Sinclair to buy Fox Sports Detroit, 20 other regional networks for $9.6B
Sinclair Broadcast Group Inc. will buy 21 Fox regional sports networks, including Fox Sports Detroit, from Walt Disney Co. for $9.6 billion, a bet that the local-TV company can become a cable-sports powerhouse.
Sinclair will acquire the business via a new subsidiary called Diamond Sports Group, the company said on Friday. Detroit native Byron Allen, the former comedian who founded Entertainment Studios and owns the Weather Channel, is investing in the business and will help supply content.
Investors applauded the transaction, sending Sinclair shares up as much as 16 percent in late trading on Friday. Even before the surge, the stock had gained 71 percent this year.
Disney agreed to sell the networks as part of its already-completed acquisition of 21st Century Fox Inc.’s entertainment assets. That attracted a varied cast of suitors, including John Malone’s Liberty Media Corp., which teamed up with Major League Baseball, and Ice Cube’s Big3 U.S. basketball league. The entertainer lined up Will Smith, Serena Williams and Snoop Dogg as content partners for his unsuccessful bid.
The networks have about 74 million subscribers and generated $3.8 billion in revenue last year. They have local broadcast rights to 42 professional teams, including Major League Baseball, National Basketball Association and National Hockey League squads.
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Fox Sports Detroit televises nearly every game for the Detroit Tigers, Detroit Red Wings and Detroit Pistons.
“While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture,” Sinclair Chief Executive Officer Chris Ripley said in a statement. “As one of the largest local news producers in the country and an experienced producer of sports content, we are ideally positioned to transfer our skills to deliver and expand our focus on greater premium sports programming.”
Local impact
How the shift will shake out in respect to the local Detroit broadcast scene is largely up in the air.
It was reported in October that the Ilitch organization was exploring the possibility of starting its own regional sports network for the Detroit market.
“The (regional sports network) would serve as the television, broadcast and distribution home for the Detroit Tigers, the Detroit Red Wings and additional sports - and entertainment-related content. The extensive exploratory process will begin immediately, and no deadline has been set for completion,” Ilitch Holdings said in a statement at that time.
“If you’re the Ilitch family, with very strong properties in the Red Wings and Tigers, this makes sense,” Maury Brown, a sports business writer for Forbes Magazine, said in October. “Not every team or town is going to be able to do this.
“But the beauty of this, what makes this so unique, is that across pro sports, you don’t have a baseball team and a winter team (in Detroit’s case, the Red Wings) under the same ownership that covers the calendar year.
“Because of Detroit’s market, and the Tigers and Red Wings being an extension of the Ilitch family’s holdings, it just makes a lot of sense.”
Regulatory hurdle
The transaction allowed Disney to get antitrust approval for its $71 billion Fox takeover, a transaction that closed this year. Regulators were concerned that the company would have too much control over sports television if it owned both ESPN and the regional broadcasters. Disney had to sell the networks within 90 days of the Fox deal’s completion in mid-March.
The New York Yankees decided to buy back their network from the group, removing a crown jewel that’s valued at about $4 billion. And several deep-pocketed potential suitors, including Comcast Corp., Discovery Inc. and the new Fox Corp. itself, bowed out of contention for the remaining networks.
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That hurt Disney’s ability to command top dollar. Analysts originally estimated that the collection could fetch $20 billion to $22 billion, but bids for the 21 properties — not counting the Yankees’ channel — were considerably lower.
Disney’s bankers suggested spinning off the networks to shareholders, rather than selling them. But the company remained committed to the auction.
Sinclair expects to put $1.4 billion cash into the new Diamond business. The rest will be funded by $8.2 billion in debt and $1 billion in privately placed preferred stock, Sinclair said. The total enterprise value will be $10.6 billion.
The company’s advisers included Guggenheim Securities, Deutsche Bank and RBC Capital Markets, with Disney relying on Allen & Co. and JPMorgan Chase & Co. JPMorgan, Deutsche Bank and RBC will help supply the financing.
Sinclair has been one of the broadcast industry’s most acquisitive companies for years, but this marks an aggressive push into sports. It previously focused more on collecting local stations, at one point becoming the dominant company in that area.
More recently, its rivals have grown more formidable. Nexstar Media Group Inc. agreed to buy Tribune Media Co. for about $4.1 billion in December, vaulting it past Sinclair as the largest owner of TV stations in the U.S.
Sinclair already owns some other sports assets, including the Tennis Channel and the Ring of Honor wrestling circuit.
“This acquisition is an extraordinary opportunity to diversify Sinclair’s content sources and revenue streams with high-quality assets that are driving live viewing,” Ripley said.