ESPN, Pro Sports Franchises Prop Up Bowl System

(Photo by Christian Petersen/Getty Images)


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ESPN Gets Big Boost with Addition of 22 RSNs

Disney (DIS) announced that it is acquiring 21st Century Fox’s film and television assets, including; Sky Sports (U.K.), Star Sports (India) and 22 regional sports networks (valued at $20 billion to $23 billion) for $52.4 billion in stock (plus an additional $13.7 million in net debt assumed). The 22 RSNs are the cable television homes of 44 (out of 81) professional MLB, NBA & NHL franchises; producing more than 5,500 live game broadcasts each year. FOXA isn’t exiting sports all together; the company will retain the rights properties that air on the Fox broadcast network (NFL, World Series etc.). FS1, FS2 and FOXA’s stake in the Big 10 network are also not included in the transaction.

Howie Long-Short: This is a sports deal as much as it is entertainment play for DIS; with +/- 40% of the deal’s value tied up in the RSNs. Fans consider RSNs to be their most valuable cable channel and the 5th most important channel within their entire cable bundle (behind the 4 broadcast networks). They also command the 2nd highest monthly fees within a cable bundle (behind ESPN), so ESPN certainly acquired quality content. Murdoch, of course, isn’t nearly as high on RSN’s; he’s watched broadcasting rights rise at a faster rate than affiliate revenue can grow. Assuming the deal is approved by antitrust regulators, FOXA shareholders will receive 0.2745 DIS shares for each share they own. DIS shares closed at $110.57 on Thursday.

Fan Marino:DIS is launching its OTT service, ESPN+, in ’18. When the existing RSN contracts expire, look for the WWL to pursue streaming rights for those 5,500 local broadcasts. That’s the valuable content it needs to draw subscribers to the new platform. If you live in Detroit and can get Wings, Tigers and Pistons games on ESPN+, and Lions games on Yahoo! (all accessible on mobile); there is no longer a need to subscribe to a cable bundle.    

ESPN, Pro Sports Franchises Prop Up Bowl System

Historically, bowl games were put on by local non-profit civic organizations looking to drum up tourism business; but since the introduction of the BCS in ’98, fan interest in attending non-BCS/NYD 6 bowl games has declined. Depressed ticket and corporate sponsorship sales, combined with rising production costs led many non-profit game organizers to sell over the last 20 years. Media networks (see: ESPN, owner of 13/17 for-profit games) and professional sports franchises have been beneficiaries, picking up the games at a discount; ESPN treating the games as valuable programming content to sell advertising, while teams like the Lions, 49ers and Yankees rely on existing resources (stadiums, sponsorship sales personnel etc.) to turn a profit.

Howie Long-Short: Rights holders aren’t the only ones making money in a bowl system that no longer relies on gate receipts. Conferences (and member schools) have also gained from the change in business model, generating $517 million in net income last season. $422 million comes directly from the playoff system, which ESPN pays $470 million/year to broadcast. It’s not an exaggeration to say ESPN is propping up the entire bowl system.

Fan Marino: Bowl attendance has declined 9 years running, with average attendance in ’16 the lowest since the 40’s; but that stat is misleading. The number of games has grown from 18 in ’96 to 40 in ’17. As you dilute the quality of teams/play, you are going to lose the audience. There won’t be any drop in the cost of 2018 CFB Playoff tickets. According to TicketIQ, a leading primary and secondary ticketing distributor for rights holders (that offers a low price guarantee), prices to this season’s semifinals (on secondary market) are up from $398 (Peach) and $221 (Fiesta) last season; to $709 (Rose) and $616 (Sugar) this year. Note: Bowl season kicks off tomorrow, with 6 games on the slate.

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Chicken Wing Sales Down 3 Quarters in a Row, NFL to Blame?

Sanderson Farms Inc. (SAFM) reported in August that it was selling chicken wings at an all-time high price ($2.09/L.B.), up 40% from earlier in the year; with sales so strong, several of its plants were short on wings. Over the last 3 months, the poultry producer’s wing sales have steadily declined; forcing the company to reduce the price 14% below where it was at this time last year. On Thursday’s Q4 earnings call, CEO Joe Sanderson Jr. insinuated the NFL was to blame saying, “the NFL has hurt wing stores”; basing the comment on reports received from “wing places we service”, not his own observations. Just last month, Papa John’s CEO John Schnatter blamed his company’s disappointing results on the league’s handling of anthem protests. Wingstop Inc. (WING) said it had not seen any impact related to declining football viewership.

Howie Long-Short: SAFM’s disappointing earnings report (reported $3.20 EPS, predicted $3.62 EPS) sent shares tumbling 13% to $145.85 at Thursday’s close; the company’s biggest one-day decline since 2004. Despite the drop, shares of the stock are up 86% over the last 12 months.

Fan Marino: Scott Van Pelt was asked about his thoughts on people saying they’ve cancelled ESPN (abbreviated, below). They align with my thoughts on Sanderson suggesting people are boycotting chicken wings; it’s simply an absurd notion to imply wing consumption and player protests are in any way tied together.

“If you truly wanna boycott the NFL and you wanna boycott ESPN, the notion that some guy sitting out there, decided, ‘you know what, I’m gonna cut my entire cable package and I’m gonna sit around at night and read books by candlelight like olden times, that’s not happening. And if you did that, then you’re so dumb that I can’t even pray for you because you’re beyond hope. If that was your reaction to this, was to deny yourself the ability to watch television, I mean that just hasn’t happened and didn’t happen, so I boycott them.”

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While we won’t be publishing “hot takes” on LeBron’s relative greatness to Jordan, we will be offering up the most relevant sports related finance news, in easily digestible bites, with commentary from both the equities analyst and sports fanatic perspectives.

We’ll cover publicly traded professional teams & stadiums, television networks, apparel & footwear companies, equipment companies, ticketing companies, content and facilities providers. If it trades on Wall Street, and has a sports angle, it’s in our wheel house.

Howie Long-Short and Fan Marino will be providing their expert opinions on each story. They have slightly different areas of expertise. Fan Marino is a firm believer that the SEC is the premier football conference. Howie Long-Short knows it as the Securities & Exchange Commission. Fan Marino lives and dies with the college selection of 5 star, blue chip recruits. Howie Long-Short spends his days analyzing blue chip stocks. Howie Long-Short knows that Black Monday occurred on October 19th, 1987. Fan Marino swears it happens every January after Week 17. You get the point.