UTK 1/8/2025

Fixing Rights, Selling MLB

I think I figured out how MLB gets around the impending rights apocalypse. ESPN is going to opt out of its contract after the ‘25 season. Everyone, including those inside the Commissioner’s office, are treating this like a done deal. The hope there, as I understand it, is to do another short term deal before expiration that is more favorable to ESPN, especially since ESPN is launching it’s new “Flagship” product at about the same time.

But owners are already largely facing reductions in their local rights, aside from a couple that either locked in long term (Dodgers, Cubs), own their own distribution (Yankees, Red Sox), or are just in a lucky situation (Phillies, Braves.) Let’s focus on the Dodgers with their Sportsnet LA deal, as its the toughest part of this.

The Sportsnet deal is 25 years, running until 2038, meaning there’s still about half of the $8 billion left to go. Say what you want about the Dodgers payroll and deferrals, they’re bringing in $300 million before selling a ticket, an ad, or a hat.

But that doesn’t mean it can’t be bought out. It just means it would be expensive.

Remember as well that MLB can do things no one else can do. The antitrust exemption is in place and despite regular threats, Congress has never repealed it. Owners have already pooled their national rights to MLB and share equally in those, in the same way that other leagues do. The NFL doesn’t really have local rights - all games are functionally national - but the NBA is a better comp here. The money is in the national packages, so NBA teams aren’t as bothered by the RSN problems.

Baseball can’t do that, but they could set up a company that could buy up the rights. Let’s call it RiteCo to keep things simple. The normal way to do this would be to simply share and share alike, but the issue of local rights values and the need to make teams like the Dodgers whole in this process makes that impossible.

The Dodgers don’t care if the $4 billion on the books is coming from Sportsnet, Charter, or whoever. If RiteCo can buy them out and give them similar value going forward, they’ll do it. Getting $4 billion now might be enough, since the wizards at Guggenheim do very well with investing it in other things. That means RiteCo will need to be capitalized and functionally buy the rights from as many teams as possible, then sell it.

The problem with this is the initial buy is huge. Not impossible, but not likely given the return. Without distribution, this is the same issue that Diamond/Sinclair had and that RSN’s have had across sports. Getting private equity to come in would be easy. Redbird - already a partial owner of the Red Sox - has been looking for TV rights across a lot of things, including buying CNN from WBD.

Let’s go back to 2022, the last year we have good numbers. In that year, local rights accounted for about 23 percent of MLB’s revenue, or about $2.5 billion in total. If we assume that’s roughly the same now - where inflation and the Diamond collapse merge - we come up with a reasonable valuation of $50 billion in the marketplace. That’s based on the overall media P/E ratio of around 20. If you want to get a bit pie in the sky, Netflix’s P/E is currently north of 50. Disney is 40.

Suddenly, finding $4 billion for the Dodgers doesn’t look as hard, if you give them some combination of cash and stock in RiteCo. The issue is that it creates an imbalance in ownership, if not payments. Would Guggenheim be willing to take less, evening out the local rights, in return for cash they can invest and stock that should increase, especially if publicly floated eventually?

How does MLB buy in? The easy answer is to expand. Two teams at a billion each gives them a stake which could be distributed out to owners. Owners could just buy in on their own. If they can afford to buy up Norwich City and

This is where the distribution partner comes in. Would a Disney or an Apple be willing to come in and take partial ownership of RiteCo, in effect guaranteeing content and payouts, of which they’d get part of? Yes, it’s a self-deal but again, the antitrust exemption allows some quirky things to take place that would get more scrutiny in other transactions. The NFL couldn’t even do this, though they don’t need to.

The downside is, this isn’t big. $2.5 billion in revenue puts RiteCo about on par with something like Townsquare Media, a local small-market radio conglomerate. Not only that, RiteCo would need to find distribution that would pay for those rights or find a way to hold the revenue. Direct to consumer hasn’t worked to replace broadcast rights, but RiteCo could have a compelling case.

If RiteCo not only did the easy thing of getting rid of blackouts (or at least made them much more reasonable), they’d likely increase sales. Add in better broadcasts, better integrations, and even advanced things like Immersive games and it becomes better. The most comparable is Apple’s MLS deal. For one fee, buyers get everything - every game, all the studio shows, highlights, and more - for $99 bucks. There’s discounts, but that’s a reasonable price and MLS seems happy with this. They still have some national deals, but most of all they have the marketing and tech muscle of Apple.

