Disney Invests Over $1 Billion in MLBAM
Yesterday, after months of rumored negotiations, news broke that Disney had agreed to acquire a 33% stake in MLB’s streaming-video division, often referred to as BAM Tech. According the report, Disney — which has ABC and ESPN under its umbrella — agreed to acquire one-third of BAM Tech for $1.16 billion, which puts the overall valuation for the entire streaming division at $3.5 billion. As part of the deal, Disney also has the right to purchase another 33% of the company in the future, which would allow them to become majority owners of whatever they choose to call BAM Tech long-term.
The deal is certain to have far-reaching implications for the future of streaming video, and it also could have implications in the upcoming labor negotiations as owners attempt to separate non-baseball revenue from baseball revenue despite its origins within the game.
With this deal, it is clear that BAM Tech is set to be distinct from MLBAM, focusing on streaming efforts outside of baseball. This development was first announced last August, coinciding with a deal to acquire NHL’s streaming rights. MLBAM has become a force in the industry, branching out from providing only MLB-related services several years ago to providing back-end help to ESPN, rolling out the WWE Network and HBO NOW, along with streaming the NCAA Tournament and PGA tour events.
MLB considered several options with their streaming-services business, from going public to staying put, but ultimately chose a strategic partnership with Disney. By retaining a large equity stake in BAM Tech, at least until the option to sell another third is due, MLB has bet on the continuing upside of the company. By partnering with Disney, the odds are good that more deals like what the league did with the NHL and HBO will come down the pike, and if MLB and Disney can grow the company together, the remaining equity the league holds will likely increase in value, perhaps significantly.
Disney, principally through ESPN’s networks, have made enormous profits off of the cable bundle over the last decade. Disney has negotiated favorable contracts with cable providers to provide their networks on the standard cable tier so that every cable subscriber gets ESPN and its sister networks, with the cable providers passing along the high per-subscriber costs onto their customers by bundling a wide range of channels to all customers and charging a favorable price for themselves. This model has worked well (and still does) both for networks and providers for quite some time, but the number of cable subscribers has begun to erode, leading to fears that the current model is not sustainable long term.
MLBAM is extremely well-positioned to capitalize on those fears, especially given their position with ESPN, already providing services the cable giant was unable to produce on its own. As consumers view more and more programming through over-the-top networks, Disney and ESPN were poorly positioned to provide consumers digital options in-house. ESPN has experimented being a part of a skinny bundle on Sling TV, but had the opportunity to get out if there were too many subscribers cutting into the traditional cable model. While the current cable model is likely to last in some shape or form for some time, the number of consumers willing to pay for one gigantic cable package will likely continue to fall, and content providers like Disney will look to provide programming to those customers. A partnership with the technology behind MLBAM provides that opportunity.
In the short term with television offerings, not much is likely to change. Bloomberg mentioned the possibility of streaming more of the less-watched sports, but this deal is more about positioning both BAM Tech and ESPN for the future. BAM Tech gets an infusion of cash and a strategic partnership from one of the biggest content providers, especially in sports, so they can ramp up their offerings and continue to stay ahead of the competition for online streaming. Disney and ESPN now have a fallback should cable revenues falter, and they have positioned themselves for a future they previously seemed ill-prepared to weather.
While the top-level headline is easy to interpret as MLB just getting over $1 billion in cash, the likelihood of this money actually making its way into the owners’ bank accounts is pretty low. MLB isn’t selling off part of BAM Tech because owners need to raise capital; as their acquisition of the NHL’s streaming rights show, the business sees its best path forward as becoming a rights-holder, not just a technology company. Streaming-media rights are of course quite expensive, and with this equity sale, BAM Tech is now positioned to bid on all kinds of streaming-video content, potentially setting themselves up to be the dominant player in the space.
