News Corp. to Buy Stake in the YES Network

News Corporation is reportedly set to buy a 49 percent stake in the YES Network and it may be a hedge against losing its local TV contract with the Dodgers.

The YES Network broadcasts Yankee games and a full slate of Yankees-related programming. It is also the broadcast home of the Brooklyn Nets of the NBA. YES is considered the most successful and profitable regional sports network in the country.

Over the weekend, the New York Times reported that News Corp. is close to acquiring a 49 percent share of YES, which has been valued for purposes of the transaction at $3 billion. A 49 percent share, then, will cost News Corp. $1.47 billion. Until now, shares in YES were divided among the Yankees (34 percent), investment banks Goldman Sachs and Provident Equity (40 percent) and a group of former Nets owners (26 percent). The deal includes an option for News Corp. to increase its stake to 80 percent within five years.

News Corp. is the parent company of Fox Sports, which owns 19 regional sports networks around the country. One of those regional sports networks is Fox Sports West, the current broadcast partner to both the Angels and the Dodgers. Last December, the Angels hit gold when they signed a new, 17-year contract with Fox Sports West valued at more than $2.5 billion. That deal gave the Angels tremendous financial flexibility when approaching the free-agent market. The result? A  10-year/$240 million contract for Albert Pujols and a 5-year/$77.5 million contract for CJ Wilson.

But the Dodgers’ deal with Fox expires at the end of the 2013 season and it’s unclear the two will continue as broadcast partners in 2014 and beyond. When former Dodgers owner Frank McCourt was going through federal bankruptcy, Fox proposed a new 20-year/$3 billion deal for the Dodgers, a deal which Commissioner Bud Selig ultimately rejected. The possibility of an even more lucrative TV deal provided the foundation for Guggenheim Partners’ winning $2.15 billion bid for the Dodgers in bankruptcy.

By the terms of the existing deal, Fox and the Dodgers are in a 45-day exclusive negotiating window that began on October 15. If no deal is reached, the Dodgers must then make an offer to Fox. If Fox rejects the offer, the team will be free to negotiate with any broadcaster. The most likely suitor is Time Warner Cable, which snagged the Los Angeles Lakers away from Fox last year. The Dodgers could also decide to start their own regional sports network, like YES, New England Sports Network (NESN/80 percent owned by the Red Sox), SNY (65 percent owned by the Mets), and Mid-Atlantic Sports Network (MASN) (majority owned by the Orioles, with a minority stake for the Nationals). More on MASN in a minute.

A media analyst for Los Angeles Times suggested that Fox/News Corp. pursued a stake in YES as a hedge against losing the broadcast rights to the Dodgers and to block Time Warner from a potential partnership with the Yankees. Whatever the motivation, the competition between Fox and TWC on both coasts will almost certainly lead to more riches for two of the richest baseball franchises: the Yankees and the Dodgers.

Now back to MASN. It was created as part of the deal that moved the Expos from Montreal to Washington, D.C. to become the Nationals. Orioles owner Peter Angelos opposed the move as an encroachment on the Orioles’ exclusive broadcast and commercial region. [This is different from the dispute between the Giants and the A’s over the territorial rights to San Jose and Santa Clara County.] As part of the negotiated settlement between MLB (which then owned the Expos) and Angelos, MASN was created with the Orioles to own 90 percent and the Nationals to own ten percent. The deal also called for the Nationals to be paid $20 million/year in broadcast rights, although that figure would increase by $1 million every season. In 2011, MASN reportedly paid the Nationals $29 million in broadcast fees and $7 million for its now 13 percent share of the network.

The MASN agreement also includes a re-set provision by which the Nationals can re-negotiate the broadcast fee structure every five years. Early in 2012, the Nationals proposed that MASN pay between $100 million and $120 million per year in broadcast fees. The Orioles countered at $34 million per year. The two sides have been in protracted negotiations ever since. Commissioner Selig asked representatives from the Pirates, Rays, and Mets to mediate the dispute. A resolution was expected over the summer but never materialized and the parties reportedly remain far apart.

The dispute highlights the growing disparity between the local-tv haves and have-nots. On one side are the Yankees, Mets, and Red Sox, which own their own networks, together with the Rangers, Angels, Dodgers, Astros, and Padres, which have or will soon have lucrative new broadcast deals. On the other side sit the other 22 teams, with contracts of varying lengths and financial terms, waiting to cash in. Next up to the trough are the Phillies, Mariners and Diamondbacks. Their broadcast deals expire after the 2014 season.

