Yankees Seek to Re-Acquire YES Network, Hold Buyback Option

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The New York Yankees have expressed interested in re-acquiring the 80% of the YES Network controlled by 21st Century Fox (FOXA), if FOXA is to proceed with the sale of its film and TV assets (including 22 RSNs). The team reportedly holds a buyback option in the event the network (the most valued/viewed RSN among FOXA lot) goes up for sale. Last week, we wrote that Comcast (CMCSA) had submitted a $65 billion all-cash offer for 21st Century Fox’s (FOXA) assets that trumped the $52.4 billion all-stock offer that The Walt Disney Company (DIS) placed in December; DIS is expected to submit a counter bid. Yankee Global Enterprises, the holding company that owns the baseball club and NYCFC, controls the remaining 20% of YES.

Howie Long-ShortFOXA initially purchased a 49% stake in the YES Network for $1.862 billion in 2012. In 2014, the company acquired an additional 31% at roughly the same $3.8 billion valuation. The 1st place Yankees are drawing the network’s highest ratings since ‘12 and YES also controls the rights to broadcast both Brooklyn Nets and NYCFC games, so it’s certainly not unreasonable to expect FOXA to sell the asset at a valuation north of $4 billion. This means the team would be re-acquiring the network at a loss. That may not be of concern for the franchise though, as they likely value the ability to own/distribute their content with the recent proliferation of direct to consumer platforms/services.

According to Moody’s Investor Service, if Comcast were to acquire FOXA assets the combined entity would carry +/- $170 billion in pro-forma debt; more than every company in the world not named AT&T/Time Warner (which just completed a $85 billion merger).

Fan Marino: Back in April, Forbes released its rankings of the most valuable Major League Baseball teams. The Yankees topped the list with a $4 billion valuation, making them the 2nd most valuable team in all of sports; behind only the Dallas Cowboys ($4.2 billion). The team generated $619 million in revenue last year, 96.5% more than the league average ($315 million). Forbes has the NYY valued at +/- 6.5x revenue, slightly higher than what the Houston Rockets sold for in 2017; for comparison purposes, the Carolina Panthers recently sold for less than 6x revenue. I continue to maintain that David Tepper got a good deal.

The Yankees have signed the PBP voice of the YES Network (for Yankee games) to a 3-year extension (network option for 2 more years) worth more than $1 million/year. The deal makes Michael Kay the highest paid local broadcaster in MLB. Kay takes home a higher annual salary than some of the team’s biggest stars; Luis Severino, Gary Sanchez and Aaron Judge will make $604K, $620K and $622K respectively this season.

Fun Fact: The value of the NYY has compounded 15% annually since George Steinbrenner group bought the team for $8.8 million in 1973.

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Comcast Submits $65 Billion All-Cash Offer for Fox Film/TV Assets, Including 22 RSNs

CMCSA

Just 24 hours after the announcement that a federal judge had approved AT&T’s $85 billion takeover of Time Warner, it was reported that Comcast (CMCSA) submitted a $65 billion all-cash bid for 21st Century Fox’s (FOXA) film and TV assets (including 22 RSNs); trumping the $52.4 billion all-stock offer that The Walt Disney Company (DIS) had placed in December. Comcast’s interest largely surrounds FOXA’s 30% stake in Hulu, as the acquisition would give CMCSA controlling interest in the OTT service (already own 30%). NBCUniversal CEO Steve Burke stated, “we would be very very interested in growing that business.” In fact, it’s possible that if Comcast’s offer were to be selected, the company wouldn’t even end up controlling the RSNs; language within their bid indicated the company would match any regulatory commitments made by DIS; including to “divest… any of the RSNs.”

Howie Long-Short: FOXA shares rose +7.7% (to $43.66) on Wednesday following report of the Comcast bid. DIS closed up +2% (to $106.30), while CMCSA shares remained flat ($32.32) as investors expressed skepticism about the company increasing their debt level to 4x earnings; necessary to finance both the Fox deal and their purchase of Sky PLC (SKYAY).

It’s certainly worth noting that Comcast’s bid places a +/- $24 billion valuation on the 22 RSNs.