Long-term, this is definitely good news for the owners’ revenue streams, as the partnership with Disney will allow BAM Tech to grow beyond what it is now, and the league is set up to reap significant revenues from the venture if it becomes what Disney is hoping they can help turn it into. In the short-term, though, this probably isn’t a cash-out for the owners; as Dave Cameron noted in his THT Annual piece on the collective-bargaining negotiations, the owners probably don’t want to be sitting on a mountain of newfound money right as they negotiate the new CBA.
Of course, it’s also going to strain credibility for the league to cry poverty in any negotiations given that they have a secondary asset worth billions, but given that BAM Tech is essentially a separate business outside of baseball, it isn’t clear that the players have a strong claim that this is baseball-related revenue. With the infusion of cash likely to be invested back into BAM Tech, this money probably won’t filter through to the teams and players. But long-term, this definitely serves to put the league and its 30 owners in a very favorable position, now that they don’t rely solely on the popularity of the sport of baseball for their profits.
Craig Edwards can be found on twitter @craigjedwards.
Hey, maybe now they can pay minor leaguers minimum wage.
The real question is whether they can get any “seasonal apprentices” to work for MLBAM or BAM at a rate lower than Low-A players earn.
They already do exactly that. Do you think stringers and game data entry people are paid full-time with benefits? I think people have a false concept of what the median wage is in the sports industry.
It’s clear to me realitypolice is well aware of that, and made the comment to highlight that fact, but it flew over your sarcasm detector.
The owners did have to pony up a pretty solid chunk of change to fund the development of MLBAM in the first place, so this isn’t all net profit for them.
Did they though? Is there an article or report about this somewhere? I thought that as MLB.tv was raking in cash, they developed better technology to improve the experience and inadvertently found themselves as forerunners in new media.
Nice work on explaining this, Craig, thanks!
Do you know if each club carries 1/30th ownership stake in both MLBAM and BAM as an asset on their balance sheets, or do they simply retain 1/30th control of the two entities and then receive distributions as shareholder owners when and if the entities make them. It would be interesting to know if MLB owners are required to take those distributions (and alternately, make any cash calls) through the operating budgets of their clubs, or if the distributions can be assigned to the owners or other related entities directly.
This disappoints me – I want as little Disney involvement in baseball as possible. ESPN sucks at covering baseball & has for at least 10 years now.
Agree Jim. If it ain’t football you don’t see it on Mike and Mike. There’s seldom Baseball Tonight unless before a televised game. Of course they know their market. We do still get to see the Yankees and Red Sox.
Enjoy!
Mlbam only cost the owners around 70 million dollars collectively. The original plan was for each owner to pay 1 million a year for 4 years for a total of 120. It became so successful a couple of years in that it was decided that the whole 120 was not needed. Even though they are handling non baseball clients can’t the players argue that the seed money came from baseball related revenue? I am afraid that this will be a major hang up for this years CBA
This is only slightly related, and I probably won’t get an answer here, but from my understanding MLBAM (or BAM Tech, whichever it is) isn’t a public company. How is the company then priced if the shares aren’t publicly available which would allow the market to price them? How is it determined that BAM Tech is a $3.5 billion dollar organization? Is the ‘intrinsic value’ of the company calculated using some forecasting method agreed upon between the two parties?
That’s the number this deal values the company at. Buying one third of the company for one third of 3.5 billion makes it so this deal values it at 3.5 billion.
So…how did Disney decide that it’s worth paying ~$1.16 billion for 33% of the company? And how did MLB Tech decide that that was a reasonable amount for them to sell 1/3 of the company?
They negotiated?
Maybe watch Shark Tank?
Do you understand that these kinds of evaluations go on every day? Whether it’s venture capitalists negotiating with startup founders over how much of the company their investment will buy, investment banks pricing shares for an IPO, or small business owners trying to get a loan from a bank, the business world regularly figures out a value for concerns that aren’t yet (or ever will be) traded as a public company. You don’t even need an MBA to do this kind of figuring, though every MBA can do it (and goodness knows the world is awash with MBAs). You look at debt and assets, and present and future cash flow, you look at the market the company is in, how big it is and how much growth it might see, what competitors exist (or might exist) and what their financials look like (if you can get them), and you work up some (pretty standard) models. The resulting price reflects anticipated future value more than it represents what the business is worth today. (And sometimes it represents negotiating leverage: if the buyer really wants to get a piece of that business the seller can set a higher price; if the seller is desperate for a cash infusion, the buyer can get it at a discount. It’s evident that Disney was the more eager suitor in this relationship, and the price would be inflated accordingly.)