There’s been a lot of talk lately about the new national TV contracts MLB agreed to with Fox Sports, TBS, and ESPN. Those new 8-year deals, covering the 2014-2021 seasons, will pay MLB $1.5 billion annually, money that will be shared equally among the league’s 30 teams. So while local TV revenue differs significantly from team to team, national TV revenue should ameliorate some of those differences, right?

Maybe. Maybe not. The new national TV money — which will start flowing in 2014 — should, theoretically, give smaller-market teams the opportunity to sign free agents that were previously too expensive to consider. But, the market as a whole will be flush with cash. That could very well lead to faster-than-expected salary inflation. If so, the smaller-market teams will be right back where they started.




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Wendy's baseball writing has also been published by Sports on Earth. ESPN.com, SB Nation, The Score, Bay Area Sports Guy, The Classical and San Francisco Magazine. Wendy practiced law for 18 years before beginning her writing career. You can find her work at wendythurm.pressfolios.com and follow her on Twitter @hangingsliders.


34 Responses to “News Corp. to Buy Stake in the YES Network”

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  1. Martyn says:

    Can the Yankees do *anything* that isn’t soulless and transparently lucre-oriented?

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    • Andy says:

      Unlike every other team that foregoes profit for wins.

      +13 Vote -1 Vote +1

    • Steve says:

      Well, for about 15 years, they’ve employed a Demi-God as their closer.

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    • MikeS says:

      Pretty much everything that every MLB team does is soulless and profit oriented. The Yankees are just bigger and better at it than everybody else.

      I prefer to be exasperated by the teams that will pocket $50M of national TV money, more in revenue sharing and still field a team with a payroll of $32M

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    • Marlin's Fan says:

      I agree, the large market teams are soulless.

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    • B N says:

      Eh, it’s more soulless now that the kids are running it. I was never a huge fan of Steinbrenner, but you had to at least say he put his heart into the team. While he was a businessman, it was pretty clear he was also a big fan. While the Yanks might have still been evil, I’d be hard-pressed to call them soulless and money-grubbing when he was at the helm.

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      • the great gazoo says:

        the Yanks aren’t evil. i love to root against them because of ESPN-coast bias, large payroll and all that stuff but that isn’t their fault. too much jealousy on here.

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      • B N says:

        Haha. I don’t think they’re particularly evil either, to be honest. However, as a Red Sox fan, I am obliged to refer to them as such as a rule. ;)

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    • the great gazoo says:

      hmm, News Corp wants to buy a stake in YES network. how is that the fault of the Yankees?

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  2. Trevor Robinson says:

    Wendy, thanks for the explanation and analysis.

    How do arrangements such as the YES and MASN networks compare to the Blue Jays’ TV deal? My understanding is that Sportsnet still pays a fee of $30M to the Jays for broadcast rights, even though they are both owned by Rogers Communications. Does the league mandate that one arm of the corporation must pay the other? And how do they come up with that figure? Do you know of similar arrangements around the league?

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    • Bob says:

      From my understanding there’s a minimum amount that MLB records for revenue sharing purposes for team owned RSN’s and it varies with the team. However, as we have seen with the Yankees and Red Sox that amount isn’t close to what those teams actually take in.

      The very fact that markets like Toronto and Houston stopped getting revenue sharing under the new CBA is basically all you need to know about just how lucrative those markets are perceived to be by MLB.

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  3. Rob says:

    Having professional sports network owners as partners should make YES even more successful in the short term, yet I wonder if ultimately taking over control of YES longterm is a wise move. Wouldn’t that free up the Yankees to negotiate with Time Warner? A d what is YES without the Yankees?

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  4. bSpittle says:

    Biggest threat America faces is conservative ignorance spurred by fake fox news.

    -7 Vote -1 Vote +1

    • Radivel says:

      As someone not in the USA, I agree completely.

      -6 Vote -1 Vote +1

    • Jaack says:

      Eh, I’m going to shy away from politics and say it’s Mike Trout not winning MVP. That’s definitely more dangerous.

      +16 Vote -1 Vote +1

      • Antonio bananas says:

        You mean ignoring facts and relying on narrative and faulty tradition umping rhetoric that you back up with stats that don’t exactly make sense? Maybe that’s it, that’s what’s wrong with trout losing and fox news.

