Economic Challenges

TAKEAWAY: Economic Challenges

MANFRED:
The idea behind the regionals—there’s an offensive threat and a defensive aspect to the transaction—the forced sale of the regionals. And it truly is forced in the sense Disney wanted these assets that they acquired from Fox. The Department of Justice, in order to approve the larger Disney/Fox transaction, said to Disney, you have to sell these regionals off. It happened at a very inopportune time, in the sense that a number of the potential buyers for those regionals that would have probably been good for our sport were disqualified for one reason or another. AT&T was in the middle of the Time Warner acquisition/litigation. The last thing they were going to do is try to buy more assets until that was resolved. Comcast had just gotten the Sky deal done—very expensive transaction for them, probably not an acquirer that quickly on the heels of that transaction.   

As a result, the bidders that began to emerge for the regionals were concerning to us. They were largely private equity buyers. No offense to anybody who works in the private equity business, but everybody knows how private equity works. It’s a pretty defined model, and the idea of these assets being out there now, private equity buyer in, and then being back on the market five to seven years from now, was not that appealing in terms of continuity of delivery of our product to fans. So defensively, we thought, gee, you know, maybe we might be a better option.

The offensive side of it is this. A lot of the economic challenges that baseball faces and has faced over the last several decades, result from the fact that we generate far more of our revenue locally than any other sport. And we thought gaining control over the RSNs, which derivatively had the rights for, in some cases, the next 25 years of local teams, presented an opportunity to address some of those fundamental economic challenges by more centralization of media rights and would allow us to get past some of the barriers that we feel in terms of serving our fans. You don’t feel it here in Boston. Everybody can watch the Red Sox. But there are places around the country where our local television territories leave our fans underserved. I’m not talking about places just in the middle of nowhere. Like Las Vegas—it’s very difficult to watch who you want to watch in Las Vegas.

So by accumulating these rights, getting into more of a model where the clubs are equally invested in a central organization, we thought presented an opportunity to address some of those economics—and not only economic, but fan delivery challenges—that we’d like to get past.