I do not understand that, no. Which is why I was asking. And I understand that they negotiate, but I was curious about the actual methods used, which you explained, to value the company. Thanks.
I guess they had analysts, advisors, and an investment banking firm or two assess a value
This seems like an awful deal for BAM Tech and MLB, and a great deal for DisnESPN. They get a cash infusion? As if MLB or any portion of it is hard done by. This is essentially the future salary of a 2 Harpers and a Trout.
They didn’t need money, and by signing over the majority (in the future) of a powerful piece of their business that they didn’t need to sell anyway, they’re going to lose control over something they built. Strategic partnerships my ass, they’re the best, and these partners would come calling to the best no matter what. Who’s going to match them or outdo them?
Anyway, all that being said, it’s the majority stake that bothers me about this. If it wasn’t a future majorty stake, I’d be all over it too.
I agree. MLBAM had the potential to break the world open and be the ESPN of the post-cable world (except maybe, hopefully, better). Now it’s just going to ensure that the ESPN of the post-cable world is… ESPN. “Meet the new boss, same as the old boss.”
Yes. Giving Disney control is incredibly naive and stupid.
Does not some small part of the monopolist brain squirm with the notion that if baseball is expanding it’s business beyond baseball it will not longer be covered by the unfortunate anti-trust exemption it was granted?
This is my thinking as well. MLB will be walking a fine line as to how they plow money back into the owner’s pockets as well as how increasing amounts of outside revenue affect their desire to negotiate fairly with MLBPA.
I can’t see this being good for fans and consumers. I can see Disney pushing MLB to not make ESPN games available on mlb.tv, or only available at a higher cost. I can see them expecting a bigger return in the profit department which will raise prices on mlb.tv. It gives ESPN a competitive advantage over its competitors like Fox, and helps them increase carriage fees to cable companies that even non sports watchers must pay. FTC should not approve the deal
Also, one has to ask if MLBAM is also granted anti-trust exemption by virtue of MLB’s ownership, and could this extend to Disney and ESPN? Since FDR this country seems to bend over to monopolies and cartels at the expense of labor and consumers, my guess is yes
MLBPA should insist that all revenues, including non-baseball revenues (less operating and development costs) are counted in their determination of players salaries share of revenue calculations. Perhaps now MLB can afford to pay minor league players a decent wage. Maybe some of them will be able to afford cable or mlb.tv someday
Why are only three of the people who have posted here so far members?
Pony up, guys. This place doesn’t pay itself.
I’ll wait for Disney to buy a 66% controlling stake in Fangraphs so that they can charge me a $2.99 per month rolling fee that you have to say you don’t want 24 days in advance, which will allow me the opportunity to view 15 articles per month with an overlimit fee of $0.47 per other article and make 45 comments, averaging out to a very fair 3 per article with a $0.15 cent overlimit fee, or the opportunity to upgrade to Fangraphs Silver or Fangraphs Gold or Fangraphs Platinum featuring advanced profile preference coloring and/or favorite author notifications on my new Fangraphs iPhone app downloadable from the official Disney(tm) iPhone store for $1.99 original cost and a $0.99 per month rolling fee that you have to say you don’t want 27 days in advance, which will allow me to….
English translation: you are going to freeload.
Come on. If you’re going to post here, help to pay for the place.
I don’t know if that is good; I like to be able to easily identify riff-raff and pre-judge accordingly.
This sucks. Disney already owns way too much. I’ve mostly given up on espn because of them. They are the evil empire.