); often still requiring a 10-15 minute walk to the stadium entrance. It’s a valid concern and one that the league could (and should) solve with minimal financial impact; but, I’m not in the camp that believes the NFL has a poor game-day experience. Sure, it’s expensive, but there’s nothing better than being in the building on days like these; plus, the tailgate is great!

For those who think this survey is another sign that the league is failing, think again. Back in December, Yahoo! (AABA) agreed to pay $2 billion over 5 years to stream league games (without exclusivity, I might add) and Amazon (AMZN) recently signed a 2-year $130 million deal for the rights TNF; $15 million more/year than they paid last season. NFL broadcast deals are so large, the league could play games in empty stadiums and still generate more revenue than any other pro sports league in the U.S. In 2016, the league generated 16.35% of its total revenue ($13 billion+) from ticket sales; using that same percentage on 2017 revenue (the percentage has declined, the new revenue is from TV) and the league still generated $1.8 billion more than MLB (hit $10 billion for 1st time).

Fan Marino: Monday Night Football fans are going to have to get used to 2 new voices in 2018 with Joe Tessitore and Jason Witten, replacing Sean McDonough and Jon Gruden. Witten’s hiring is particularly confusing. He’ll make $4-4.5 million/year to be the “face of MNF”, despite never doing color commentary and lacking mainstream recognition (i.e. he’s not Peyton Manning, their 1st choice). ESPN continues to burn good money after bad (see: $14.5 million on Get Up!). If they had to have Witten, they could have for less; no one could have offered a comparable stage.

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NBA 2K League Finds Media Rights Partner, Viewership for Inaugural Game Disappoints

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The NBA and Twitch have agreed to a multi-year partnership that makes the video streaming service the league’s first official media rights partner. The agreement ensures that the inaugural season of the NBA 2K League will be broadcast live, in its entirety (up to 199 games); with all games featuring live commentary and updates from around the league. Twitch has announced plans to introduce “Extensions” to increase viewer engagement during broadcasts (they’re going to need to draw viewers first, see Fan below). Twitch is a Founding Partner (i.e. they’ll have an equity stake) of the upstart league.

Howie Long-Short: Twitch was acquired by Amazon (AMZN) for $970 million, back in 2014. The company increased concurrent viewership +21% during Q1 ’18 (to 953,000), growing its already large lead within the game streaming market over 2nd place YouTube Gaming (GOOGL, -12% to 272,000). Facebook (FB, +103% to 56,000) and Microsoft’s (MSFT, +90% to 9,500) also reported significant growth with their streaming audiences last quarter.

As for AMZN, the company posted its most profitable quarter ever in Q1 ’18. It grew revenue +43% to $35.7 billion, while net income rose 121% to $1.6 billion. Cloud computing (+49% YoY to $5.44 billion), subscription services (+60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter.

Fan Marino: The NBA 2K League’s inaugural season kicked off yesterday, with Bucks Gaming and Pistons GT participating in the league’s first ever game (Pistons won 49-44). Just 9,000 watched the contest, a particularly disappointing total considering OWL’s opening day drew 408,000 concurrent viewers. This league is far from the slam dunk predicted following last month’s successful gamer draft.

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Twitter to Air Original ESPN Programming, Announces Content Partnership with Disney

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Twitter has announced a wide-ranging content and advertising partnership (among 30 renewals and new video deals) with The Walt Disney Company (DIS), as the online news and social networking company continues to invest in video content. The deal, which spans the entire DIS portfolio, includes live original ESPN programming. 2 shows have been introduced thus far, SportsCenter Live (TWTR version of the flagship program) and Fantasy Focus Live (live stream of a fantasy sports podcast). Expect ESPN to share some additional insight on the partnership at their Digital Content NewFronts event on Wednesday.

