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Saturday, 25 October 2014

Wish upon a star

Disney chief's unlikely fairy godfather: Murdoch

Rupert Murdoch makes an unlikely fairy godfather. The News Corp boss is more often portrayed as a cartoonish evil villain, especially inside rivals like Disney. But by paying a punchy price for a big piece of the Yankees Entertainment and Sports Network, Murdoch is implying an even richer valuation for ESPN than is already attached to the coveted Disney sports brand. That in turn makes the whole Magic Kingdom look worth more.

ESPN’s model is what has Murdoch twiddling his metaphorical mustache, or maybe the real one of Chase Carey, his right-hand man. Buying 49 percent of YES, with an option to increase the stake to 80 percent in three years, advances what’s probably a larger plan to build a national, if not international, sports network to compete with Disney’s market leader. Adding 30 years of broadcast rights for the New York Yankees, arguably the number one brand in U.S. sports, intensifies Murdoch’s battle with Disney Chief Executive Bob Iger.

It will not be easy for Murdoch. NBC, under Comcast, and CBS are also trying to build ESPN-killers. And he is paying for the privilege. News Corp’s investment values YES at $3.8 billion, if the company takes control in 2015. Murdoch’s multiple is about 15 times the $250 million EBITDA that analysts at SNL Kagan estimate the network will earn this year.

That makes ESPN look underappreciated. Research firm Sanford Bernstein, which performed a similar comparison, reckons the network that commands the highest fees from cable operators generated as much as $3.5 billion of EBITDA in the fiscal year ended Sept. 29. At the same multiple as YES, ESPN’s suite of channels would be worth some $53 billion. Disney’s enterprise value is about $104 billion. That would mean the rest of the company fetches a multiple of only about seven times EBITDA.

That might be reasonable for Disney’s film and TV studio, ABC broadcast network and consumer products divisions. It wouldn’t, however, give full credit to the other cable networks or theme parks. So while Iger and Disney owners need to be wary of a fiendish Murdoch plot in sports broadcasting, they can also enjoy the magic dust he may just have sprinkled over their company’s valuation.

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Context News

News Corp said on Nov. 20 it would acquire a 49 percent equity stake in Yankees Entertainment and Sports Network. The deal values YES, which is owned by the team, Goldman Sachs and other investors, at about $3 billion, according to Reuters. After three years, News Corp can increase its ownership stake to 80 percent.

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