SKYAY is another name to watch. If DIS counters CMCSA’s bid, it’s possible that Fox will up its bid (currently $14.38/share) for the European pay-tv provider. Fox currently owns 39% of the company and was planning to acquire the remaining 61%, with the intention of flipping the asset as part of the proposed $52.4 billion transaction. Should a bidding war arise, John Janedis, an analyst at Jefferies LLC said it wouldn’t be unreasonable for the winning bid to reach $80 billion. For reference purposes, Comcast bid $16.72/share for 61% of Sky. The domestic cable/internet provider wants the asset (and Star – India) to expand its business overseas.

Fan Marino: AT&T’s (T) acquisition of Time Warner (TWX) includes several sports-related properties including Turner Sports, Bleacher Report and the newly launched Bleacher Report Live service; an untethered (i.e. no subscription needed) premium sports streaming service. T also takes controlling interest in the country’s largest pay television distributor, DirectTV. TWX shares rose 2% on Wednesday to $97.95, while T shares declined 6.2% (to $32.22) on the news.

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BT Sport, “New Online Player” Land EPL Broadcast Rights at Discount Rates

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Less than four months after Sky (SKYAY) and BT Sport (BT) agreed to spend a combined $6.194 billion on the English Premier League’s five most valuable domestic broadcast rights packages, BT Sport and a “new online player” have agreed to purchase the rights to the last two available packages (F & G) at a discount rate. EPL clubs have decided to sell the rights bundles at a cut-rate price after each failed to meet their reserve prices in February’s auction and concluding that Executive Chairman Richard Scudamore overestimated the interest from non-traditional broadcasters (think: FAANG). Financial terms of the deals have not been disclosed, but the new broadcaster’s identity will be revealed at a club meeting on Thursday; speculation surrounds both Facebook and Amazon.

Howie Long-Short: Despite the decline in the value of domestic rights, Scudamore is confident overall media rights will increase “by a decent amount” during the next cycle (’19-’20 through ’21- ‘22). Any lost domestic revenue will be offset by skyrocketing international rights. NBC (in U.S. market), ESPN (Brazil) and SuperSport (Sub-Saharan Africa) have all committed to paying a significant increase for the rights to broadcast EPL games.

As we know, NBC is owned by Comcast (CMCSA), while ESPN is property of The Walt Disney Company (DIS). SuperSport is a subsidiary of the South African based internet and media group, NASPERS. The company trades on the Johannesburg Stock Exchange under the symbol NPN or OTC with the symbol NPSNY. Shares rose 71.34% in 2017 on the back of Tencent (TCEHY), as NASPERS owns 31.2% of the Chinese internet giant. NPSNY hasn’t performed as well in 2018 though; the stock is down -7% YTD, despite being +8% (to $52.38) since last Thursday’s close.

Fan Marino: Back in February, the EPL announced BT won package A ($409.3 million/season, which includes 32 games played on Saturdays at 12:30p GMT), while SKYAY took home packages B, C, D & E ($1.655 billion/season). Packages F & G each carry 20 live midweek and bank holiday matches per season. The addition of 20 more games will give BT 52 live broadcasts/season, up from 42 under the expiring agreement.

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NBCUniversal To Sign Monster Deal for RAW, WWE Shares Skyrocketing

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It’s been reported that NBCUniversal (CMCSA) intends on retaining exclusive broadcast rights to WWE Monday Night Raw with a deal worth +/- $240 million/year. Under the terms of the proposed contract, RAW will remain on USA Network where it’s resided since ’05. WWE will have to find a new home for SmackDown Live though, as NBCUniversal passed on renewing its expiring deal with the franchise. It’s been rumored that the SmackDown Live package could be worth an additional +/- $110 million/year (worth $30 million/year under current deal), with Fox, Amazon Prime and Facebook Live all considered viable landing spots for the Tuesday night show (6th most watched on cable TV).

Howie Long-Short: The outcome of this deal represents best-case scenario for the wrestling promotion. The value of their broadcasts will double (worth $180 million in ’18) and should Fox (FOXA) land SmackDown Live, it’s possible that they would broadcast the show on their over-the-air TV network; had Fox won rights to both shows, it’s likely SmackDown would have been relegated to FS1 (30 million less households). Should SmackDown Live end up on Fox, the show would have the opportunity to beat RAW in the ratings for the first time since the company split the roster in 2002.