Howie Long-Short: It’s logical for TWTR to continue to invest in live video content, because it’s working; daily video views on the platform are up +/-100% over the 12 mo. and video is now responsible for more than 50% of the ad revenue. As Global VP of Revenue and Content Partnerships Matthew Derella pointed out, the company’s “super power” is its ability to tie conversation to video during the biggest moment; “giving brands the unique ability to connect with leaned in consumers.” Shares rose 4.5% on Monday’s announcements, closing at $30.31.

TWTR reported Q1 earnings last week, the company’s 2nd consecutive profitable quarter and 2nd profitable quarter ever. Quarterly revenue was up 21% and the company said it expects to be profitable in 2018. Ad revenue is driving the growth, as more brands are shifting marketing dollars from traditional television to digital outlets.

Fun Fact: In 2016, DIS had explored the purchase of TWTR; ultimately passing on the deal amidst concerns of the company’s inability to curb hate speech and trolling on its platform.

Fan Marino: Amazon (AMZN) also recently beefed up its sports video programming, acquiring exclusive rights to stream the U.S. Open Tennis Championships in U.K. and Ireland and renewing its exclusive Thursday Night Football streaming rights through the 2019 season. The 2-year deal worth $130 million (or $15 million more/season than the $50 million paid in 2017), gives the e-commerce giant the rights to stream 11 games during the 2018 season. On May 11th, the cost of Amazon Prime will increase from $99/mo. to $119/mo. With 100 million active members and another $2 billion in potential revenue awaiting, a $15 million annual increase for TNF streaming rights is just a drop in the bucket.

Amazon also just delivered impressive Q1 ’18 results, posting its most profitable quarter ever. Q1 revenue was up 43% to $35.7 billion, with net income up 121% to $1.6 billion. The company’s cloud computing business (+49% YoY to $5.44 billion), subscription services (think: Amazon Music, +60% YoY to $3.1 billion) and ad revenue (+139% YoY to $2.03 billion) all contributed to the record quarter.

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Index Fund for the Sports Fan

SportsETFs

SportsETFs launched a Pro Sports Sponsors Index (FANZ) during the ’17 MLB all-star break, consisting of 66 companies that are official sponsors of the 4 major sports leagues; today that figure is up to 67. Nick Fullerton is the man behind index fund and JohnWallStreet had the chance to connect with him late last week to discuss what it is about pro sports sponsors that makes them attractive from an investment standpoint. 

JWS: Who is investing in this fund?

Nick: We designed this index to provide a general investor, a sports fan and a financial advisor with a product they can intuitively get. This gives them a vehicle to invest in something that they know.

JWS: Can you discuss the methodology behind selecting names for the index?

Nick: It’s rules based product, so we’re not doing any stock selection on our end. You must be an official partner of one of these core four sports leagues. The leagues are essentially doing the vetting and stock picking for us when they enter one of these multi-year agreements. You must be publicly traded on one of the major U.S. or Canadian stock exchanges and the index is equally weighted.

JWS: What is it about corporate sponsors of pro sports leagues that makes them an attractive investment option?

Nick: If you look at the companies that partner with the league, they are typically blue-chip companies that still want to grow (think: DIS, AMZN, BRK.A); so, they’ve got a growth component but, they’ve also got a value component in that they have enough free cash flow to earmark a big chunk of their marketing budget to sports. They’re typically strong cash flow, well-known brands. These are companies that want to market and sell to a loyal, dedicated and passionate community of customers – there is no other group or medium that brings so many people together for these brands.

Howie Long-Short: How was the fund performed?

Nick: The index has been similar to or beating the S&P 500 since our July 11, 2017 launch date. We back-tested the index to 2005 and it beat the S&P 500 by over 130%.

Note: The fund trades under the symbol FANZ on the BATS exchange.

Fan Marino: Investing > Gambling. On Saturday evening, Michigan played Florida State with a spot in the Final 4 on the line. Down 4 and with 10 seconds remaining, Florida State chose not to foul allowing the clock to expire. Coach Leonard Hamilton said after the game that the reason he chose not to foul was because “the game was over”. Despite Hamilton’s belief, it wasn’t over for Florida State (even with 2 FTs, it’s only a 2-possession game) and it certainly wasn’t over for gamblers who had Michigan -4.5. Tough loss.

