UFC Cuts Cords (and Satellite Providers), Now Exclusive to ESPN+

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The UFC, cognizant of the “amount of [linear television] subs dropping every year”, have agreed to a deal with ESPN that will make the company’s OTT service the exclusive broadcast partner of the promotion’s PPV events. The agreement will give (effective April 13) ESPN+ the rights (in the U.S.) to carry the promotions 12 annual tentpole cards through 2025 – in addition to the 20 Fight Night shows they’re already contracted to air. Moving forward, fans who wish to watch the UFC’s biggest stars (ESPN and Fight Pass will continue to show prelims and early prelims, respectively) will need to subscribe to ESPN+. That monthly subscription won’t include access to the actual PPV shows – fans will still need to purchase each of the 12 events individually, but ESPN plans to discount UFC PPV’s from $64.99 (current price) to $59.99 to offset the monthly fee ($4.99). Financial terms of the deal between the UFC and ESPN have not been disclosed.

Howie Long-Short: Just 3 months after getting into the UFC business, ESPN/ESPN+ is now the exclusive home for the mixed martial arts promotion. It didn’t take long for the company to realize “that it can use the UFC to bring ESPN+ subscribers into the big tent.” ESPN+ drew 568,000 new subscribers within 48 hours of its first UFC event.

The OTT service’s total audience is now “closer to 3 million”, but former HBO Sports President Ross Greenburg (Ross Greenburg Productions) believes that upcoming UFC PPV events will continue to drive new subs. “You can’t assume that every single UFC fan bought that first fight and those that did remain subscribers (fans could cancel within 30 days without charge). Plus, there are different fan bases for different fighters, often tied to ethnicity; the ESPN+ subscriber base will continue to grow every time they have a UFC card.” Of course, getting fans into the tent is just half the battle; once there, ESPN+ must work to retain them. 12 tentpole events and quality ancillary content should help.

The deal with ESPN relinquishes much of the upside that the UFC would experience “if another Rousey or McGregor, a big PPV draw, arrived”, but I think taking the guaranteed pay day – one likely “worth hundreds of millions of dollars” – is a wise decision. Selling UFC PPV’s is a risky business proposition. Every fighter is just one fight away from losing their invincibility (see: Rousey) and the biggest stars now make enough money that they don’t “need” (i.e. getting punched in the face becomes less attractive) to fight once they achieve superstar status (see: Lesnar). The promotion can also get “stuck” with a fighter who continues to win, but fails to move the needle with fans (see: Stipe Miocic), which can crush PPV sales figures for multiple events.

From a cost standpoint, the move to ESPN+ is a wash for fans and subscribers will get a host of additional content for their inconvenience, so it’s clear deal’s only real loser is are the cable, satellite and telco TV operators. Ross told me that the UFC’s move away from the “normal distribution channels” is going to have a major impact on iN DEMAND and DirecTV. PPV is an important part of their yearly revenue streams”; “it could be” the death knull to those businesses.

Fan Marino: UFC President Dana White has attributed 2018’s disappointing PPV buy figures to cord cutting saying, “it’s scary the amount of subs dropping every year” – so the move away from linear distribution to a digital platform aligns with his narrative. The move is also logical for the purpose of driving interest in the promotion. By partnering with ESPN+, White and Co. pick up the support of the ESPN marketing machine. The UFC has drawn twice as many viewers to ESPN as it did for comparable programming on FS1 last year. With the help of the ESPN megaphone, it’s not unreasonable to believe the promotion could regularly post events with 1 million PPV buys in 2019.

One might assume the UFC’s decision to abandon the traditional PPV model for an OTT streaming service would hurt PPV sales figures in the short-term (i.e. until OTT becomes more prevalent), but Ross says fight fans “don’t care where they watch the fight” and those that would have bought from a linear or satellite distributor will buy from ESPN+.

Promotion: ESPN+ is offering a one-year subscription (worth $50) + 1 PPV event (worth $60) for just $80 (valid only for new subs).

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Early Entrants: Vol. 3 – Blazers Vice Chair Angling for Ownership?

Blazers

Blazers Vice Chair Angling for Ownership?

Portland City Commissioner Nick Fish told reporters on Thursday that the word he’s “received from Blazers management” indicates that the team “will be put on the block” – and that he’s concerned a new ownership group would look to relocate the franchise. That’s news to my sources. Jody Allen (Paul’s sister, executor/trustee of his estate) may be willing to sell the NBA club – if she has an allegiance, it’s to the Seahawks and the city of Seattle – but no decision has been made. Some suspect that Blazers Vice Chair Bert Kolde is the source of Fish’s story. There’s a belief that Kolde is angling to buy the franchise and is looking to gauge the interest of PNW investors.