The WWE is projecting record revenue in ’18, boosted the company’s deal with the Kingdom of Saudi Arabia (reportedly worth +/- $20 million/year) and with a reduced corporate tax rate, it’s possible (if not likely) the company will set a record for profits too. Combine that rosy outlook with the enthusiasm over the company’s pending TV deals and it explains why shares are up 18% (to $51.42) since Thursday (5.17).

Fan Marino: Hulk Hogan, who has been out of favor with the WWE since ’15 (racist comments), is reportedly in discussions with the promotion about a return. Once the face of the organization, the company was quick to remove all references to the Hulkster following the incident. While purely speculation, WrestleMania 35 (New York City, April ‘19) would seem like an opportune time to bring him back; of course, Hogan and Mr. T faced Rowdy Roddy Piper and Paul “Mr. Wonderful” Orndorff in the main event at WrestleMania I in 1985.

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USMNT Absence Benefiting Telemundo, WC Ad Inventory Nearing Sell Out

Telemundo

Telemundo, which controls U.S. Spanish-language broadcast rights to the 2018 FIFA World Cup, has announced Coca-Cola, Sprint and Volkswagen will be premier sponsors of their tournament coverage. Coca-Cola will be the presenting sponsor of the Telemundo Deportes Post-Game show and in-game match clock, Sprint has signed on as the official halftime sponsor for all 64 matches and Volkswagen will serve as the presenting sponsor of the network’s World Cup primetime show (7p EST). In total, 20 advertisers have signed on for Telemundo’s coverage of the quadrennial tournament; NBCUniversal is claiming network ad inventory is “approaching 75% sold out.”

Howie Long-Short: The absence of the USMNT from the 2018 World Cup has been a boon for Telemundo, as advertisers have chosen to forego spending with Fox Sports (own U.S. English-broadcast rights) in favor of the NBCUniversal subsidiary (note: VLKAY, VZ are not among them, they will be advertising on both networks).

While the U.S. team’s failure to qualify has helped Telemundo ad sales, it’s expected to hurt viewership. In ’14, matches featuring the USMNT on Univision (held U.S. Spanish-language rights) drew an audience 44% larger than other group stage matches. With no USMNT to build programming around, Fox has also increased their focus on the Mexican national team; coverage likely to pull viewers from Telemundo’s target audience, the 21 million bilingual viewers in U.S.

Telemundo is owned by NBCUniversal, a Comcast (CMCSA) company. NBCUniversal tabbed February it’s “best Feb ever” after generating $1.6 billion in incremental revenue from the Super Bowl and Olympics, so significant fiscal growth was expected when CMCSA reported Q1 earnings in late April. The company reported net income increased +21.2% YoY (to $3.1 billion), a figure that would have been higher had Universal Pictures not experienced a -16% YoY decline in revenue.

For those wondering, Telemundo is paying $600 million for Spanish-speaking broadcast rights to the 2018 & 2022 World Cups, while Fox pays $400 million for U.S. English-speaking rights to the same 2 tournaments.

Fan Marino: The U.S. isn’t the only high-profile country to have failed to qualify for this summer’s World Cup, as Italy (4x winner), The Netherlands (finished 3rd in ’14), Chile (No. 9 in world) and Cameroon (just 2nd missed WC since ’86) will all be watching from home as well.

Looking for a team to root for? Iceland is in the tournament for the 1st time and their Viking chant is among the best traditions in all of sports.

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Most Followed Sports Media Brand on Social Media Adds DevinSuperTramp

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Whistle Sports has signed Devin Graham, better known as DevinSuperTramp, to create branded original content (including some longer-form) for the post-millennial sports network. The Whistle Sports Network (WSN), which produces, curates and distributes sports-related content (across social, digital and TV) for a youth audience, will add Graham to its talented network (500+) of creators (think: Dude Perfect, Nitro Circus). The extreme sports film-maker with a reputation for producing viral content for some of the world’s biggest brands (see: Ford, Intel), will bring a loyal following to the “most-followed (170 million subs/followers) sports media brand on social media”; 9 million followers across various social platforms, including 4.9 million YouTube channel subscribers. Content delivered by WSN generates +/- 2 million views per month.

