Yankees Buy Back YES and Bring Along Amazon and Sinclair by Craig Edwards March 13, 2019 With 80% of the YES Network up for sale, the New York Yankees have formed an ownership group that will give the club a majority interest in the network. The deal is valued at $3.47 billion, more than four times the network’s estimated value when it was formed in 2002, though that figure is also about half a billion dollars less than it was when YES was last sold in 2014. Disney recently acquired the 80% share of YES as part of their acquisition of Fox, but they must sell Fox’s regional sports networks in order to gain government approval of the broader Fox purchase. The Yankees, not willing to go it alone on a multi-billion dollar investment, found financial backing in the form of Blackstone and a few other private equity groups. More important to the actual running of the network, Sinclair Broadcasting Group and Amazon will also be significant investors, with the Yankees possessing a majority interest. A little over six years ago, Fox bought nearly half of YES Network for $1.5 billion. While the team was the most prominent owner of the network at the time, that deal most benefited Goldman Sachs, Providence Equity, and a group headed by former Nets’ owner Raymond Chambers. The latter three groups owned roughly two-thirds of the network at the time, and sold most of their share. The Yankees sold about 9% of their share, netting them around a quarter of a billion dollars. That deal allowed Fox to later purchase the rest of the equity groups’ shares, as well as a bit more of the Yankees’ share, for another billion or so dollars. Fox completed that purchase in 2014, owning 80% of the network; the Yankees owned the remaining 20%. In what would turn out to be a big part of the agreement and the current sale, the Yankees retained the ability to buy back the network. The Yankees’ buyback clause was one of a few factors enabling them to repurchase their network at a lower price than the one they sold it for earlier in the decade. To start with, the sale was essentially forced, with Disney unable to choose when to sell. With Fox selling the network and Disney unable to buy, two of the biggest media companies in the world were taken off the table as potential competitors to drive up the price. The Yankees’ ability to buy the network back meant that if a buyer wanted to acquire a majority stake, it would have to bid beyond what the Yankees were able to pay or scrape together with investors, a tall order given the Yankees’ finances. Potential buyers could partner with the team, but they wouldn’t be able to gain a majority interest, and bidding with the Yankees instead of against them takes away other potential buyers. Factor in that the Yankees and MLB control game streaming rights — which could prove incredibly value down the line — instead of a potential buyer and it’s not difficult to see how the price might have been a bit lower than the valuations in 2012 and 2014 when Fox bought in. As for how this deal will affect broadcasts, the impact is likely to be small, as the network will probably remain the same. If there is a change, it is more likely to come in the distribution of the network than its specific content. Amazon’s expertise should be helpful for streaming games locally in New York, though they aren’t currently allowed to stream Yankees games outside of New York, as MLB’s blackout policies not only prevent consumers from watching their local games without paying for a cable subscription that includes the local RSN, but also prevent teams and local RSNs from broadcasting outside of their market. The Yankees would stand to make a ton of money if they could broadcast their games nationally through Amazon or Sinclair’s large group of affiliated stations, but MLB restricts arrangements like that so that local teams have exclusivity on traditional television, while MLB.TV enjoys exclusivity online. The settlement of the Garber lawsuit a few years back gave consumers the option to purchase a single-team streaming option, but preserved the blackout policy from an adverse decision in anti-trust litigation. If there is an aspect of this deal that might make fans nervous, it comes with Sinclair’s involvement. When the possibility of Sinclair investing in the Cubs’ RSN was reported back in December, I wrote about the concerns I had over Sinclair’s business practices, and their penchant for getting into carriage disputes that have resulted in Sinclair-owned channels remaining off the air. The problem for baseball is less the federal regulations, and more in how Sinclair would negotiate carriage fees. Of the cities with Fox RSNs, Sinclair owns local stations in Minneapolis, Cincinnati, St. Louis, and Milwaukee. They also own stations in a whole host of smaller markets in Michigan, Ohio, California, Texas, Georgia, Florida, and New York. It’s not difficult to imagine how Sinclair might attempt to leverage retransmission fees to extract even more money for the RSNs. With few exceptions, RSNs have had little difficulty gaining entrance to cable providers basic digital package. This isn’t a situation analogous to the Tennis Channel, as the RSNs are already in a large percentage of homes. But if Sinclair raises the price higher than providers are willing to pay, disputes become more likely. While Sinclair does not own any networks in New York City, they do own a handful of stations throughout the rest of the state, and the potential exists for disputes on carriage fees that might prevent fans from seeing games. In addition, YES Network is available in New York on a more accessible cable tier with both Time Warner and Cablevision than the Sinclair-owned Tennis Channel is. Sinclair could attempt to use YES to gain better access for the Tennis Channel, though that isn’t highly likely given the amount of revenue they can expect from YES. This is now the second RSN deal between a baseball team and Sinclair, with the Cubs being the first. Sinclair CEO Christopher Ripley says in earnings call the Cubs’ new Marquee Sports Network is projected to generate for the company “about $40 million to $50 million of free cash flow [per yr] and it is a model for other partnerships going forward.” — Eric Fisher (@EricFisherSBJ) February 27, 2019 Sinclair has reached deals with two of the richest clubs in baseball, but they might not be done. The remaining Fox RSNs are still up for sale. At one point, a $20 billion valuation for the 22 channels was thought possible, but without YES and with teams retaining streaming rights, that figure looks very high. In addition to Sinclair, Liberty Media, which owns the Braves, could enter the fray, and the networks could be sold off individually or in smaller groups, but MLB has reportedly made an offer of around $10 billion. Resolving the sale of YES should make it easier to move forward with the rest of the networks, though MLB should be wary of Sinclair or any buyer like them that is reliant on the old cable-bundle model to make money. Making new, younger fans is incredibly important for the future of the sport and relying on a delivery system that younger people use less frequently, and that often involves disputes preventing networks from even airing, should be avoided.