F1

Potential SPAC Exploring Purchase/Option of Multiple F1 Tracks

There are rumors circulating of London and/or New York based groups of high-level motorsport executives (think: creditable promoters, former team owners, advertisers within the sport, agency heads, real estate developers) – with access to capital – considering the formation of a special purpose acquisition company (SPAC) to purchase or option multiple Formula One (FWONK) tracks. FWONK currently takes in +/- $600 million in annual promoter fees.

The feeling is that if any one group were to acquire enough tracks (in the right markets), they’d be able to lower promoter fees (the reason races operate at losses) to the collective benefit of advertisers, fans and FWONK (less tracks to negotiate with); most importantly, it would give the sport some long-term stability. The Formula One Promoters Association has increased its pressure on FWONK over the last several weeks, disappointed with their plans to co-promote the Miami race (see: reduced or no fee) and upset with indications that 2019 could be the last running of the Mexican Grand Prix.

DAZN

DAZN’s 2019 Media Rights Budget Revealed

In Early Entrants Vol. 2, we noted that DAZN Group was considering selling off the company’s B2B play – Perform Content (think: data, news, game prod.) – to fund additional rights acquisitions. Well, Jochen Lösch – the former CEO of MP & Silva – has since shed some additional light on DAZN’s grand ambitions for 2019. Lösch, speaking on a panel at the SPOBIS conference in Düsseldorf, Germany, said he’d been told first-hand by a DAZN executive that the company would be spending $2.5 billion on global media rights this year. That total wouldn’t place DAZN in the same league as ESPN (spent $8 billion+ in ‘17) or Fox (pays $1.75 billion/year just for NFL rights), but it compares favorably to what Amazon and Facebook are projected to spend – neither has ever paid more than 8-figures on a sports rights agreement.

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Metrics that Matter

Disney CEO Bob Iger disclosed on the company’s Q1 2019 earnings call that ESPN+ had surpassed 2 million subscribers – less than 4 months after hitting the 1 million mark – a proclamation that has more than a few industry insiders wondering about the OTT service’s cost of user acquisition and churn rate. As one industry analyst said to me, “you can get to any number [of subscriptions] you’d like by essentially putting more marketing dollars against it. What matters is does your audience hold.” A second remarked, “great timing on the announcement considering they added 568K subs around their first UFC event on January 19th, subscribers received a 30-day free trial, have the option to cancel at any time and they didn’t have to mention churn on the call.” For what it’s worth, OTT video service churn rates are +/- 20%.

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ABC Looking to Take CBS’ or FOX’s Sunday Afternoon NFL Regionalization Package

ABC

The NY Post reported that ABC is “kicking around the idea” of making an aggressive push for the NFL broadcast rights currently held by FOX and CBS, deals set to expire at the completion of the ’22 season. ABC is looking to grow its viewership base and NFL broadcast rights have long been considered “either the top reason, or one of them, for an overall broadcast network’s success”; ABC currently sits a distant 3rd (behind NBC, CBS) in ratings among the Big 4 networks. Both Sunday afternoon packages would include the rights to broadcast the Super Bowl (on a rotating basis), noteworthy considering the ’18 game generated $414 million in ad revenue for CBS. The Sunday afternoon packages aren’t the only ones coming up for renewal, both FOX’s TNF package and NBC’s SNF package will expire at the end of the ’22 season; ESPN’s MNF package expires at the completion of the ’21 season.

Howie Long-Short: It’s important to point out that ABC didn’t pass on the NFL in 2005, as much as it was a larger strategic decision by Disney (DIS) to transfer rights to ESPN. As Scott Rosner, Academic Director of the Sports Management Program at Columbia University, explained, “the affiliate fees piece for ESPN was simply more compelling (for DIS). It lead to a net increase in revenue and gave the company leverage with all of the other ESPNs.”

ABC’s interest in the Sunday afternoon timeslots is motivated by its desire to “boost the overall health of the network’s ratings.” So, I wondered why speculation suggests Disney would be pursuing one of the Sunday afternoon windows. Wouldn’t it make more sense to go after a prime-time package?

Scott: The longstanding theory has been that viewership on Sunday afternoons gives lift to the overall visibility of your other programming; those mentions of what’s following the game, help to drive viewers to your non-sports programming.

