Sinclair buying Fox RSNs from Disney for $10.6B

by Ike Obudulu Posted on May 4th, 2019

Media company Sinclair Broadcasting Group is buying Fox’s regional sports networks for $10.6 billion. The Walt Disney Co. agreed to sell the networks to get regulatory approval for its $71.3 billion acquisition of Fox’s entertainment assets, which was completed in March.

The 21 networks include exclusive local rights to 42 professional teams, including 14 Major League Baseball teams, 16 National Basketball Association teams and 12 National Hockey League teams. Hunt Valley, Maryland-based Sinclair is also buying Fox College Sports. The New York Yankees’ YES Network is being sold separately by Disney.

Byron Allen, CEO of independent television and film studio Entertainment Studios, will be a partner in Diamond Sports Group, the new Sinclair subsidiary that will incorporate the regional sports networks.

The U.S. Justice Department must approve the sale.

Sinclair said Friday it will acquire the RSNs via a newly formed, indirect wholly owned subsidiary of Sinclair called Diamond Sports Group and Byron Allen will become an equity and content partner. Allen, who bought the Weather Channel last year, is the founder and CEO of Entertainment Studios.

Sinclair said the purchase price was $9.6 billion, though the deal is valued $1 billion more than that when enterprise value is thrown in.

The acquisition will make Sinclair, based in the Baltimore suburb of Hunt Valley, Md., and a major provider of news, a big player in sports cable programming. Among the sports channels it is buying are Fox Sports West in Los Angeles and Fox Sports San Diego. Sinclair owns, operates and/or provides services to 191 TV stations in 89 U.S. markets.

“While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture,” said Sinclair CEO Chris Ripley.

A 22nd of the regional channels that Disney agreed to sell, Yankees Entertainment and Sports (YES) Network, is not part of this deal. But Sinclair and Amazon are believed to be nearing a deal to back the New York Yankees baseball club in a roughly $3.5 billion deal to buy back the 80 percent stake in the YES Network that Disney holds after its Fox acquisition.

Regulators argued Disney’s ownership of ESPN and the regional channels would give the Hollywood conglomerate too much power in the sports TV sector, requiring it to sell the regional networks.

The price tag Disney fetched came in below original expectations. Some Wall Street analysts had initially predicted that the 22 sports networks overall could fetch up to around $20 billion, but there was limited competition in the auction. Private equity firms Apollo Global Management, KKR and Blackstone Group were understood to have been among the other suitors.

One question ahead may be regulatory approval. Disney is selling off these RSNs as part of an agreement with the Department of Justice to let the overall Fox-Disney sale proceed, with the DOJ citing antitrust concerns if Disney owned both ESPN’s national networks and these regional networks. It will be interesting to see if the DOJ or the FCC have any concerns about Sinclair (the largest owner of broadcast TV stations in the U.S.) adding so many regional sports networks to their portfolio, presumably giving them a lot of leverage in carriage negotiations (especially in markets where they own a broadcast network and a RSN). And the FCC did already help to shut down the proposed Sinclair-Tribune merger last year. But the regulator also may not step in here; unlike Sinclair-Tribune, this is a concentration across different areas (local broadcast networks and RSNs) rather than a combination of local broadcast network chains, and Disney is already divesting these quickly and at a loss thanks to regulators’ antitrust concerns.

If the deal does go through, Sinclair has just become a much bigger player on the U.S. sports scene. In addition to their local broadcast networks, they also control Tennis Channel and Stadium, and now they have 21 RSNs (22 if you count their minority interest in YES) to add to that mix. And they have another new RSN launching next year, “Marquee” (based around the Chicago Cubs). We’ll see how they do with rights deals and with carriage negotiations and if they can make these RSNs work for them, but they’re certainly going to be a much larger presence in U.S. sports going forward.

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