Daily Management Review

Rupert Murdoch Could But Sports Networks He Had Recently Sold To Disney


Rupert Murdoch Could But Sports Networks He Had Recently Sold To Disney
In an interesting twist of events, the same company that had sold 22 regional sports TV networks to Disney is now the front-runner to buy back those channels from it.
According to media reports quoting sources, the leading contender to buy back the RSNs it "sold" to Disney as part of the larger transaction is the "New Fox" company – one that will remain after Rupert Murdoch sells $71.3 billion worth of 21st Century Fox assets to Disney. The importance of the networks lies in the fact that live broadcasting rights of 44 professional teams from Major League Baseball, the National Basketball Association and the National Hockey League lie with them.
Sources also said that there have so far been no formal offers. Prospective buyers have only recently been sent out bid book by Disney according to a report in Sports Business Daily. And a report in The Information had previously reported the intention of Fox to buy back the channels.
Reports also said that the intention of New Fox to repurchase the channels is a very serious one and amongst the most serious of suitors. Selling of the networks in this manner is a better outcome for Disney compared to selling piecemeal because the company then would have had to deal with multiple smaller equity firms. 
The deal is also an important one for Disney because without selling these channels, the deal with Fox cannot be completed because of regulatory norms. Disney, the owner of the sports channel ESPN, has been forced to sell off these channels because of concentration of too much power at the hands of one company with respect to sports programming by the US Department of Justice. In fact, depending on when Disney's larger deal of Fox closes , the networks might never even change hands.
Buying back of the sports networks would be a boon for Rupert Murdoch because he might get the RSNs at a lower price compared to the price at which the channels had been initially sold to Disney. The price of the channels had been driven up to almost $20 billion because of rival bids by Comcast for the bouquet of Fox assets. Sources also said that Murdoch night also get beneficial tax benefits in the form of tax-deductible amortization.
To start with, the networks were never the best assets for Fox, Disney or Comcast even though the RSNs were forced to be sold by Disney by the DOJ to complete larger deal. And while Fox agreed to sell them, the channels were bought by Disney because it wanted to acquire other assets from Fox such as its studio, its stake in Hulu, Star India, etc..
And reports suggested that Comcast was equally willing to divest the RSNs because it saw them as an albatross.
For the cable industry, a huge value add on were regional sports networks. Such channels invariably have exclusive broadcasting rights for local games that typically also have large and loyal followers. Carriage fees were started to be hiked by the networks about a decade ago because they were confident that the higher prices would be agreed to by cable providers who would not risk irritating or even losing out on customers because of blacking out the networks. This translated into a steady increase in costs for cable consumers. The result was that in US markets such as in New York or Los Angeles, which possessed a number of local teams with fan following but just a few RSNs, consumers had to shell out additional money for the sports channels in addition to the monthly rentals irrespective of whether they watched them or not.
Things have however changed in recent years and RSNs are viewed differently now by pay-TV providers in the wake of millions of customers quitting. Providers have pushed to tier them onto packages that appeal just to sports fans while keeping costs lower for everyone else. This caused a decrease in the value of the networks.
Reports did not clearly mentioned the amount of money that New Fox would be willing to pay for the on the networks — or the value that Disney has in mind for them.