Should ABC rejoin the mix in pursuit of NFL television rights it would be a boon to the league. As Scott said, with more players at the table than there are rights packages to be sold, “rights are certain to increase. The best content – in particular sports content – is more valuable now than it’s ever been. It’s just harder to amalgamate audience around any one property. The more fragmentation you have, the more having those kinds (NFL rights) of big properties really matters.”

For what it’s worth, FOX is currently paying $1.1 billion/annually for the NFC package, while CBS pays $1 billion/annually for the AFC package. Why is the NFC package more expensive? Fox drew 18 million viewers/game in ’18, while CBS drew just 16.5 million/game.

The NFL has repeatedly discussed its desire to be in front of the greatest number of eyeballs, so doesn’t it behoove the league to ensure ABC gets a package (over ESPN) during the next round of rights renewals?

Scott: It comes down to dollars. ESPN is paying $1.9 billion – on an average annual basis – under the terms of the current deal. The NFL’s business model when dealing with external forces is in many ways capitalism at its finest. I wouldn’t expect them to take less money (from ABC), nor should you expect them to take less money for broader exposure.

One Barclays analyst suggested that CBS’ package was most vulnerable because the company is low on cash. Would you agree with that assertion?

Scott: No, I think they’re all, to a degree, somewhat vulnerable. As for CBS specifically, positions can change dramatically before bids are due, as can ownership and strategic alliances, so I think it’s premature to think about cash positions or lack thereof. If you are cash strapped that will obviously have an impact (on your ability to submit a competitive bid), but it’s too early to say that will or won’t be the case.

Fan Marino: The NFL’s out of market rights may also be available as the league has the option to termite its existing pact with DirecTV prior to its scheduled expiration at the completion of the ’22 season. The NFL has been partners with DirecTV for 25 years, so it’s difficult to envision another provider with the league’s out of market rights, but DirecTV has acknowledged its done launching new satellites as it moves towards a streaming centric business and the league’s out of market package is at least currently restricted to satellite providers (i.e. no streaming companies). While the company would arguably have the most to lose amongst all current rights holders (it’s a customer retention/attraction tool for them, subscribers with Sunday Ticket are their most lucrative subscribers) if it were to lose its NFL content, it’s worth wondering why the NFL would even consider a company that’s thrown in the towel on their satellite business, in the next round of negotiations; Scott says, “the answer is simple. DirecTV is willing to make the offer that the NFL can’t refuse.”

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DOJ Changes Tune on Sports Broadcasting Monopoly

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Josh Kosman and Richard Morgan (NY Post) are reporting that the U.S. Justice Department has altered its position on The Walt Disney Company’s (DIS) acquisition of the 22 Fox regional sports networks and are said to be considering a scenario that would allow DIS to spin-off the cable networks; the company would cede operational control of the RSNs. The DOJ had initially mandated that Disney sell-off the sports networks within 90 days of the Fox entertainment deal closing to prevent a sports broadcasting monopoly, with subsidiary ESPN already owning the rights to more sports content than any other broadcaster. The news comes just days after New Fox – the perceived front-runner to take down the lot of cable assets – confirmed in an SEC filing that it would not be bidding on any of the networks. DIS reportedly remains committed to a sale before the end of February.

Howie Long-Short: The DOJ initially felt that if DIS were to add the broadcast rights to 44 pro sports teams to ESPN’s existing portfolio, that the company would be positioned to squeeze carriers in carriage negotiations; further driving up the cost of the cable bundle. While I don’t want to speculate as to why the DOJ is reportedly willing to reverse direction, there is a belief in industry circles that without DIS (or Fox) backing the RSNs (and the leverage that they hold), cable companies could/would opt to leave the costly networks off their basic tiers.

The Justice Department’s change of heart could end up saving Disney billions. New Fox’s decision to pass on what they perceive to be slow growth assets, leaves Sinclair Broadcast Group (with P.E. backing) as the last viable legacy media company capable of buying all 22 RSNs. The NY Post article said Fox’s decision to drop out of the bidding lowered the value of the sports networks to between “$9 billion and $11 billion” (or 5-6x EBITDA). If that’s true and DIS’ theoretical RSN pure play were to trade at the same 8.7x multiple ($16 billion) that MSGN does, a spin-off could net DIS $5 billion to $7 billion more (+60%) than an auction would.

