Nov
25

More on News Corp. and the YES Network

By

Early last week, an agreement was reached allowing News Corp. to purchase 49% — potentially as much as 80% down the road — of the YES Network from investors like Goldman Sachs and Providence Equity. The deal is expected to be finalized by the end of the calendar year. Here’s some more on the transaction, courtesy of Richard Sandomir

  • The Yankees will retain control of all Yankees-related content on the network. The announcers will continue to be biased — “We tell our people if you want to be bipartisan and fair, don’t work for YES,” said team president Randy Levine to Sandomir — and long-running features like Yankeeography and Yankees Classics aren’t going anywhere.
  • FOX, which is owned by News Corp., will bring some programming to the network however. It doesn’t sound like a SportsCenter-esque, nightly sports news show is in the cards though.
  • The Yankees will receive $420M from News Corp. to keep the team on YES through 2042. They’re getting half of that now and the other half in three years. Just think, they’re trimming payroll in less than 16 months.
  • Just as we heard the other day, Sandomir says the Steinbrenners are unlikely to sell the team in the wake of the agreement. The team continues to make a fortune and, perhaps more importantly, the family would get slapped with a massive tax bill should they sell.
Categories : News
  • Andy in Sunny Daytona

    The Yankees will only be getting $14M a year for their broadcast rights?

    • bpdelia

      Can’t be right. Maybe that’s just the licensing agreement and then there Is the yearly broadcast rights few? No way it’s 420 million for 30 years

      • Prof. Joe

        FWIW: Moving from baseball to football, there has been a lot of talk this week, of course, at my alma mater, the Univ. of Maryland about the Terp’s move in 2014 to the Big Ten Conference. Some of the talk concerned itself with Fox’s move to control the YES network, anticipating a play for the B1G’s future television rights.

        I think there is fire behind that smoke.

    • bpdelia

      Yeah. Forbes has the last TV contact as 90 million.PER YEAR. THE dodgers new deal is 100 million PER YEAR. that 420 is simply a contact to stay on yes and not, move. So the minimum will be 114 million per year combined. Just from TV. Add corporate sponsorship, parking, in stadium and Yankee store sales, concessions and gate receipts and this team has easily 400 million in revenue. it makes the payroll trimming a bit more nausea inducing for sure

      • http://www.twitter.com/matt__harris Matt :: Sec110

        so it’s like a PSL, haha.

    • Ed

      The $420m was a signing bonus on top of the annual fees. The annual fees progressively increase to $350m by the end of the deal.

      • Gonzo

        This is the correct. The rights deal increases roughly 4/5% each year until it reaches $350mm at the end. It was reported to be $85mm this year, I think.

    • RetroRob

      As others have noted, the $420M is a “gift” above and beyond all other fees. The Yankees just scored about $700M between the $420M fee and the reported $270M from selling a portion of their YES ownership to Newscorp. All done before the end of the year in anticipation of perhaps increased taxes in 2013. So $700M. That’s more than the value of most baseball teams outside of the Yankees, Dodgers and maybe the Mets and Red Sox. Not a bad side score from Dad Steinbrenner’s original personal investment of $100K+ in the Yankees.

      I’ve tried in a couple past notes to figure out how much the Yankees (through YES Global Enterprises/YGE) make in broadcasting fees, but it’s basically impossible since YES, the Yankees and YGE are all private. The News Corp. purchase might eventually provide some visibility since it’s a public company, but not much, and maybe none at all. Profits will probably be folded under News Corp’s line item for profits made by its regional networks, of which YES is now one. At a minimum and based on news reports (which certainly can be wrong) YES paid the Yankees $85M in broadcasting rights last year, plus YGE would have made at least another $85M as a percentage of YES profits, bringing the Yankees’ take to $170M this year. Yet that is also probably low. The whole deal is structured to allow the Yankees to leverage their brand and mask (legally) from MLB how much money the Yankees actually make from their YES investment. While YES was funded by the Yankees, Goldman Sachs and a few others, what we don’t know is how the deal was stuctured to pay out profits. The whole network is based on the Yankees and their brand, which means the Yankees might be taking 50%, 60%, 75%, whatever in profits. That means all totales, the Yankees might be taking down a quarter of a billion a year from YES. Just no way of knowing, beyond it is much higher than the $85M in licensing fees reported.