Howie Long-Short: Whistle Sports remains privately held, but the company has raised $80.5 million to date; with much of the capital coming from publicly traded companies. iHeartMedia, Inc. (OTC: IHRTQ) participated in the company’s seed round, Sky (SKYAY) and Liberty Global (LBTYA) invested in their $28 million Series B round, and both Tegna, Inc. (TGNA, formerly Gannett) and NBC Sports Ventures (CMCSA, led round) invested in the company’s most raise; a $27.5 million Series C round in January 2017.

Fan Marino: Whistle Sports and DevinSuperTramp previously collaborated on a Super Bowl commercial for Pepsi and Papa John’s Pizza, a project called “The World’s Longest Touchdown Catch.” In the viral video (2.6 million views), Joe Montana throws a spiral out of an airplane cruising 14,000’ over California. A team of skydivers jump out after the loose ball, battling for it as they free-fall towards the earth’s surface. I won’t spoil who comes down with “The Catch”, but you can watch the video (and find out who grabs it), here.

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Comcast Drops Big Ten Network from All But 9 “Home Markets”

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Comcast Corporation (CMCSA) has dropped Big Ten Network from its cable offerings in all but 9 “home markets”, explaining several factors played into the decision; “ranging from the costs programmers charge us to carry their channels and the amount of viewership, to available alternatives.” Subscribers in Illinois (IU, ILL, NW) Indiana (IU, PUR), Maryland (UM), Michigan (UM, MSU) Minnesota (UM), New Jersey (RU), Ohio (OSU), Pennsylvania (PSU) and Wisconsin (UW) will continue to receive the conference network. Iowa (IU) & Nebraska (NU) are the only “home markets” excluded from the list, as Comcast does not provide services to residents of those states. CMCSA has stated there are no plans to cut the network from the remaining “home markets.”

Howie Long-Short: The timing of this decision is likely related to a recent report indicating the Pac 12 Network average subscriber fee declined 63% over the last 5 years (to $.11), while the Big Ten Network (B10) fee increased 30% over the same time (to $.48). Rising carriage fees are directly correlated to the “(rising) costs programmers charge us to carry their channel”; and with basketball season over and football season not starting for another 4 months, CMCSA sees the opportunity to lower the amount it pays the conference to carry the channel.

If in fact the decision is final, their loss would be a gain for Time Warner (TWX), DirecTV (T), DISH and Verizon (VZ); carriers that offer the network nationwide, as passionate Big Ten football fans will switch providers before missing a big game. For those interested in owning a piece of the Big Ten Network, you can invest in Fox Entertainment Group (FOXA); they control 51%, with the 14 member Universities owning the balance.

Fan Marino: College football programs utilize different accounting methods, with some schools allocating a larger percentage of their conference payouts to the sport (in FY16 it ranged between 45%-85% at Big 10 schools); making it tough to compare apples to apples. If you remove the conference payout ($16.1 million) from the ledger, the picture becomes clearer.

In 2016-2017, Michigan ($40.3 million), Ohio State ($24 million) and Penn State ($16.3 million) had the football programs within the conference, that generated the largest surplus (discounting the payout); while Purdue ($11.97 million), Minnesota ($13.4 million) and Indiana ($14.6 million) operated at the biggest losses. Of course, it’s not a coincidence that Michigan, OSU and PSU finished 1st, 3rd and 2nd, respectively; while Purdue, Minnesota and Indiana ended that season that season 10th, 5th and 11th out of 13 teams. The more a program wins, the more revenue it generates. Northwestern, a private institution, does not release its football program’s financials.

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Endeavor Acquires Digital Video Broadcasting Company

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Endeavor has acquired the digital video streaming provider NeuLion, Inc. (NLN) for $250 million ($.84/share) in an all-cash deal; a 112% premium on the share price at last Friday’s close. NLN, which specializes in digital video broadcasting, distribution and monetization, will become a privately held subsidiary of Endeavor (formerly WME-IMG) upon the Q2 ’18 close of the sale. The announcement comes just months after NeuLion announced “it was selling some non-core assets to an affiliate of Fortress Investment group for $41.5 million”. NLN has struggled to replace the revenue lost following its loss of the NHL as a client to competitor MLBAM in August ‘15; revenue declined 8% YOY in Q4 ’17.

Howie Long-Short: You can’t invest in Endeavor (despite a long-rumored IPO), but with publicly traded rights holders valuing the technology that enables them to reach their consumers directly; there are several other was to invest in OTT service providers. Disney (DIS) owns 75% of BAMTech, NBCUniversal (CMCSA) developed PlayMaker Media and Turner Broadcasting System (TWX) owns “a majority stake” in iStreamPlanet. Don’t forget, you can also play Delatre via WPP; an investor in Bruin Sports Capital.