That won’t be the case though. As Dan Cohen, Octagon SVP, Global Media Rights Consulting Division told me, “it’s quite different to compare a single RSN in the U.S.’ largest media market to a set of RSNs. There are factors beyond the viewership differences such as the costs, sets of rights, programming opportunities, etc. Remember, MSG owns the Knicks and Rangers. That dynamic creates stability and a guaranteed cash flow. It’s not the same as 22 RSNs whose rights are varied, where competition exists and higher costs play factors.”  

Disney paid +/-$20 billion for the RSNs as part of their $71.3 billion acquisition of Fox entertainment assets, so spinning off the networks would seem like a more attractive option than taking a +/- $10 billion loss, but if the rest of the legacy media companies are suggesting that RSNs are “slow growth” businesses – “at best” – I wondered why DIS would have interest in keeping them. Dan explained that moving forward the RSN business will be “slower growth, not slow. For the past decade+ the RSN business has been booming, a meteoric rise of the like cannot continue at that speed without slowing a bit for some time. However, growth on a RSN level will still move forward and the smart ones will develop business propositions around legalized in game betting and new interactive viewer technologies, and most certainly will need to further exploit the local digital rights as they play out.” For those who read “Early Entrants” (Vol. 1) on Sunday morning, you know that Disney is exploring entrance into the sports betting space.

Fan Marino: New Fox supposedly has a renewed focus on sports, but in the same week the company declared it was out of the regional sports networks business, it declined an option to carry the Big-12 championship game in ’19, ’21 and ’23. SBJ reported that the decision had to do with scheduling (see: they didn’t want it up against the SEC and ACC championship games), but I’m hearing that Murdoch’s company is preparing to go “all-in” on the Big 10 conference. ESPN, which aired the game in ’18 and has the rights in ’20, ’22 and ’24, is likely to pick up the 3 “odd-year” games.

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New Fox Out of Bidding for RSNs, Sinclair the Front-Runner

Sinclair

New Fox has confirmed in an SEC filing that it will not be bidding on any of the 22 regional sports networks that were sold to Disney (see: $71.3 billion sale of entertainment assets), viewing the RSNs as slow-growth (or no-growth) assets. The perception that Disney has “overexposed” the RSNs has also tempered Fox’s interest. With countless teams and distributors privy to their detailed financials, there’s now a belief that future broadcast rights will become costlier and that carriage rate increases will be more difficult to come by (both of which would further slow growth). Sinclair Broadcast Group (with the financial assistance of a P.E. firm) is now widely considered to be the front-runner (and the last viable option) to take down the entire lot (vs. piecemeal) of cable networks – estimated to be worth between $15 billion and $20 billion. Final bids are due before the end of January.

Howie Long-Short: Remember, the Justice Department is requiring that Disney (DIS) sell-off the RSNs to prevent the company from maintaining a sports broadcasting monopoly. With ESPN under the company umbrella, DIS already owns the rights to more sports content than any other broadcaster.

Many assumed that Fox would buy back the RSNs because of their renewed focus on sports programming, but Chris Lencheski (an experienced global sports, media, and private equity executive; and an adjunct professor at Columbia University) first told you in our November 19th newsletter that not only was Murdoch’s company unlikely to re-acquire the regional sports networks, but Sinclair Broadcast Group (SBGI) was “uniquely positioned to take them down because of their owned and operated channels”; and that “they (SBGI) could perform well, have invested in and have wanted to further acquire sports rights but on a truly scalable format.”  You heard it here first, folks.

Sinclair’s ownership stake in Stadium – a 24/7 multi-platform sports network with the broadcast rights to several Group of 5 conferences – makes the RSNs more attractive to SBGI than they might be to other prospective bidders. As Chris told me, Stadium already has a name amongst “early adopters” and “cord nevers”, the technology and the existing agreements with OTT providers like Sling and Pluto; which makes the addition of the broadcast rights to the 44 pro sports teams “plug and play”.

Amazon is said to be participating in discussions surrounding the YES Network (estimated value: $5 billion – $6 billion), but it’s unlikely they (or any other tech giant) will pursue the entire lot; RSN coverage is restricted by the leagues to a defined local footprint (see: YES Network only available within metro NYC) which limits their value to a global enterprise. While 40+ companies were said to be involved in the first round of bidding, without the tech companies (+ Comcast, Charter and now Fox) DIS is unlikely to pull in offers anywhere near the $25 billion Guggenheim Securities originally pegged the RSNs at.