      • Need Pitching & Hitting

        I would imagine their share of YES profits is directly linked to their % of ownership. I can’t imagine FOX would pay what they did for a 49% stake if they weren’t entitled to fully 49% of the business.

        • RetroRob

          I was talking about the original deal. I would gather the terms would change under News Corp and clearly has since it includes guaranteed increases leading eventually to $350M. Just no way of knowing, although I’m quite confident the team was making substantially more than $85M.

          • Need Pitching & Hitting

            I think Gonzo is on the right track on this. Most likely they didn’t get any higher share of the profits than their 34% ownership stake, but that 34% was probably bigger than their financial contribution to the new network, because they were bringing the content.
            Reportedly, YES had an operating income of $230M+ in 2012. So even just a 34% share would leave about $78M for YGE’s share.

            • RetroRob

              Yup. I noted that previously. One report had $500M in revenue and $250m profit. That’s where I got the $85M on top of the $85M in licensing fees for $170M. Yet, once again, all just guesses on all of our sides. I don’t disagree with anything Gonzo is saying, although it’s just a guess just as mine is. It could very well be a straight percentage, with each side funding an equal amount and each side then sharing equally in profits. Or there could be some variation on each point, with Goldman funding more upfront, with the Yankees then giving back some profit Or…

              Well, it can go on and on. All we know is the Yankees are making lots of money. (And, no, as noted below, I don’t separate the Yankees and YGE.)

      • Gonzo

        The Cubs sold for $900mm in ’09. Your point still stands though even though I would argue that the Yankees’ profit should not be lumped together for YGE profit.

        As for YES profit, I don’t think YGE gets paid more because it’s based on the Yankees. I think you are undervaluing how much $ it takes to get a channel off the ground. Just ask anyone who invested in Oprah’s OWN channel. It is an extremely cost prohibitive venture. However, I wouldn’t be surprised if they paid slightly less in setup costs than the other investors because they brought the Yankees to the table.

        • RetroRob

          The further we attempt to drill down into the deal and the relationship between YES, YGE and the Yankees, then the more lost we’re going to get, since very little is public.

          My point is simply that the Yankees generate far more revenue from YES than the $85M in licensing fees. My scenario is just that. A scenario on one way they can be doing that.

          As for the Yankees and YGE, they are inseparable. If the Steinbrenners were ever to sell the Yankees, they would either have to transfer most of the licensing rights from YGE LLC to the Yankees before the sale, or they would have to sell YGE with the Yankees because much of the brand (and profits) sits in YGE. The money from YES, the money from the concessions business with the Cowboys, and dozens of smaller business that the Yankees invest in through YGE, as well as other LLC’s the Steinbrenners operate tied to the Yankee brand, all live off of the Yankees. If the Yankees cease to exist, these LLCs cease to exist; if those LLCs cease to exist, the Yankees continue on and structure new deals.

          So from a legal persepctive you are correct. The profits of those deals do not sit with the entity known as the NY Yankees, yet they are all available for the NY Yankees and the Steinbrenners. They are all connected. When Hal looks at the Yankee empire, he see one unit that operates at breakeven or even or a loss, the team known as the NY Yankees. He doesn’t care about that. He cares about the overall profits that sit in the LLCs, driven by the “money losing” team.

          As for YES, I don’t underestimate that all. I never even mentioned the start-up costs, which by some estimates were over $1B. Also lost in must of the discussion is that the Yankees leveraged at least $800M on the funding of the new Stadium. Part of this deal is no doubt set up to pay down that debt. Fans love to focus on the revenue, ignoring the expenses of which the Yankees have quite a bit.