RiteCo could have that, be it at Apple, Flagship, or Amazon. Comcast could flip their linear channels into SpinCo and turn around and enhance Peacock with a big MLB deal with RiteCo.

Talking with sources inside baseball, one of the things several mentioned is that owners don’t like to give up control. Despite the collapsing market, they feel like they have an asset and negotiate better for themselves. Then again, the most old school owners are seeing the worst issues. With several clubs for sale and a major infusion of capital from private equity sales, owners are going to have more of a push for distributions than ever before.

Something like RiteCo is easily doable, if the Commissioner’s Office can find the right partners and investment. That shouldn’t be hard. There just might be some awkward things, like playing the All Star Game in Riyadh. Seriously, did you know Pablo Sandoval and Robinson Cano are still playing?!

Then again, there’s one other possibility…

While RiteCo could be reasonably valued at $50 billion now, more if it absorbs national rights as well, the entire valuation of MLB teams in 2023 is just shy of $70 billion. Assuming a 20 percent premium to value, a common number for acquisitions, that would be $84 billion or so. Just buy them all?

Who has that kind of cash on hand? There’s plenty of options out there.

***

And of course, all this got confused by the Disney-Fubo settlement on Monday. Disney settled Fubo’s lawsuit about Venu, the Disney-Warner-Fox sports mashup that most thought all but dead. Instead, Fubo merges with Hulu Live TV, growing their base significantly and giving the stock a huge bump. Disney maintains control, with about 70 percent of the new company.

But by dropping the suit, Venu is now clear to go. What that means is unclear because the Venu folks never did a good job of explaining what it was. To many, it was a half step towards Flagship, the cost was too high, and it wasn’t clear how or where it would be watched. There’s still no clarity on that as we see whether this deal closes, whether there’s anyone else that will raise Fubo’s antitrust complaints, and even then, whether Venu will work or gain traction.

Venu won’t even have a huge baseball presence, since Diamond/Sinclair isn’t part of it. It makes me wonder why Fubo didn’t become Venu, unless Disney and its partners really, really don’t want to be in the delivery business or that the product will need even wider distribution across Flagship, Max, and Tubi. (Yes, Tubi. Until Fox gets sold, Fox Sports will dump a lot of secondary sports programming over to it’s FAST.)

***

This has nothing to do with baseball, really, but as WWE goes to Netflix and further shows Netflix’s commitment to live events, there’s also discussion that UFC, WWE’s sister company underneath TKO, itself mostly owned by Endeavor. If they do this, I don’t think it will be the normal rights deal.

Instead, Ted Sarandos, the CEO of Netflix, has often talked about it not making sense to “rent sports.” There’s very little replay or long-tail value in sports. Maybe I want to go back and see a classic match or a particular event, but no one “catches up” a couple years later like someone might with a previous season of a big show. When Squid Game 2 came out, a lot of people watched Squid Game.

So if Sarandos decides to have both legs of TKO on his … app? channel? platform? … could he just buy it? Endeavor’s not above swapping assets and after a near 300 percent run up in ‘24, it might be a good time for Ari Emanuel to sell. Netflix has $8 billion in cash on hand, but it also has a similarly inflated stock price. TKO’s market cap is $24 billion as of today and Netflix’s is $383 billion. Six percent of the cap and saving the cash makes a ton of sense and wouldn’t be renting.

Not only would Netflix have the content, they could share in the ancillary sales or even license it out. There’s discussion of ESPN and Netflix sharing UFC, so this wouldn’t be hard to do, just a bit unusual. Netflix would have to take on salaries and production, but all of that is in-house now and they’d likely keep people like Dana White and Paul Levesque around, who would keep the smart people doing the real work behind the scenes as well.

It would be out of character for Netflix to buy something like this, especially in a media environment where other assets might be coming up. Then again, it’s out of character for them to be doing live events. Buying instead of renting might square the circle a bit for Sarandos and NFLX shareholders.

Netflix had its first Raw on Monday and it was … something. The event took place at the new Intuit Dome in LA and the first twenty minutes were WWE execs talking. Ok, it was Triple H and The Rock, but there was no action until the 25 minute point, when Roman Reigns led a “Tribal Rules” match. This was apparently a long build, but it fell flat for me. There were no glitches or buffering for me, and it was largely positive in reviews for that.