Fan Marino: The Sinclair sports portfolio includes the Tennis Channel, the “fastest growing” network in television; now in 61 million homes (+ 41% over last 2 years) after gaining 5 million subscribers (more than any other Nielsen-measured cable network, just 1/13 to add subscribers) in December ’18. If you’re a fan of the sport, you need the channel; it aired more live coverage than any single-sport network last year (2,300+ hours of matches).

ICYMI: It was recently revealed that the Cubs would be launching their own sports network come 2020 in partnership with SBGI. That’s a wise decision. Sinclair can offer widespread distribution and brings much-needed experience in both carriage negotiations and game production to the venture; issues that have plagued other start-up sports networks (see: Pac-12 Network).

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Early Entrants: Sports Business “Rumblings” Before the News Breaks

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Editor Note: Below you’ll find the Volume 1 of “Early Entrants”, a bi-weekly newsletter from JohnWallStreet that will introduce sports business “rumblings” before the news breaks. Have a tip for the 2nd edition? Have thoughts on our newest product? Send them to JWS@JohnWallStreet.com.

Editor Note II: Have a colleague (or 3) that would find “Early Entrants” or the JohnWallStreet daily newsletter to be useful? Sign them up at JohnWallStreet.com/sign-up.

1. Disney Exploring Entrance to the Sports Betting Space

The Walt Disney Company (DIS) is exploring avenues to enter the sports betting space, reportedly modeling several consumer facing strategies (see: ESPN+ integration or standalone product) that would allow for the roll-out of a gambling product without tarnishing their family friendly brand. We’ve seen this strategy from DIS before, back in ’89 Michael Eisner introduced Hollywood (and Touchstone) Pictures so that the company could produce films for a mature audience.

2. Endeavor IPO?

There is heavy speculation that Endeavor (formerly WME-IMG) could file for an IPO in 2019. The company isn’t struggling, but after investing $4 billion on the UFC, $1 billion on Serie A rights and $150 million to acquire NeuLion, there appears to be a need for cash to pursue additional acquisitions and to fund their growth initiatives.

3. SEC Football to Remain on CBS

Despite stories to the contrary, rumblings indicate that CBS is close to extending their current pact (runs through ’23) with the Southeastern Conference. Their current deal with the conference is amongst the most favorable in sports, with the network paying just $55 million for 15 games (including the SEC championship game); for comparison purposes, ESPN pays the NFL $110 million/MNF game. Don’t be surprised if company overpays to land a secondary SEC game of the week on CBS Sports Network.

4. Eleven Sports Network Close to Collapse

Eleven Sports Network is said to be on the brink of collapse in US, UK, Taiwan, and Singapore as corporate losses continue to pile up. The company’s inability to gain traction with subscribers and its failure to find carriage with established cable providers has Eleven Sports unable to cover the costs of the broadcast rights they’ve acquired; some false hubris amongst high-level decision makers hasn’t helped matters.

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Disney in Control of the College Football Post-Season

College Football Playoff

The Walt Disney Company (DIS) owns the college football postseason landscape with ESPN and ABC controlling the broadcast rights to 35 out of the 40 FBS bowl games, including the College Football Playoff semifinals and the National Championship game; CBS (still has Sun Bowl on 12.31) and Fox (still has Redbox Bowl and Holiday Bowl on 12.31) will carry the balance of the games. The network’s dominance isn’t limited to the bowl subdivision either, ESPN (or the online streaming service ESPNWatch) will also broadcast the FCS playoffs for both Division II and Division III, the NAIA championship game and a de facto championship game for HBCU’s. ESPN is airing 34 games over the 17-day period ending on 1.1.19; the National Championship game will be played on January 7th.

Howie Long-Short: The number of bowl games played on an annual basis has more than doubled over the last 40 years (never more than 19 scheduled through the 1980s) with most of the growth coming this millennium; just 25 bowl games were scheduled at the completion of the 2000 season. The vast expansion of the college football postseason is simply the result of supply and demand, bowl eligible teams without bowls to play in and a cable television audience that craves football. Need proof? 2.5 million fans tuned in for the 2016 Bahamas Bowl game between a MAC school (Ohio) and a Sun Belt program (Troy). To put that figure in perspective, it’s 800,000 more fans (1.69 million) than ESPN averaged over 18 NBA games during the month of November.

ESPN Events (a division of ESPN) owns and operates 14 of the 35 bowl games it will broadcast this postseason, a 15th will debut next season. The games rarely include high profile teams (they’re all played before 12.29), but in a month where the network lacks an abundance of live sporting events (see: just the NBA and 1 NFL game/week) the bowl games help to fill out the programming calendar and generate meaningful advertising revenue; few networks can draw 1 million+ viewers on weekday afternoon.