          • Need Pitching & Hitting

            I believe the money paid in broadcast rights fees goes to the Yankees directly, not YGE.

            • RetroRob

              Yes, which further supports what I’m saying.

              • Need Pitching & Hitting

                Based on that though, I would think YGE could definitely sell the team without also selling their stake in YES and the other businesses. The Yankees alone probably generate $420M+ (net of revenue sharing, based on Forbes estimate for 2010) in revenues, and with a new TV contract containing guaranteed escalators through 2042, the team would still be extremely valuable without the stakes in the YES and the other businesses (though certainly the total YGE package would be worth more).

                • RetroRob

                  This is a response to both your comment and generally to Gonzo’s below, since I have the feeling we may be the only three that care about this!

                  Sure, if we’re talking in absolutes, the Steinbrenners could sell the Yankees without YGE, or without transferring large portions of what YGE controls back to the Yankees, but that will substantially reduce the value of the Yankees and worse (for us fans), it would hurt the Yankees competitively. Think about it. The Yankees pulled down $85M in cable broadcasting fees last year, which is only $5M more than what the Texas Rangers received last year from their cable deal, yet the Yankees’ household reach through YES is more than four times as large as the Rangers. This is why it’s estimated if the Yankees were to put their broadcast rights up for bid, they would receive upwards of $350M a year TODAY, not in 30 years as will happen with the escalators.

                  If the Steinbrenners didn’t own both the Yankees and YGE, this deal would be viewed as a horrible deal. Yet because they own both, it’s viewed as excellent deal. Break ‘em apart, and the new owner of the Yankees would be buying a team with a horrible TV deal.

                  When valuing their potential purchase, the potential buyers are going to see that they have been locked into the longest broadcast contract of any team (this is a bad thing, not a good thing) and the contract is at below-market rates. Substantially below to the point it would cost the new owners billions and billions and billions (in memory of Carl Sagan!) of dollars in lost revenue that has been disaggregated from the Yankees baseball team. Right now there is no lost revenue because the Yankees universe is homogeneous, or holistic if you prefer, existing under the Steinbrenners. They can shift the money around as they please. The new owners won’t be able to do that. They will be competing in the NY market with a significant part of their revenue stream gone. They will be competing for free agents with no better footing than the Texas Rangers.

                  And if the Yankees end up weakened, how is that going to help the owners of YES when the ratings and advertising dollars decrease? The owners of YES and YGE will want a strong Yankee team.

                  BTW This whole deal structure is one of the reasons many believe it signals the Steinbrenners intend to keep the Yankees.

                  • Gonzo

                    Yeah, it’s early so I’ll try to keep it short. I couldn’t disagree more with some of your basic assumptions. The Yankees weren’t in a position to negotiate a contact in the open market like the Rangers. Their deal ran through 2022, or so, I believe so their deal would have been under market value for a while regardless this deal. The Yankees were able to secure $420mm in now terms. It’s like King Felix getting a contract extension that’s under market value because he wasn’t a free agent yet. Except he didn’t get a huge signing bonus. I also disagree that the Yankees would get $350mm per year on the open market.

                    As for the deal being under market hurting the Yankees.The value of the club is based on revenues, yes. I don’t see how this can hthe Yankees though. They make so much revenue outside of their tv rights deal. II really don’t see why the owners now would ever shift money to the Yankees. So that point of having money flexibility in different entities is moot for me. I would bet a good amount that YES money never sees its way to the Yankees except for the rights money. Why would it?

                    • RetroRob

                      Okay, no issues if you disagree, although it’s unclear about what since there’s been a lot words written here. I’m more than happy to listen to any position on the issue and since your words clearly indicate you have an opposing view, I’d like to hear it.

                      To sum up my POV in one line: The Yankees are generating substantially more from YES than the $85M in licensing fees, and the Yankees have access to this capital.

                    • Gonzo

                      Fair enough.