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MLB Takes “Next Great Leap” in Sports Broadcasting

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Facebook (FB) has landed the exclusive broadcast rights to stream 25 Major League Baseball day games (primarily on Wednesdays) during the 2018 season; the first time a “big 4” U.S. sports league has awarded exclusive distribution to a social network. Industry consultant Lee Berke called the deal “the next great leap” in sports broadcasting, comparing the milestone to the migration of games from network to cable television in the mid-to-late 1980s. It’s been reported that the social network paid $30-$35 million for a package that includes; the live games (MLB network will produce the broadcasts), on demand highlight packages (for every game) and weekly recaps of all 30 teams. The first Facebook Watch broadcast will be on April 4th (Mets vs. Phillies).

Howie Long-Short: While this is a landmark deal in sports broadcasting history, it’s premature to call it a “great leap”; it’s more like a big step. A “big 4” sporting event appearing exclusively on a digital platform is noteworthy; it’s just not the game-changer that Berke implies. All 4 leagues have broadcast rights tied up through at least the balance of the decade and none are expected to forego linear television money in the next round of negotiations. There may be a day when FAANG companies control exclusive NFL, NBA, MLB, NHL broadcast rights, just don’t expect it to come anytime soon.

Fan Marino: In the hours following the announcement, Twitter (TWTR) and MLS announced their own streaming partnership; a 3-year deal gives TWTR the exclusive English broadcast rights to at least 24 live matches/season that air in Spanish on Univision (plus on-demand highlights). A week prior, AMZN announced a deal with the UFC to stream PPV events (cost $64.99) on Amazon Prime Video (do not have to be Prime member); while YouTube TV (GOOGL) locked up exclusive live streaming rights to the Seattle Sounders FC, it’s 2nd MLS deal (L.A. FC). The arms race between digital companies seeking to lure users with sports, is officially on.

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Twitch Rewarding Gamers as OWL Viewership Declines, Activision Blizzard Hits 52-Week High

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Twitch (AMZN) has begun encouraging gamers to watch exclusive Overwatch League broadcasts, by awarding Overwatch League tokens that can be used to buy team-based character skins, as the live streaming video platform seeks ways to increase viewership. OWL’s opening day drew 408,000 concurrent viewers, but that figure has steadily declined in the weeks since; compelling Twitch to run a program that encourages OWL gamers (and fans) to watch more. Viewers will earn one token per live map finish (roughly 3-4/hour), with a “percentage” of those watching the conclusion of the final map randomly winning 100 tokens during the live cast. Skins (and team specific gear) will also be awarded to users who tip (with paid emotes) during live streams. For reference purposes, users need 100 tokens to unlock OWL skins; they have a cash value of +/- $5.

Howie Long-Short: Blizzard Entertainment (ATVI) is the publisher behind Overwatch and the OWL is their most ambitious esports endeavor. Once thought to be overpriced at $20 million/franchise, CEO Michael Morhaime said on the company’s Q4 earnings call that he’s “pretty confident” the price is going up for the next group of owners that buy in; indicating there’s been an increase in global demand for OWL expansion franchises. ATVI posted Q4 ’17 earnings on February 8th, reporting an 8% YOY increase in revenue (to $2.64 billion). The company hit a 52-week high Tuesday morning ($75.41), before closing the day at $73.92.

Fan Marino: To put OWL’s opening day success in perspective, you can compare it the viewership figures Amazon (AMZN) and Twitter (TWTR) received for their initial TNF livestreams. Amazon’s first TNF game drew 372,000 viewers per 30 seconds; Twitter saw just 243,000 viewers per minute, during their first broadcast. While OWL viewership has since declined, Blizzard Entertainment managed to negotiate a 2-year, $90 million deal to stream OWL Season 1 & 2 games exclusively on Twitch.tv in English, French and Korean (they do not hold the rights to broadcast in Chinese).

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