While television viewership for bowl games is strong, in-stadium attendance has declined 10 years running (to 40,000) forcing the participating schools to buy up a record $25 million in unsold tickets for the 2017 postseason. Despite the significant bill, there’s no indication that bowl expansion will slow down anytime soon. The NCAA recently approved further expansion to 86 teams (44 games, includes National Championship), meaning nearly 2/3 of FBS teams (total of 129 + 1 in transition) will have the opportunity to play a postseason game come 2020. Of course, $25 million in unsold tickets is a drop in the bucket relative to post-season earnings; schools and conferences split $448 million in profits last year.

ESPN is paying $470 million/year for the 3 college football playoff games. Last season’s championship game drew just shy of 30 million viewers and the semi-final game at the Rose Bowl drew 28.4 million, making them the 2nd and 3rd most watched cable programs of all-time. Those viewership totals are impressive, but on a cost per viewer basis the network is actually paying more for the CFB playoff package than it does for a single NFL wildcard game ($100 million).

For those wondering about the costs of bowl sponsorship, on the low-end ESPN sold title sponsorship to the Bahamas Bowl for $300,000; down from an estimated asking price of $450,000 (went unsold) in 2017. On the high-end, Northwestern Mutual is paying a reported $25 million/year over 6 years to sponsor the Rose Bowl.

Fan Marino: The Dec. 26th First Responder Bowl between Boston College and Boise State was called midway through the 1st quarter amid a 2-hour lightning delay. The bowl’s executive director Brant Ringler said, “the decision was made after lengthy consultation with emergency personnel, both universities, ESPN and Cotton Bowl Stadium staff”, but one must assume the quick decision was aided by ESPN’s ownership of the game. ESPN lacked the broadcast window to re-schedule the game and opted to cut bait before incurring any further expenses; another owner may have insisted the game was played later.

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Seminole Tribe of Florida (with an Assist from Disney) Protects Florida Gambling Monopoly

Seminole

The Walt Disney Company spent $20 million in support of a ballot initiative that would give Florida voters the right to prevent the expansion of casino gambling within the state, a measure designed to protect their tourism interests and the state’s brand as a “family friendly” destination. Amendment 3 of the Florida Constitution passed on Tuesday evening, with more than 70% of the state’s voters backing the law that will require new casino projects to gain the support (60% must vote in favor) of the state-wide voting public prior to breaking ground; few (if any) projects are likely to meet the 60% benchmark. MGM Resorts International (seeks licensure in state), the Miami Dolphins and the Tampa Bay Buccaneers (both NFL teams are hoping to profit on sports betting) were among those that publicly opposed the measure; each of the 3 entities spent $500K on the proposed amendment’s “no” campaign.

Howie Long-Short: Disney (DIS) was invested in the amendment passing for its own selfish reasons, but there’s no bigger beneficiary to the “Voter Control of Gambling” amendment passing than the Seminole Tribe of Florida (spent $16 million on “yes” campaign). The Tribe dominates the Florida gaming landscape, operating in the state under a Federal gaming exemption afforded to Native Americans with little competition; the amendment’s passage ensures the moat remains around their business.

The long and costly battle for gaming company expansion into the state just became infinitely more difficult, but don’t expect casino operators to give up on Florida. Dan Alkins (Chairman of the committee opposing the ballot initiative) said should the measure pass “there’s going to be litigation just continuing on forever.” The state’s size/population, reputation as a tourism destination and abundance of retirees makes it a highly desirable locale for casinos to take up residence.

It’s worth pointing out the irony in the Miami Dolphins opposition of the amendment, while playing their home games at Hard Rock Stadium; a chain owned by the Seminole Tribe and the one that will pay the franchise $250 million over the next 18 years for naming rights.

Speaking of MGM Resorts International (MGM), the company is reportedly exploring a potential merger with Caesar’s Entertainment (CZR) to form a gaming behemoth (think: +/- 50% of all hotel rooms in Las Vegas and Atlantic City). While there’s no offer on the table (and it’s possible regulators could determine a merger would create “undue economic concentration), it’s known that “without a CEO, Caesar’s is in play” and that it’s CZR’s activist investors (own +/- 25%) driving the tie-up talk; a merger would allow the combined companies to eliminate redundant “overhead and marketing” expenditures. Wynn Resorts (WYNN) and the Genting Group (OTC: GEBHY) have also been names as companies that could have interest in a CZR (-25% YTD) take-over. With licenses in 13 states (49 casinos), the company is well positioned to benefit from wide-spread sports betting legalization.

