The Walt Disney Company has officially received the Justice Department’s blessing for its $71.3 billion bid for Fox, but now the clock is ticking for Disney to find a buyer for Fox’s regional sports networks.
As a condition of the deal approval, Disney has agreed to sell off Fox’s 22 RSNs, which operate in markets including New York, Los Angeles, Dallas and Detroit, and own broadcast rights for various teams from the MLB, NBA, NFL and NHL. The DOJ is giving Disney a minimum of 90 days (with the possibility of extending the deadline by another 90 days) after closing the Fox deal to secure a sale of the RSNs.
Barclays analyst Kannan Venkateshwar said Disney’s agreement to sell off the RSNs could generate around $19 billion to $20 billion in value (assuming a 10x EBITDA multiple off approximately $2 billion EBITDA), which should add another around 0.5x to Disney's leverage capacity (including Sky).
But if Comcast plans to carry out the same proposed sale of the RSNs, it could potentially allow the company to sweeten a counter offer for Fox.
“Assuming Comcast also divests the RSNs, it could in theory go to a high $40 bid to keep leverage at ~4.5x (4.2x leverage based on last Comcast bid). Also, at this point, Comcast will have little incentive to back down, as it may want to force Disney's leverage higher in order to make Comcast's hand stronger with Sky,” Venkateshwar wrote in a research note.
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Assuming Disney’s current offer for Fox, complete with DOJ approval, holds off any counter from Comcast, Disney is still on the hook to find a new home for Fox’s RSNs.
Sports Business Journal’s John Ourand said during a podcast Thursday morning that he expects the Yankees to take back majority ownership of the YES Network, particularly since the team had a clause allowing it to do so when it agreed to sell its majority interest back in 2014.
Ourand also speculated that Disney could sell off the RSNs piecemeal, and that Comcast wants the networks in its markets and AT&T wants the ones in its markets. He said that distributors like Charter could also be interested in buying the RSNs.
Ourand also mentioned firms including Venture Capital, Endeavor and CAA as possible contenders.
“I think there’s going to be a long line of people kicking the tires of these RSNs but it’s just surprising to me to see that [RSNs] are not as popular as they seem to be for the last couple of years,” Ourand said.
He said that RSNs have been profitable for years but now are being impacted by the same factors hurting ESPN, namely shrinking subscriber bases and raising rights fees.