                      My POV in a nutshell. The Yankees generate an insane amount of revenue from sources outside of the TV rights deal. They don’t need or have access to any YGE or YES money outside of the TV rights money. If anything, YES and the Yankees compete with each other to provide profit for YGE.

                    • RetroRob

                      Okay, without rehashing, I’ll simply add, yup, we disagree quite strongly on this. : -)

          • Gonzo

            I’d disagree. I’ll point to Frank McCourt who was still able to hold on to some sort of parking deal for the Dodgers. And that was the mess that was Frank McCourt! If the Yankees were sold, YGE would probably include other businesses, but by no means would they be compelled to do so. The fact that YGE gave up some % of YES with the possibility of giving up more highlights this.

            Think of it this way. WPIX was not sold in the last Yankee sale. Why would YES have to be involved on the next hypothetical Yankee sale.

            I have no problem seeing the Yankees separate from YGE. I’m pretty sure they were wise in starting up YES and YGE to avoid such implication.

            • RetroRob

              I touched on that above. The WPIX analogy doesn’t fit because of the substantially below-market rate the Yankees baseball team is getting in the YES deal. Anyone purchasing the Yankees will want their brand and broadcast dollars transferred back to the team.

              • Gonzo

                Again, could this feel have devalued the team? Sure, but the Yankees were not free agents. Their previous deal ran to 2021 or so. It was like King Felix signing a below market deal before he was a free agent so to speak. To get $420mm cash on hand plenty of owners would do that. Frank McCourt was willing to do that and he would have had no ownership of the TV channel. Would it have devalued the sale price of the dodgers? I’d say yes. Pretty similar situation except Frank was in court and incurred the wrath of Bud. Doesn’t matter who owned the tv channel.

          • dan gen

            all the more reason the 189 is absurd….to the fan that is over paying for a team that cant get out of the first round……

            • Steve (different one)

              I don’t think “the first round” means what you think it means.

  • Dan Gold

    New blog coming!

    Rupert Murdoch’s RAB featuring Steve Doocy and Mike Axisa

  • Robinson Tilapia

    Meredith Marakovits replaced by Mike Huckabee in drag.

  • KeithK

    That quote from Levine is embarassing. Sure there’s nothing wrong with a little bit of pro-home team attitude on a local broadcast. But they should still strive to be fair and unbiased in how they call the action on the field.

    • Pat D

      He’s just making sure NewsCorp knows that he’ll follow Fox News’ fine example.

      • Gonzo

        Their example is to claim to be totally fair and unbiased.

        • Pat D

          Claiming is one thing. Doing is quite another.

          • Gonzo

            Exactly…

      • TomH

        Just so they don’t follow the MSNBC example, formally speaking.

        • Pat D

          Yea, I have little use for either of them.

        • Robinson Tilapia

          False equivalency, but I’m not getting into that on here. Continue with the Yankeespeak.

  • The Real Eddard

    The Yankees will receive $420 million none of which they’ll invest back into the ballclub, which will cut payroll this year and next. What a joke.

  • James A

    This is bad enough, but if the Murdoch family truly has any control or ownership of a significant aspect of the Yankees and their brand at some point it’s going to be really, really hard for me to root for this organization. I know some people don’t care, but NewsCorp is incredibly polarizing, I’m not sure I like this direction for the Bombers

    • Preston

      Who would you root for instead? Almost all regional sports networks are on Fox Sports. It’s just something they’ve decided they want to control and they are spending to do it. I don’t think Murdoch or Newscorp cares about what the Yankees do, they think that these networks are good investments and I doubt they try to change what YES is doing at all.

      • TomH

        The problem is absolutely not at all of a political nature. The problem with corporations occurs when they own a team–CBS!!!–and lose it in the vast generality of their other holdings, as some think occurred in the mid-60s. That does not seem to be an issue in this case.

        People really do need to keep their politics under control. The Democrats are not communists. Republicans are not fascists. People who can’t tell the difference are willfully stupid.

        • Gonzo

          I wish more people shared your opinion. Seriously.

