Sinclair Wins Disney RSNs In $10.6B Deal
Sinclair Broadcast Group and The Walt Disney Co. on Friday agreed to a deal in which Sinclair will acquire the equity interests in 21 regional sports networks and Fox College Sports, which were acquired by Disney in its acquisition of 21st Century Fox.
The transaction ascribes a total enterprise value to the RSNs equal to $10.6 billion, reflecting a purchase price of $9.6 billion, after adjusting for minority equity interests. Completion of the transaction is subject to customary closing conditions, including the approval of the U.S. Department of Justice.
The RSN portfolio, which excludes the YES Network, is the largest collection of RSNs in the marketplace today, with an extensive footprint that includes exclusive local rights to 42 professional teams consisting of 14 Major League Baseball teams, 16 National Basketball Association teams, and 12 National Hockey League teams. In calendar year 2018, the RSN portfolio delivered a combined $3.8 billion in revenue across 74 million subscribers.
The RSNs will be acquired via a newly formed indirect wholly-owned subsidiary of Sinclair, Diamond Sports Group. Byron Allen has agreed to become an equity and content partner in a newly formed indirect wholly-owned subsidiary of Sinclair and an indirect parent of Diamond. Allen, who bought The Weather Channel in 2018, is the founder, chairman and CEO of Entertainment Studios, a global media, content and technology company.
Sinclair’s existing sports business consists of Marquee Sports Network (a recently announced joint venture with the iconic Chicago Cubs), Tennis Channel and Tennis Media Company (dedicated to live tennis events and tennis lifestyle), Stadium (a joint venture focused on college sports and professional highlights), Ring of Honor Wrestling (professional wrestling), and robust high school sports programming (with Friday Night Rivals and Thursday Night Lights).
“This is a very exciting transaction for Sinclair to be able to acquire highly complementary assets,” commented Chris Ripley, president-CEO of Sinclair. “While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture. 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.”
Ripley continued: “The transaction is expected to be highly accretive to free cash flow and brings consolidated net leverage to 4.7x and 5.1x through the preferred financing. This acquisition is an extraordinary opportunity to diversify Sinclair’s content sources and revenue streams with high-quality assets that are driving live viewing. We also see this as an opportunity to realize cross-promotional collaboration, and synergistic benefits related to programming and production.”
“We are pleased to have reached this agreement with Sinclair for the sale of these 21 RSNs, subject to the conditions of the consent decree with the U.S. Department of Justice,” said Christine McCarthy, senior EVP-CFO, The Walt Disney Co.
Last year, Disney and 21st Century Fox entered into a consent decree with the U.S. Department of Justice that allowed Disney’s acquisition of 21st Century Fox to proceed while requiring the subsequent sale of the RSNs. Sinclair’s purchase does not include 21st Century Fox’s equity interest in the YES Network, the disposition of which is also required as part of the consent decree. Disney completed its $71 billion acquisition of 21st Century Fox in March.
The RSNs to be acquired by Sinclair are: Fox Sports Arizona, Fox Sports Detroit, Fox Sports Florida, Fox Sports Sun, Fox Sports North, Fox Sports Wisconsin, Fox Sports Ohio, SportsTime Ohio, Fox Sports South, Fox Sports Carolina, Fox Sports Tennessee, Fox Sports Southeast, Fox Sports Southwest, Fox Sports Oklahoma, Fox Sports New Orleans, Fox Sports Midwest, Fox Sports Kansas City, Fox Sports Indiana, Fox Sports San Diego, Fox Sports West, and Prime Ticket.
Also included in the acquisition is Fox College Sports.
Sinclair said it expects to capitalize Diamond with $1.4 billion in cash equity, composed of a combination of approximately $0.7 billion of cash on hand and a contribution of $0.7 billion in the form of new fully committed debt at Sinclair Television Group Inc.
In addition, the purchase price will be funded with $1.0 billion of fully committed privately-placed preferred equity of a newly-formed indirect wholly-owned subsidiary of Sinclair and direct parent of RSN Holding Company. The remainder of the purchase price is being funded by $8.2 billion of fully committed secured and unsecured debt incurred by Diamond. The transaction will be treated as an asset sale for tax purposes, with Sinclair receiving a full step-up in basis.
The transaction has been unanimously approved by the Board of Directors of both Sinclair and Disney.
In response, ACA Connects President-CEO Matthew M. Polka issued the following statement: “ACA Connects opposes Sinclair’s proposed purchase of the Disney-Fox regional sports networks (RSNs) for the same reason it opposed Sinclair’s failed attempt to buy Tribune’s television stations — if approved, the transaction would allow Sinclair to raise prices to millions of consumers, including those served by ACA Connects members.
“Big 4 broadcast network programming and RSN programming are both critical for ACA Connects members. By jointly negotiating these assets when they serve the same market, Sinclair can raise prices to cable operators for both offerings.
“It is one of the reasons that the Federal Communications Commission imposed conditions on the Comcast/NBCU merger and that Sinclair’s proposal to combine Tribune’s network stations with its own ran into severe regulatory trouble, causing Sinclair-Tribune to pull the deal.
“And it is why we expect antitrust regulators to reject Sinclair’s proposed acquisition of Fox regional sports networks as well. We look forward to making this case at the appropriate time.”