Want To Own A Piece Of The Yankees?

The team could be part of an IPO if Cablevision snags it

By the time Cablevision Systems Corp. is finished, it may be selling everything New Yorkers need to amuse themselves--from cable-TV service and TV sets to sporting events, movies, and Broadway shows. Its latest addition? The company wants to add the fabled New York Yankees to a roster of sports teams that already includes the New York Knickerbockers and New York Rangers.

The impetus to scoop up the World Series champs is not just a love of the game. Cablevision's 12-year broadcast rights deal for the ball club ends in 2000. And to keep the Yanks in the fold--at a reasonable price--Cablevision is expected to pay team owner George Steinbrenner as much as $600 million for a majority stake in the team. Cablevision and Steinbrenner declined comment for this story.

But there's more to this deal than keeping Cablevision subscribers glued to their sets. The next step for Cablevision is to spin off the subsidiary that would own the sports teams in an initial public offering, one source close to the company says. That entity, Rainbow Media Holdings Inc., is 75% owned by Cablevision and 25% by NBC, and already has a slew of media properties including Madison Square Garden, the Knicks and Rangers, Radio City Music Hall, and several entertainment channels, including Bravo and American Movie Classics.

PRICEY PROGRAMS. Adding the Yankees to that rich content collection could make an IPO very attractive, says analyst Gary A. Farber at S.G. Cowen Securities Corp. Even without the Yanks, he values Rainbow at $3.6 billion. "If they do the Yankee deal, they should do an IPO," says Farber. "If anything's been proven out in the cable and broadcast sector, it's the high price of programming. Investors know that this is an extremely valuable commodity."

Still, Cablevision's hard-charging controlling shareholder Charles F. Dolan must satisfy Yankee boss George Steinbrenner first. Steinbrenner has been angling to continue running the baseball club and possibly the Rangers and Knicks as well--a prospect that may not sit well with the Cablevision execs already in charge. In the end, Cablevision may decide to acquire only a minority stake giving it rights to acquire control down the road and snag broadcast rights. "I think there will be a deal, but I think that it's going to take time for everything to work through," says a source familiar with the negotiations.

BROADWAY BABY. The Yankees, however, are but one piece of Cablevision's foray into New York's hot entertainment market. The company recently announced deals to buy 58 movie theaters, and a Hollywood source says Cablevision execs want to look at the New York assets of Livent Inc., the Canadian-based theatrical-production company that has filed for bankruptcy protection. The company has already dipped its toe into live theater by backing the Broadway production of The Scarlet Pimpernel. And it has become a top retailer of consumer electronics through its purchase of the Nobody Beats the Wiz chain. Soon, a shopper for a TV set at a Wiz outlet could be offered a deal on a digital set-top box and cable channels, or a package of discounted tickets to live sports events, movies, or Broadway.

But in the eat-or-be-eaten media jungle, Cablevision's expanding menu of properties could turn it into a target. With its 3.4 million cable subscribers, ample programming assets, and strong position in the New York media and entertainment market, Cablevision would appeal to a larger media empire. Merrill Lynch & Co. analyst Jessica Reif Cohen says Rainbow alone is an "obvious target" for Liberty Media Corp., the programming arm of Tele-Communications Inc. Liberty and Rainbow are already partners with Fox Entertainment Group Inc. in regional sports programming, and Liberty will be flush with $5 billion in cash once the acquisition of TCI by AT&T closes.

Then there's TCI itself, which already has a 36% nonvoting stake in Cablevision. So far, Dolan has shown far more interest in buying than selling. But even if he buys the Yanks, the game may only be in the early innings.

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