A new detail in Disney’s renewed pursuit for 21st Century Fox assets is the reported sale of Fox’s regional sports networks, which could provide a big boost for ESPN.
Investment analyst Eric Jackson said the deal for Fox’s RSNs amounts to Disney-owned ESPN doubling down on sports rights, which it can use to beef up the live sports offerings within its ESPN+ streaming service launching in 2018.
“Once this deal closes, you could envision ESPN including a lot of out-of-region games to the ESPN+ app to make it a much more compelling subscription product than it will be when it launches in May,” wrote Jackson in a guest commentary for CNBC.
“With the play to get the RSNs though, Disney is telegraphing that it is going to have the key sports you care about—nationally and locally—for a long time. If you want those games, you need to visit the Magic Kingdom, whether as a cable subscriber, an OTT subscriber, or both.”
Barclays analyst Kannan Venkateshwar said the sheer scale and stability the RSNs would provide for Disney would make the deal worth it.
“If Disney is successful in acquiring the Fox RSNs, it would combine the biggest national sports network in the US, ESPN, with the biggest RSN group in the country, along with some of the most popular college conferences (SEC, ACC, and BTN). RSNs may likely be complementary to ESPN as they can support and stabilize ratings, especially since national viewership is more volatile and based on matchups,” wrote Venkateshwar in a research note.
As Jackson pointed out, CNBC’s David Faber estimated that FOX’s RSNs would be valued at about $20 billion. Of course, Disney is pursuing more than just FOX’s RSNs in this deal.
Jefferies analyst John Janedis estimates the deal would cost Disney about $78 billion and that the company would almost entirely finance the deal with equity.
“We assume DIS would pay ~$78B (equivalent to ~$42/shr), incl. the assumption of $12B in net debt, for nearly $5.5B of EBITDA as well as FOXA's unconsolidated assets (SKY, Hulu). A key difference in the most recent reports are DIS's interest in the RSNs which we value at $18B (9.0x F19E EBITDA). Other assets in the deal include the intl cable nets valued at $18B (12.0x, incl. STAR), the domestic Ent nets at $12B (9.0x), and the studio at $11B (10.0x) - we remain surprised that FOXA would be willing to sell its TV production unit,” wrote Janedis in a research note.