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      • Antonio bananas says:

        Tradition thumping*

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    • Average_Casey says:

      Seriously, we are talking media bias here that involves politics? All I can say is I liked CNN and MSNBC and then I paid attention to what they were saying this last election cycle. Now, I hate Fox news cable because of Bill O’Reilly, but I won’t even go to CNN’s website anymore because they are flat out not reporting things and the same with NBC News (was MSNBC). In fact, the worst bias I have ever see is on NBC News with Chris Myers talking about “Thank God we had that superstorm” in reference to Obama getting reelected.

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      • Chris Matthews says:

        Ahem … are you sure you really watched MSNBC/NBC?

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      • the great gazoo says:

        Chria Meyers really said that? wow.

        we already know ~75% of MSM reporters vote democrat and there was an actual conspiracy uncovered in 2008 election where they(group of democrat reporters) were going to make false claims that Fred Barnes was a racist in order to take the heat off obama (attempt to change the narrative). google “Journ-o-list” if you find it unbelievable. What is disgusting is most/all of these skunks remain in the media as though nothing had happened.

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  5. Soxfan-1966 says:

    Does this mean that Bill O”Reilly and Sean Hannity will be doing post-game analysis?

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  6. Mike Green says:

    George Will’s “All Cubs, All the Time” could get tedious after a while.

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  7. Antonio bananas says:

    Sort of off topic and selfish because I’m a bravos fan, but is there any way Atlanta can get out of their awful deal?

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  8. Average_Casey says:

    Up in the Northwest, Fox Sports NW changed to Root sports (I have no idea why), has any other regional Fox station changed their name?

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    • joser says:

      The reason it changed its name was because it changed its ownership: Fox Sports Northwest is no longer controlled by News Corp, but by DirecTV (specifically DirecTV Sports Networks). However, despite the ownership change, the remained “affiliated” with Fox in terms of then-existing aggrements on channel allocation etc, which is why the transition was so painless. (I’m not sure what that means in terms of possible minority ownership or other considerations). FSN had once been owned by Liberty media (as Prime Sports Northwest), which sold those properties to Fox in the 90s (which named them FSN), and then the Liberty-controlled DirecTV bought them back in 2007– but waited a couple of years before it did anything about the name.

      FSN Pittsburgh and FSN Rocky Moutain (and Utah) also changed to Root Sports at the same time, and for the same reason

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  9. Kevin says:

    Here’s the major problem as I see it. For the teams where the regional sports network is owned by the team or they’re both owned by the owner of the team (Peter Angelos/MASN), there is no incentive for the team to negotiate with the network to get more money in rights fees. For example, Peter Angelos isn’t going to negotiate with himself to take money out of one hand and put it in the other. This leaves the Orioles with a relatively small rights fees payment each year (~$29m) even though it’s been reported that MASN makes close to $200m in revenue. They have the money to put into payroll if they choose, or they can choose to take it as profit from the MASN side of the business.

    For the teams that don’t own their own regional sports network, they can and do negotiate fiercely to get as much in rights fees as possible. Per year, the Angels are getting somewhere around $147m. It seems to me that there should be some way to regulate this so that the divide between big and small market teams doesn’t grow even larger.

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    • joser says:

      Actually, in the case where it’s a matter of one hand paying the other, there may be plenty of reasons to set the rates irrationally high or low, depending on the tax treatment and other factors like revenue sharing. As I recall, back in the days when some broadcasters owned teams (TBS/Braves, ABC/Angels, maybe CBS/Yankees, and today with Rogers/Jays), there was a tendency to move the pots of money around to hide profits or otherwise monkey with the numbers. I imagine most of those holes have been closed, but there are lot of smart people involved with a big incentive to find new ones.

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    • the great gazoo says:

      good points.

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  10. Martyn says:

    I apologise for my bone-headed and rather ill thought out comment. I lie before you all, prostrate.

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  11. JohnnyK says:

    So who is selling their shares? The investment firms, with the rest of the 49% coming from CYO?

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  12. RuthBilt says:

    Good article, Wendy. Just a quick note: it’s “Providence Equity” not “Provident” – one of the largest PE firms that plays in the media arena globally. They’ve done very well with this investment and are likely winding it down to harvest gains.

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