        • RetroRob

          +1

        • James A

          My problem isn’t with Republicans or Fox News even, I’m not calling anyone a fascist (although I do disagree with them). My problem in this situation is with all of phone-tapping, unethical stuff Murdoch & Co have been responsible for in England. I guess as a Yankees fan the ethics and legal standing of the owner shouldn’t bother me too much, but Murdoch just isn’t an easy guy to root for. I’ll still be a Yankees fan though, who am I kidding

  • http://www.twitter.com/matt__harris Matt :: Sec110

    I think they are missing the boat by not doing a sportscenter type show.

    You kind of have a built-in auduience after the postgame show. They don’t need PTI type shows that SNY air because you have a pretty sweet gig with Francesa, the Sports Pope, on 1-6 during the season.

  • Rich in NJ

    I suspect that YES can only get away with their suboptimal programming strategy as long as the Yankees are a very good team, which is in some jeopardy if they adopt an austerity budget and continue to have trouble developing prospects.

    • Steve (different one)

      Doesnt this deal say exactly the opposite? I admittedly don’t know anything about media deals, but it seems to me like they just locked in huge cash flows regardless of ratings.

      I also wonder if the possible emergence of the Nets as a legitimate product played into this deal at all.

      • Rich in NJ

        They still share in the profits, right? So the more ratings the more profit. And if the ratings go down far enough, I would suspect that News Corp (ugh) might rethink further option execution, or might pressure the Yankees to spend more. Maybe that has already started?

        I base the foregoing on the very real risk that the Yankees could descend into a prolonged run of mediocrity.

        • Need Pitching & Hitting

          Unless you only mean 1-2 years as being prolonged, there isn’t really much risk of a prolonged run of mediocrity. Not when they have the capability of comfortably fielding $220M+ payroll teams at any point.

          • Rich in NJ

            There isn’t? They haven’t been able to develop many prospects (the lifeblood of most very good to great MLB franchises); they haven’t been good at trading for top of rotation starters for over a decade; and a greater range of teams are spending more which enables them to keep their best players far longer (well into their prime seasons).

            Spending alone won’t necessarily be enough, even if they start exceeding the amount that as served as a quasi-ceiling for years ($210m-ish).

            Now, if they start to be run more smartly, yeah, any concerns of prolonged mediocrity could fall away.

            • Need Pitching & Hitting

              Not saying there is no risk. Just that the risk of an extended period of mediocrity by the Yankees is very small, especially compared to every other team. $210M-ish has enabled them to consistently field top of the division caliber teams despite all of the problems you mentioned.

              • Rich in NJ

                Many of the advantages that a $210m budget conferred on them no longer exist under the current CBA, which has leveled the playing field to a significant degree.

                For example, there are now IFA and amateur draft spending caps that restrict their ability to blow away the Gary Sanchez types pay draft picks overslot money.

                They also have what could turn out to be a significant amount of unproductively allocated payroll space due the contracts of A-Rod, Tex, and perhaps even CC toward the end of his current contract. In the old days, one of the Yankees’ advantages was that they could spend away their mistakes. That seems highly unlikely now.

                The current MLB environment is going to require a far more efficient baseball business model (including small market skills), and to date, I haven’t seen sufficient evidence that the Yankees have the ability to flourish under that type of system, especially in the acquisition of the type of cornerstone players that will be needed as Jeter and A-Rod fade from the scene.

                • Need Pitching & Hitting

                  A whole lot of things would have to go a lot more wrong than they have for the Yankees in a long time for the Yankees to have a long period of mediocrity. I haven’t seen any evidence of that happening. Free agents still exist in the new CBA. Impact talent does still becomes available. The Yankees still have more financial flexibility to acquire that talent than any other team (if they choose to do so). I think you are dramatically overstating the likely impact of the new CBA. If anything, the new CBA, with it’s IFA and draft restrictions, makes the ability to spend big in free agency an even bigger advantage. They can easily spend $150M+ in addition to Tex, CC, and ARod, which alone could/should be enough to field a competitive team.

