No Wins, No Problem as Knicks’ Network Beckons Buyers: Real M&A

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Madison Square Garden Co.
Pedestrians stand outside of Madison Square Garden (MSG) in New York. Photographer: Victor J. Blue/Bloomberg

Watching the New York Knicks is a form of punishment these days. That may not stop Comcast Corp. or Twenty-First Century Fox Inc. from spending billions for the rights to show you their games.

Madison Square Garden Co. Chairman James Dolan is forging ahead with a plan to split the $6.4 billion company into two pieces: the sports franchises and entertainment venues on one side, and the regional sports television networks on the other. Those networks, MSG Network and MSG+, may become instant acquisition targets, said Brandon Ross, an analyst for BTIG in New York.

Comcast and Fox are repositories for regional sports networks, or RSNs, and would relish more sports programming in New York, the largest U.S. television market, Ross said. For Comcast, it would be the next logical move after acquiring Time Warner Cable Inc., which owns two RSNs in another big market, Los Angeles.

“Fox has already said they want to strengthen their portfolio of RSNs, and I definitely believe Comcast is going to be a potential buyer, especially with its pending Time Warner Cable deal,” Ross said in a phone interview.

The media assets may be worth about $4 billion, based on estimates from BTIG and other research firms.

Barry Watkins, a spokesman for New York-based MSG, declined to comment. MSG shares closed Wednesday at $83.88 and are up 11.5 percent so far this year.

MSG and MSG+ air live games and related content for the National Basketball Association’s Knicks and the National Hockey League’s New York Rangers and Islanders, New Jersey Devils and Buffalo Sabres.

Higher Value

MSG charged pay-TV providers $3.49 per subscriber per month this year, according to estimates from research firm SNL Kagan. MSG+ charged $2.98. The average regional sports network charges $2.66, implying a higher value for New York’s sports teams -- even as the Knicks struggle through the current season with the NBA’s worst record.

Fox, which owns almost two dozen regional sports networks across the U.S., may be the more aggressive bidder for MSG after raising its ownership stake in the YES Network, which airs New York Yankees games, to 80 percent last year, Ross said. There are marketing and operational synergies by owning two large RSNs in the same area. Fox can also use the broadcast rights from the New York-area teams to add live programming to its national sports network, FS1, he said.

Comcast Fit

Comcast would also be a natural fit for MSG if regulators approve its $45 billion Time Warner Cable acquisition, said Amy Yong, a New York-based analyst for Macquarie Group Ltd. Comcast owns regional sports networks in many areas of the U.S. where it also offers cable service, including San Francisco, Boston, Philadelphia and Chicago. Comcast also already owns a minority stake in SNY, which airs New York Mets games.

The largest U.S. cable provider will additionally acquire Time Warner Cable’s two Los Angeles regional sports networks, which broadcast Lakers basketball and Dodgers baseball games, if a deal goes through.

“If Comcast were to buy MSG after Time Warner Cable, it would build a pretty strong New York and L.A. presence, which is pretty complementary,” Yong said. “It makes sense from that standpoint.”

Like most tax-free spinoffs, there could be a waiting period post-closing of anywhere from six months to two years before an acquirer can bid.

Still, the Dolan family may want to sell the networks sooner rather than later. The networks are exposed in a changing television landscape, where consumers now have access to skinnier video bundles for as little as $20 a month that don’t include regional sports networks.

“The Dolans will probably want to do everything in their power to do so, given everything that’s going on in the broader video market,” BTIG’s Ross said.

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