News Corp. and the Yankees: Two Evil Empires, Together at Last
His mojo apparently having returned, Rupert Murdoch's News Corp. has officially agreed to buy a 49-percent stake in the New York Yankees' personal cable network, YES, with an option to take over 80 percent of the company in three years. The exact terms of the deal were not disclosed, but Forbes says it would place a value of $3.4 billion on the network, which is more than twice the value of the team it exclusively covers.
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With News Corp. stocks up and underperforming divisions out, Murdoch is in a buying mode again: "He is definitely rubbing his hands together," a person close to the deal-making process told the New York Times, which quoted an analyst as saying "Rupert has his mojo back." But it's maybe the other "evil empire" that stands the most to gain.
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When people talk about the Yankees' ability outspend their opponents for talent, what they're really talking about is the YES network. Television broadcast rights are one of the largest sources of revenues for any sports franchise and owning your own network—the Yankees were the first U.S. team to do so—makes it doubly lucrative. First, the network makes money by taking subscriber fees from cable companies, who must carry Yankee games if they want customers in the New York area. (Also, sports networks have higher per-subscriber fees than most other cable channels.) Then they sell TV advertising during the games (in the most expensive media market in the country) for a second revenue stream. Meanwhile, the same network pays the team a broadcast rights fee, which is really their money anyway because they also own the network. It's win-win. YES generated $224 million in revenue in 2011, $90 million of which went directly to team in fees, according to Forbes.
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The reliance on TV money helps explain why despite desperately seeking new minority owners and losing more than $50 million last season, the New York Mets refused to give up even a small share of their own network, SNY.
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So why sell at all? Well, the Yankees actually only own 34% of YES. The majority stockholder is Goldman Sachs, which fronted the original investment for the network in 2002 and is now looking to cash out. The team will still keep most its share, will still collect its hefty rights fees, and the network will now be run by one of the most successful media companies in the whole world, who might be able to make them even more profitable. (News Corp.'s FOX network also broadcast most of the Major League Baseball playoffs.)