***

The Golf League (TGL) debuted on Tuesday night. The indoor simulator golf league had what I see as a wildly successful debut. It was fast paced, fun, and I don’t like golf. There’s a huge opportunity here with Tiger Woods and Rory McIlroy’s league. They’ve brought in the biggest names in golf, starting with themselves, have plenty of funding, and seem to have a winner of a product.

As well, this could be a winner for golfers. It’s easy, has a single location, and is a unique opportunity to show personality. Golf is a bit of a slog on TV over hours and days and even the best golfers are on screen intermittently and from a distance. Here, they’re miced up, in close proximity to a few other golfers, and there’s a crowd close by to interact with.

There’s a unique set up, a ton of data (but no biometric data ..), and an opportunity for the virtual courses to become a major selling point. Not only is it like watching the best golfers in the world play crazy shots on amazing, couldn’t-exist courses, but I’ll guarantee that they’ll sell those same courses to people for a video game and for the simulator in the garage. If I was LIV, I’d be worried.

***

By the way, the answer to College Football and MLS is the same - organize in 20 team bunches and relegate. CFB will have to figure out NIL and employee issues, then get rid of conferences and their deals. More likely, the Big Ten and SEC will just force it by getting together into a 32 team Super Conference. At that point, they can pick and choose, or just lock everyone else out into a second tier.

For MLS, expanding to 40 wouldn’t be hard from where they are at the current 30. San Diego is coming in and Las Vegas won’t be far behind. I expect to see Phoenix, Indianapolis, and Louisville close behind. Finding a handful more shouldn’t be too tough.

Or, they could merge with Liga MX and immediately have another 40 teams. At 80 with reasonable expansion, that’s four levels like English soccer. Yes, smaller Mexican teams would be at a significant disadvantage and likely would be left at the League Two equivalent. That’s not so bad, given their current structure below Liga MX. Teams like Chivas and Monterrey would be on par with even the best MLS teams, as Gold Cup matches have shown.

While American owners would hate the concept of relegation, it’s necessary, as is shifting the schedule. Playing in Minnesota or Toronto in February is going to be rough, but maybe they could borrow their city’s nearby dome for games under a certain temperature. There’s always the option of relocating as well.

Dropping to the second or third level would be rough, but is hardly a death sentence and the fan base is certainly educated enough to understand and support a push for winning. The most popular soccer club in America isn’t Inter Miami or LAFC. It’s not Liverpool or Chelsea. It’s Wrexham, who started at the fifth level of their league and is currently on the verge of moving to the second level, one step away from the Premier League. All it took is some Hollywood charm and dollars.

Relegation is coming and America should embrace it. MLB sure could use the ability to relegate some of their owners!

***

Could the success of the now-theoretical Vegas Athletics rely on a Project Runway judge? The answer is yes. The Venn diagram of “fashionistas” and “baseball people” isn’t a big overlap. The biggest fashion change of the last fifty years of baseball was the move from Gap chinos to Lululemon ABCs to go with a logo polo, usually free. There’s exceptions, of course, but wander the Winter Meetings and you’ll see there’s an off-field uniform as well.

However, Zac Posen has been revamping Gap. Posen had a GapStudio - his high fashion atelier - dress at the Met Gala and has dressed Cynthia Erivo in the past, so we’ll have to see if Gap gets any play in what’s sure to be a huge awards season for her.

John Fisher’s wealth is wrapped up in his parent's creation and Gap and their sister brands, to the point where he’s had to pledge stock to underpin construction financing. If Gap increases in value - something Posen’s revamp hasn’t hit yet - then Fisher’s shaky finances get a lot less shaky. We’ll see if that happens, but if the rumors of Banana Republic going back to its roots are true, I may even get a bit nostalgic.

Regardless of Gap becoming American cool again, Fisher is going to have to bring on some local ownership. There’s been some recent chatter that Phil Ruffin might end up being that investor. The co-owner of the Trump International non-casino that’s been in the news lately has the money to do it, but hasn’t been sports focused. Many think he’ll get an ambassadorship or something for his political largesse as well, like Tillman Fertitta, who’s Vegas adjacent. There’s also some note that the Laurie family, which owns the St Louis Blues and Denver Broncos might want into baseball. With those cities out, the Walmart heirs might think long term for Vegas.