Fan Marino: Howie mentioned Las Vegas and Atlantic City, so it seems like an opportune time to note that Eilers & Krejcik is projecting New Jersey sportsbooks will generate more sports betting revenue than those in the gambling mecca, as soon as 2021 ($442 million vs. $410 million). The boutique research firm (with a focus on the gaming industry) supported their thesis by pointing out NJ gamblers can make “sports betting transactions” on credit card (as opposed to being forced to make a deposit in a casino), that the state’s sportsbooks have created a highly competitive online/mobile market (think: pricing/promotions) and that state’s licensees have had “very high rates of black market recapture.”

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“New Fox” Front-Runner for “Old Fox” Regional Sports Networks

Fox

Earlier this month, The Walt Disney Company (DIS) sent out official bid books to potential buyers for the 22 regional sports networks they’ll acquire (and then sell-off) as part of the $71.3 billion deal for 21st Century Fox film and TV assets (to close H1 ’19). “New Fox”, focused on live sports and news programming, is believed to be the “front-runner” for the lot of “Old Fox” RSNs. A deal with Rupert Murdoch would allow Disney to unload the RSNs in a single transaction, as opposed to selling them off “piecemeal” (more timely, difficult), and would give “New Fox” the opportunity to reclaim the cable assets at a discount worth billions. Initial bids are due one week from today (Nov. 8).

Howie Long-Short: The Justice Department is requiring that DIS sell-off the RSNs to prevent the company from having too much control within the sports broadcasting space. With ESPN under its umbrella, DIS already owns the rights to more sports content than any other broadcaster.

Disney paid a premium to acquire the package of RSNs after a bidding war with Comcast drove the price tag up +/- $20 billion, but as stand-alone properties it appears the cable sports channels are worth less than the premium DIS paid. Why? “There is doubt about the long-term future of regional sports networks in their current form.” High carriage rates and declining ratings could eventually lead distributors to drop the channels. (see: DirectTV/SportsNetLA, Home of the Dodgers).

I asked Octagon SVP Global Media Rights Consulting, Dan Cohen if he thought RSNs were a risky acquisition given the current sports media landscape?

Dan: Yes, the traditional media business is under intense pressure and consumption habits have shifted and will continue to shift. However, live sports rights are still of high demand. In our current world of unbundling, I’m not sure you need as much linear distribution as once required. I can envision a world in which a RSN goes direct to consumer, technology now affords that option. The same goes for carving up multiple Virtual Multichannel Video Programming Distributor distribution deals; YouTube TV has already shown this with MLS and there’s more to come.  

Specific to RSNs, their benefit is their locality. Sports are incredibly tribal and community driven and such, local premium sports content will remain a highly valuable asset. The bigger challenge I’d pose to the new RSNs owner(s) is how will they push the envelope to connect with the next generation of consumers? What contractual obligations will they negotiate with their local teams (think: access and content exclusivity)?  What technologies will they invest in to increase interactivity with the content? How will they empower the consumer to customize their viewing options? How much will they invest to meet the demand of a consumer who now expects to be able to watch their content whenever, wherever, and across many platforms? There’s a lot of questions to be answered. 

Guggenheim valued the 22 RSNs (which collectively control broadcast rights to 44 MLB, NBA & NHL teams) at $25 billion, but expect the lot to draw offers between $16-$20 billion. Fox (FOXA) would offer DIS the cleanest transaction, but it’s been reported that P.E. firms (see: Apollo Global Management, Blackstone Group, KKR, Providence Equity Partners and Silver Lake Partners), tech companies (see: Google, Amazon, Facebook) and broadcasters (see: Sinclair Broadcast Group) are also all kicking tires on the cable networks.

Howie: Why is Guggenheim’s estimate so much higher than the projected winning bid? Who ultimately takes down the lot?

Dan: Initially, when news first broke and I expected Comcast to bid aggressively, I thought the valuation was between $23-$25 billion; with the potential to reach $28 billion if an aggressive bidding war broke out. However, with Comcast seemingly not bidding on the RSNs, I would lower my expectations and estimate that they’ll be valued between $18–$22 billion with a high watermark of $25 billion.

As for who takes the lot down, Fox is certainly the lead horse. That said, there’s still a few more laps to run and I expect Charter, Liberty and even Sinclair with PE backing to make a pitch. I also wouldn’t discount a surprise challenger bid from lesser widely publicized media co.