Fan Marino: Endeavor (which owns the UFC) worked with NLN on the dissemination of last summer’s McGregor/Mayweather mega-fight and while the fight had the 2nd most buys in PPV history (4.3 million), it was also marred by widespread technical difficulties. While that experience may not have gone perfectly for some viewers, it gave Endeavor the opportunity to see the platform’s upside; and with the UFC struggling to find the $450 million/year annually it seeks in TV money, retaining their own rights and going DTC may be the company’s best option.

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Fox to Pursue WWE TV Rights, Let UFC Walk If Successful

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As we wrote in January, the UFC’s 7-year broadcast deal (worth $160 million in ’18) with 21st Century Fox, Inc. (FOXA) expires at the end of 2018 and the size of the extension the promotion is reportedly seeking ($450 million annually), has created the possibility (if not likeliness) the companies will be heading for a divorce (FOXA offered $200 million). It now appears as if FOXA will pursue WWE TV rights (expiring in September 2019), with the intention of passing on the UFC should they be successful. FOXA is selling the wrestling organization on the attractive opportunity to air their feature program, Monday Night Raw, on broadcast television (i.e. in 115 million homes); the show currently draws 3+ million viewers/week on USA Network. The WWE will announce their decision on a U.S. TV partner between May and September.

Howie Long-Short: NBCUniversal (CMCSA) currently pays $200 million/year for the rights to televise WWE Monday Night Raw and SmackDown. The WWE is reportedly seeking $400 million annually on their new deal, a figure FOXA is far more inclined to pay for their content than the UFC’s. That makes sense to me, the WWE can script their outcomes and ensure their stars’ staying power; a UFC champion is always one fight away from never competing again. WWE shares hit an all-time high earlier this week ($38.77), closing on Thursday at $37.91.

Fan Marino: Ronda Rousey spent her first 2 Monday Night Raw episodes engaged in a feud with Stephanie McMahon and Triple H, that will culminate in a tag-team match (Ronda will be paired with Raw General Manager Kurt Angle) at WrestleMania. One would think the curiosity surrounding Rousey would have TV ratings on an uptick, but that hasn’t been the case. In fact, ratings have declined in the hours Rousey has appeared on the show. The WWE must be disappointed in lack of pop the signing provided.

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Comcast Spectacor to Renovate, Not Rebuild Wells Fargo Center

Comcast Spectacor has decided to invest $250 million into a full-scale renovation of Wells Fargo Center (22 years old), as opposed to building a new venue. The addition of new court and rink-side suites, 2 lounges, widened concourses and revamped player locker rooms are among the planned upgrades. The construction will take place over the next 3 summers (to be completed in ’21), so not to interfere with the Philadelphia Flyers’ or 76ers’ (anchor tenants) home schedules. Estimates on a tear-down and build-new plan (on the same site) were projected to be in the $750 million range.

Howie Long-Short: In addition to the Wells Fargo Center, Comcast Spectacor owns the Philadelphia Flyers, the Maine Mariners (ECHL), the Philadelphia Wings (NLL) and the Philadelphia Fusion (OWL). The Comcast Corporation (CMCSA) subsidiary paid off the balance remaining on the initial constructions loans back in 2016, freeing up cash flow needed for the renovations. For FY17, CMCSA reported adjusted EBITDA increased 6.2% to $28.1 billion; but, Corporate, Other and Eliminations, the sector of the business that contains Spectacor and Xfinity mobile, weren’t responsible for that increase. In fact, the sector experienced a $1.4 billion loss in ’17 (compared to a $919 million loss in ’16).

Fan Marino: No NHL team had a better record than the Flyers (18-5-2) over the first 2 months of 2018. The catalyst for the success was early December decision by coach Dave Hakstol to assign stars Claude Giroux and Jakub Voracek to 2 different lines. Since then, Giroux is tied for 2nd in the league in points (46), Voracek is tied for 12th (39) and the team has gone from out of the playoff picture to just two points behind Washington for first place in the Metropolitan Division. It must be noted the team has lost its first 3 games in March, though one was a shoot-out loss.

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