The upcoming sale of Fox’s regional sports networks keeps getting more and more interesting. Disney is going to sell off those networks as part of the conditions of regulatory approval of their $71.3 billion purchase of Fox assets, and just about every cable/satellite provider has been rumored to be in the mix (especially with talk that the networks might be sold piecemeal, letting providers pick up only the ones in their regions and add them to their existing RSN stables). Teams have been mentioned as perhaps buying all or part of their affiliated RSNs (especially the Yankees with YES, where they have a specific buy-back option), agencies like CAA and Endeavor (parent of WME-IMG) have been floated too, and there’s even been some talk of private equity firms and tech companies potentially getting involved.
Well, an extensive Bloomberg report from Nabila Ahmed and Gerry Smith has much more on that front, and also mentions interest from powerful local station owner Sinclair Broadcasting:
The assets are attracting preliminary interest from media and technology companies including Sinclair Broadcast Group Inc., YouTube Inc. and Amazon.com Inc., as well as buyout firms such as Blackstone Group LP, CVC Capital Partners and Apollo Global Management LLC, according to people with knowledge of the matter. Sinclair Chief Executive Officer Chris Ripley on Wednesday told analysts the networks would be a “good fit.”
…While station owners are likely to bid for the networks as a package or in pieces, private equity firms could be tempted to take it one step further. With the U.S. Federal Communications Commission preparing to loosen restrictions on how many television stations one company can own, some buyout firms are scoping out deals that could bring a station owner and the sports networks together, the people with knowledge of the matter said.
If the FCC scraps the rule, which prevents any one broadcaster from owning stations that reach more than 39 percent of the nation’s households, Sinclair, Nexstar Media Group Inc. and Tegna Inc. would be better placed to compete as more of their viewers migrate to online platforms.
A private equity firm, for example, could partner with a broadcaster to acquire some of the regional sports networks, or it could buy a broadcaster and then combine it with a rival or the networks, or both, the people said.
There’s a lot of notable information in there. First, the discussion of specific private equity firms that might target these networks is interesting; the general idea of private equity getting involved had been discussed before, and it makes sense given that these networks currently have some pretty strong cash flow and profitability. Whether they’ll be able to keep that up for the foreseeable future is more of a question, especially in a landscape with significant cord-cutting and cord-shaving and one that’s leading to providers fighting hard against rate increases or tier benefits for specialty sports channels.
But that’s where the discussion of private equity firms also looking to buy local over-the-air stations is significant. Carriage challenges grow when your network doesn’t have corporate siblings that can be involved in a deal (hello, Pac-12 Networks!), but owning both over-the-air stations and local regional sports networks could be significant from a carriage deal standpoint, to say nothing of potential on-air or behind-the-scenes synergies between the two. Similarly, Sinclair already owns a ton of local stations, and getting into the local sports game might make sense for them.
And it’s interesting to see specific talk of Amazon and YouTube potentially getting involved. As with the private equity firms, this general idea of tech companies going after RSNs has been discussed before, but this is a step beyond that. And both Amazon and YouTube have been players in sports rights, with Amazon landing Thursday Night Football in particular and YouTube essentially creating their own digital RSN in Los Angeles with YouTube TV picking up LAFC local rights. Of course, there are challenges for them too as noted in that piece (in particular, the geographic limitations on RSN content might make deals less appealing for tech companies), but those businesses have a lot of money and are eager to invest in sports content.
At any rate, it’s very difficult to predict who will wind up with the RSNs at the moment given all this interest. And it’s difficult to envision how the future will play out for these networks under any particular owner; private equity firms might invest in them and successfully bundle them to drive up their long-term value, or they might bring in some of the problematic management approaches we’ve seen at newspapers. Existing providers might prove to be great RSN owners and boost their own cable or satellite businesses along the way, or they might run into carriage struggles with rivals. Local station owners like Sinclair could successfully handle RSNs, or they could run into some of the much-criticized corporate-mandated approaches we’ve seen from that company. Tech companies could take RSNs to the next level and successfully market them digitally to cord-cutters, or they could prove ill-suited to running local TV networks. We don’t know.
But regardless of who comes away with these networks and how they run them, we do know that Disney’s likely to get a fair bit of money out of this sale. The RSNs were collectively valued at around $22 billion by one analyst last December, and the Bloomberg piece mentions a valuation of about $20 billion. With this much bidding interest, it seems likely that Disney will do pretty well out of this.