News Corp. to Acquire 49% of YES Network at $3 Billion Value

News Corp. (NWSA), the media company led by Rupert Murdoch, agreed to buy 49 percent of the YES Network, the cable channel that carries New York Yankees baseball games, in a deal that values the pay-TV outlet at about $3 billion.

News Corp. is acquiring the stake from the Yankees, Goldman Sachs Group Inc. (GS) and other investors, the companies said today in a statement. Murdoch can raise the stake to 80 percent after three years. Other financial terms weren’t announced.

Acquiring YES strengthens News Corp.’s regional sports business by adding the Yankees, a marquee Major League Baseball team, and the National Basketball Association’s Brooklyn Nets. YES also negotiated a five-year extension of its agreement to carry Yankees games through 2042, program rights that underpin the valuation, people with knowledge of the situation said.

“This is a tremendous opportunity to enhance News Corp.’s industry-leading portfolio of sports properties, while also strategically re-entering the New York market,” James Murdoch, deputy chief operating officer, said in the statement.

News Corp. will be able to raise its stake in YES to 80 percent in three years, based on a $3.8 billion valuation for the channel, said the people, who weren’t authorized to speak publicly. The company plans a national sports channel next year to compete with Walt Disney Co.’s ESPN and NBC Universal’s NBC Sports, and is seeking extended rights to Los Angeles Dodgers pay-TV telecasts.

Three Decades

The YES extension secures three decades of Yankees games for the channel. The rights contract provides for about a 5 percent increase each year from the current $85 million annually the network pays for the games, reaching about $350 million by the contract’s end, the people said.

“This kind of deal is not for the fainthearted,” Marc Ganis, president of Chicago-based consultant Sportscorp Ltd., said in a phone interview before the announcement. “It’s something that only a very confident, well-capitalized management and ownership can do.”

News Corp. rose 0.2 percent to $24.01 at the close in New York. The Class A shares have gained 35 percent this year.

The Yankees held a 34 percent stake in the channel founded by their late owner, George Steinbrenner. Goldman Sachs and Providence Equity Partners Inc., which helped fund the network in 2001, together own 40 percent. The remainder is held by the former owners of the Nets.

Investor Comment

“From a startup in 2001 to the largest regional sports network in the U.S., this has been a remarkable achievement,” Jonathan Nelson, chief executive officer of Providence Equity Partners, said in an e-mailed statement. “We believe YES has a very bright future in the years ahead.”

News Corp. is vying with Time Warner Cable Inc. (TWC) for TV rights to baseball’s Los Angeles Dodgers on a regional sports network in Southern California.

“A lot of this is the chess match between News Corp. and Time Warner,” Chris Bevilacqua, an industry consultant who is representing the Big East Conference in its contract talks with Walt Disney Co. (DIS)’s ESPN, said via telephone. “If you’re going to be an RSN leader, you want anchors on both coasts. That’s a pretty strong move.”

YES Network generates more than $200 million in annual earnings before interest, taxes, depreciation and amortization, Forbes reported in April.

“It’s the Yankees and it’s the biggest market in the country,” Bevilacqua said. “It’s a heck of an asset.”

The Dodgers were sold at auction earlier this year for a record $2.15 billion, fueled by the expiration of the team’s broadcast contract with Fox Sports at a time when there’s a premium being paid for live sports.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Scott Soshnick in New York at ssoshnick@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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