                  • Rich in NJ

                    When they start spending big again, we will start to test that proposition. As of now, we are in a period of austerity, so they have no or very little financial flexibility unless Hal is lying (not that I would mind).

                    And again, spending alone is not likely to compensate sufficiently for an inability to grow their own high end talent.

                    • Need Pitching & Hitting

                      They can compete and compete well without growing any high end talent, if they are willing to spend on a level relative to their revenues. What player would they have missed off their current team? Cano (a high end talent who they developed)? All of the other high end players on the team were over-30, highly paid players (the type who are still available to acquire in free agency), or players acquired in trade (which they’ll still be able to do).

  • Gonzo

    $420mm?

    Smells like something is burning. No wait, that’s not something burning…

  • Jamey

    Please go away forever Randy. I like when the announcers definitely care about the Yankees, and it means something to them, but I don’t want Baghdad Bob crap. I’m sure the YES talent also doesn’t care that Levine proudly claims that as being “biased”.

    • RetroRob

      Randy Levine is the president of the Yankees and YGE. He was key in the formation of the YES Network, the financing and building of the new Yankee Stadium, and the recent News Corp deal. There’s a reason why George hired him and the sons have kept him. He has made billions for the Steinbrenners by expanding the brand and profits, and greatly increasing the financial health of the Yankees.

      If forced to select between Randy Levine or Brian Cashman, the Steinbrenners would have Cashman tossed out the door onto a pile of trash.

      Levine’s not going anywhere.

  • Remy

    Fire Michael Kay!

  • bpdelia

    Yeah so total TV deal including signing deal is 99 million thus year to 365 million in 2042. This payroll cut better be ULTRA short term man. This deal, plus gates concessions, store sales,mlb merchandise cut, parking, sponsorship and equity in the stadium means the team could easily be profitable with a 300 million budget.

  • http://toyankeesbaseball.wordpress.com/ Matt

    That’s freaking ridiculous. They’re getting $420 million over the next three years and we’re worried about saving a few extra million dollars on a luxury tax?! Hank and Hal are pathetic.

    • Steve (different one)

      If it was “a few million”, that would be true. But it might be tens of millions.

    • Robinson Tilapia

      Unbelievable that folks continue to try to make this connection. Making money on one end does not preclude not wanting to pay out unnecessary money on another. This is just bitching for bitching’s sake.

  • I am not the droids you’re looking for…

    I agree with those above – this puts the $189mm thing in a whole new light for me. P O O R.

  • Jersey Joe

    I guess we’ll be seeing more of those Fox News updates during commercials.

  • Len S

    The corporate world can suck my cock and kiss my ass at the same time. GO YANKEES!!!

    • Robinson Tilapia

      ietc a thousand times over

  • Captain Crunch Sabthia

    Maybe the $420MM will go towards the tax hit if they can’t get under $189MM? Just a thought.

  • Francesa

    If only YES were as non-biased as NESN or MASN or White Sox broadcasts or Mets broadcasts or had wonderful journalistic programs like SNY’s Beer Money and if only YES would schedule more classic games where Yankees haters can exult in them losing. Just give it a rest, all the Sandomirs and Raissmans and Mushnicks out there. Can we stop pretending we’re objective about the Yankees? Just air it out in public like Gammons does. At least he’s not pretending to be anything but the ultimate Sox fan. I’ll be shocked if Sandomir wrote an article about homerism on NESN when the Times owned a part of that network. Right?

    • Robinson Tilapia

      I’m so glad I revisited this thread hours later. Thank you for this. Really.

  • JonS

    this network needs some new sports talk shows. Thats one thing SNY does well with dailynews live and others. Cant stand having Mike on tv from 1-6. I also hope they bring in some other sports when the yankee games arent giving like more fifa matches, some other college football or basketball. And most important some younger host, cants stand watching these old people constantly doing half-time shows or what ever