Steinbrenner May Get New Partners in YES
TV Property Could Be Worth More Than Yankees
By Tom Steinert-Threlkeld -- Multichannel News, 8/20/2006 8:00:00 PM
In this story:
IN LIKE THE OLD
LOOKING FOR BIG CHECK
George Steinbrenner next season could have new teammates at the Yankees Entertainment & Sports Network. Whether the New York Yankees “Boss” likes them or not.
By the end of this year, Goldman Sachs & Co. and Providence Equity Partners will have gained the right to sell their 40% stake in the regional network, without the approval of the Yankees or any other shareholder, according to several executives in the sports-programming industry.
Estimates of the value of the network created March 22, 2002, range from $1.2 billion to $3 billion. The higher number and potential sale was first reported by the New York Post on Aug. 11.
| Keeping Score | |
|---|---|
| Here's how Kagan analyst John Mansell figures the YES Network is worth $1.9 billion: | |
| $275 Million | Annual Revenue |
| X 40% | Cash Flow Margin |
| X 17 | Purchaser's Multiple |
| = $1.9 billion | |
| Say, YES |
|---|
| Parties who might be interested in buying the 40% stake in YES Network currently owned by Goldman Sachs and Providence Equity Partners: |
| SOURCE:Multichannel News research |
| Verizon: Gives it a chance to burnish its new FiOS TV brand with that of the Yankees — and horse trade with Comcast and other operators of sports networks. |
| Comcast: Gets operating efficiencies. Owns six regional nets now. Big question: What would it do with its 10% interest in SportsNet New York, which features the New York Mets? |
| Fox Sports Net: Gets to put the No. 1 market in the country into its lineup of 21 owned and affiliated regional sports networks. And drive traffic to Fox's non-sports networks. |
| Time Warner Cable: Already big in New York, this would make it bigger. |
| Yahoo: Would say it has arrived as serious video player, as Fox did with its landmark deal for NFL broadcast-TV rights in 1993. |
| NBC Universal: Got back into the NFL this season, after eight years on the TV sidelines. Might go to bat for a hoped-for homer in baseball. |
| Viacom: King of content. And Yankees are kings of summer. |
If accurate, that would make the Yankees' regional sports network more valuable than the team. In April, Forbes valued the ball club at $1.03 billion, the first Major League Baseball franchise to cross the billion-dollar mark.
Goldman and Providence put an estimated $340 million into the network at the outset. According to the Sports Business Journal, the investors last year may already have been paid a dividend that makes them essentially whole on their original stakes. Now, the two financial investors' stake in the Yankees network could be worth between $480 million and $1.2 billion.
“Look, from an investment-firm standpoint, their approach is to invest in businesses and build them and sell them for a profit,” said Lee Berke, president of LHB Sports, Entertainment and Media and a consultant on regional sports networks. “They certainly will be doing that with YES, if they go down that path.”
Among the companies that might have an interest in taking a sizable stake in what claims to be the most-watched regional sports network in the country are: Verizon Communications Inc., which may want to get into owning brand-name content as it builds a nationwide television business; Comcast Corp., which already owns or partly owns six Comcast SportsNet-branded regional sports networks around the country, including outlets in Philadelphia and Chicago; Time Warner Cable, which, like Comcast, owns a minority stake in SportsNet New York, home to MLB's New York Mets; Fox Sports Net, which owns and operates 15 regional services; ESPN, the national sports giant; programmers such as Turner Broadcasting System Inc., NBC Universal, Walt Disney Co. or Viacom; and even Internet players wanting to make a mark, such as Yahoo Inc.
“No question, certainly,” said one of the sports programming executives.
In 1993, Fox established itself as the fourth national broadcast network when it anted up $1.6 billion for four years to take away one of the two Sunday-afternoon National Football League TV packages from CBS. Yahoo spent $5.7 billion in 1999 to acquire Broadcast.com, taking an early lead in moving video over the Internet.
Fox can't get into the bidding, if there is any, until at least February of next year. That's the result of a two-year noncompete agreement in New York that grew out of Cablevision's February 2005 buyout of the interest of Fox's parent, News Corp., in Madison Square Garden and its MSG Networks channels.
Fox, though, has no interest in acquiring a stake in YES, according to one industry executive. One potential issue: The fact that Goldman Sachs and Providence Equity hold a minority stake in the network.
The other 60% is split between the Yankees, run by team owner Steinbrenner, and a group led by Ray Chambers, a former owner of the New Jersey Nets, whose National Basketball Association games appear on the network during fall and winter months.
That could put Chambers in the catbird seat. If a sports programmer such as Comcast or Fox wants to gain majority control, in order to operate the network as it sees fit, that company will need to buy out Chambers.
“You're absolutely right,” said Ed Stier, chief executive of the Community Youth Organization, which holds the Chambers stake in the network.
But, Berke noted: “it's good to have content these days. It's good to own content. If you can offer up content, branded content, then you've got a card to play.
“And I would assume that he's likely to going to go out there and figure out whether to play that card,” Berke said.
Stier did not rule out selling out if a serious buyer emerged. “We're investors, just like Goldman Sachs,” Stier said.
The Yankees did not comment by press time. But the Steinbrenner stake is not likely to be sold, according to industry executives interviewed by Multichannel News.
As a practical matter, Stier expects that each of the shareholders would consult with the others, if any one of them got serious about selling to a new potential owner. Even if they have the right to sell independently, “an extraordinarily effective close working relationship” between the current owners would lead to consulting the other shareholders first, Stier said.
IN LIKE THE OLD
Steinbrenner's new partners also could turn out to be a lot like the old ones, Berke notes. Private-equity funds are awash in capital this year; and also seeking places to park large sums of investment money these days — unlike five years ago — are hedge funds, lightly regulated pools of funds from supposedly sophisticated investors seeking high returns.
The YES Network does not publish its financial results. But Berke and executives interviewed for this story estimate it generates between $100 million and $150 million a year in profit from its operations.
When a company is bought, that profit is used as a starting point for pricing a sale. The figure is multiplied by a number that is roughly equivalent to the number of years of profit a buyer is willing to pay to acquire the firm.
Typical multiples are 10 to 12, Berke noted. But, in this case, “I think 15 to 17 is a reasonable amount, particularly because this isn't just any regional sports network. It's the leading sports network in the country, with arguably the leading sports franchise in the country,” he said.
Kagan Research senior analyst John Mansell pegs the value of the network at just about double the value of the team. The team generated $275 million in revenue last year, he said. If the cash thrown off after direct expenses was 40% — or $110 million — and the multiple is 17, the value of the network hits $1.9 billion.
To boost its value, YES Network CEO Tracy Dolgin and company managers have renegotiated terms with virtually all distributors — except Cablevision -— in the last two to three years. In each case, YES has extracted higher payments for its content, which it demands be carried on the basic tier of cable programming.
It's also launched high-definition television broadcasts; added interactive features, including a split-screen view of the game on DirecTV that allows the viewer to pick what player to watch at any given moment; ramped up its advertising sales; and added Yankees-specific content. Most notable: Game-day coverage now starts with batting practice.
LOOKING FOR BIG CHECK
No matter how it turns out, next year is likely to be active for YES on the acquisition front. Expressions of interest in picking up the Goldman Sachs and Providence Equity stake are likely to be plentiful.
“If that's your area of responsibility, you've got to at least make a call to arguably the best sports brand in the world,” said one industry executive who has watched the development of the YES Network.
Of course, Goldman and Providence may not get an offer they like and pull in their horns. “Would they settle for anything less than a big check?” the executive said. “Absolutely not. They don't need to.”
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