While it’s been surmised for some time, that the Yankees (which control 20%) would buy back the YES Network (they have first right to do so), prospective bidders have been asked to include YES in their offers; that’s because DIS is reportedly seeking $5-6 billion for YES, a significant premium to its $4 billion valuation. Of course, YES is the most valuable RSN among the group. It’s been estimated that collectively, the RSNs generate $2 billion/year in EBITDA; YES (2nd most expensive cable channel, ESPN 1st) is responsible for bringing in +/- 25% of that total.

Fan Marino: Sure, subscriptions (to RSNs) and ratings (to the games on the RSNs) are down, but RSNs continue to warrant high carriage prices and relative to the remainder of the networks in your cable package, they continue to perform well ratings wise. In fact, the 29 RSNs that own MLB rights saw ratings rise +2% YoY during the ’18 season, league games were the most watched programming in primetime on cable television in 28 of 29 markets (Miami is the exception) and 12 of the RSNs were tops in their market in primetime, amongst all programmers.

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NHL Experiences Growth in Non-Traditional Markets, Seeks Growth in China

NHL

NBC Sports has decided to add NHL regular season games to its programming schedule. Between NBC and NBCSN, they’ll carry 109 regular-season games during 2018-2019 season (which got underway Wednesday evening), the most in any single season since the company acquired league broadcast rights back in 2005-2006. As part of the expanded coverage, the peacock network’s sports division will introduce “Wednesday Night Hockey” (on NBCSN); featuring earlier start times (7p or 7:30p EST) and a record 17 broadcast double-headers. 13 games, including the league’s marquee events (see: All-Star Game, Winter Classic, Stadium Series), will air on the NBC broadcast network; the January ’19 NHL All-Star game will mark the first time the annual showcase has been carried live on broadcast television since ’97.

Howie Long-Short: NBC Sports (CMCSA) executive producer and president of production Sam Flood said it was viewership growth in “non-traditional NHL markets” and the “emergence of a number of rising stars” that drove the company to expand its programming schedule. By starting games earlier and carrying 17 double-headers, they’re able to air more games involving teams from the Western Conference; meaning more opportunities for fans to see emerging stars like Connor McDavid (Oilers), Patrik Laine (Jets) & Nathan MacKinnon (Avalanche).

If you’re not getting your hockey fill from NBC/NBCSN, NHL.tv (the league’s OTT subscription service) has added 50% more “local broadcast pre-game and post-game shows” plus “intermission shows”, in addition to 180 out-of-market league games; content drawn from team RSNs. Disney Streaming Services (operates NHL.tv) offers the service on a full-season, monthly and single team basis; unlike with NBA League Pass, fans do not have the option to purchase individual games or periods. It’s worth mentioning that in addition to NHL.tv, ESPN+, Disneyflix and BAM-Tech Media all fall under the Disney Streaming Services (DIS) umbrella.

NBC Sports is paying $2 billion (over 10 years) for the league’s exclusive media rights (through the ’21-’22 season). Last season, games that aired on NBC experienced a 4% YoY rise in viewership (to 1.34 million), but across all platforms (includes NBCSN & digital) the audience declined -12% (to 417K); NBCSN broadcasts really dragged the average down, averaging just 302,000 viewers/game.  Starting games earlier, showing a wider variety of teams and showcasing the league’s best players should help NBCSN post better ratings during the 2018-2019 season.

Fan Marino: While non-traditional hockey markets (think: San Jose, Las Vegas) have given a boost to viewership here in the U.S., the NHL appears to perceive China as the next horizon; in fact, the league played a few preseason games in the country (and will in 4 of next 6 seasons) in September and recently opened a youth hockey school in Shenzhen.

President Xi Jinping’s plan to have 300 million winter sports fans in the country by the start of the ‘22 Beijing Olympics has served as a catalyst for the league’s Asian growth efforts. Of course, the NHL isn’t participating in the ’18 Olympic Games and should they decide to pass on the ’22 Games, it could alienate the Chinese government and halt the league’s progress in the country. Commissioner Gary Bettman disputes that notion arguing that one tournament would not define the sports long-term growth prospects in China.

Speaking of non-traditional hockey markets, on Tuesday the NHL’s expansion committee recommended adding Seattle as the league’s 32nd franchise, the formal vote will occur in December. The David Bonderman/Jerry Bruckheimer ownership group hopes to play the club’s inaugural season at a redeveloped KeyArena in ’20-’21, but ’21-’22 may be more realistic with a player lockout pending in ‘20.

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