Charles Morgan James Dolan's Lowball | A More Monetized Masters | Slicing Up The NFL's Media Pie

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From: SportsMoney By Mike Ozanian @ Forbes - Friday Apr 02, 2021 01:02 pm
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April 2, 2021
THE BIG TAKE
Even though the money will be split evenly among the league’s 32 teams, the NFL’s new long-term deals with its media partners Fox, NBC, CBS, ABC/ESPN and Amazon are going to help some franchises much more than others.

The agreements, which kick in in 2023, will see the league’s national media revenue rise 80% to an average of $10.27 billion a year, amounting to an average annual increase of $144 million per team from the current deals ($321 million versus $177 million). But the significance of that increase will vary across the NFL. Check out the chart below, which illustrates the impact of the new media deals for 29 of the league’s 32 teams relative to their total revenue in 2019. (Figures for the 2020 season have not yet been compiled. We excluded the Raiders, the Chargers and the Rams because they moved into new stadiums in 2020, making the 2019 comparisons meaningless.)
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The purpose of equally dividing media revenue in the NFL is competitive balance. Alas, it sometimes simply rewards bad management and punishes good management. The biggest “winners” are the Bengals and the Lions, for whom the new television deals amount to 36% and 35%, respectively, of total revenue. The Bengals have had a losing record in each of the past five years and have not won a playoff game since the 1990-91 season. The Lions have posted three consecutive losing seasons and have not won a playoff game since 1991-92.

The Cowboys, who have finished with a losing record in only two of the past ten seasons and won a playoff game as recently as 2018-19, can expect the smallest impact from the new media money, at just under 15% of total revenue. Right behind the Cowboys are the Patriots—who last year had their first losing season since 2000 and have captured six Super Bowl trophies since 2001—at 23%. The average for the league is 31%. For motivation, perhaps the NFL should dole out a small portion of the national media money based on performance—something akin to the formula used for the English Premier League.

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LITTLE DITTIES
DOLAN’S BELOW-MARKET OFFER FOR MSG NETWORKS
A prominent money management firm has taken umbrage at the price Madison Square Garden Entertainment is set to pay for MSG Networks. MSGE owns venues like Madison Square Garden (home to New York’s Knicks and Rangers); MSGN is a regional sports network that televises the Knicks, Rangers, New Jersey Devils, New York Islanders and Buffalo Sabres. Their deal is subject to the approval of a vote of the controlling shareholders of the two companies, meaning the Dolan family. But Jonathan Boyar, president of Boyar Asset Management, which owns more than 15% of both companies, recently penned a letter to James Dolan, the head honcho of both companies, claiming the deal values MSG Networks way too cheaply. Boyar says the price being offered values MSGN at just 5.1 times its 2020 EBITDA (earnings before interest, taxes, depreciation and amortization); he values MSGN at 9.0 times its estimated 2022 EBITDA. Boyar points out that the YES Network, the RSN that is the broadcast home of the New York Yankees, was sold in 2019 at about 8.5 times EBITDA even though the transaction was a “forced sale” because Disney needed to shed the network to consummate its Fox transaction. Media experts have told me that RedBird Capital’s purchase of a minority interest in Fenway Sports Group appraised FSG’s regional sports network, NESN, at about 6.0 times EBITDA. No doubt MSGN should be valued closer to YES than NESN. Like YES, MSGN is in the nation’s No. 1 media market, and it has much more live professional sports programming than NESN. It seems to me that Boyar’s valuation is closer to what MSGN would get in an arms-length transaction than what Dolan is offering. MSGN shareholders should be screaming foul.
THE MASTERS: UNDERVALUED BY $260 MILLION
The Masters is the most prestigious tournament on the PGA Tour, garnering a lot of attention from folks who typically don’t follow golf. For example, in 2019—the last time the event was held before the pandemic—the Masters’ final round averaged 10.8 million viewers. The same year, the U.S. Open averaged 7.3 million, the British Open averaged 3.7 million, and the PGA Championship averaged 1.1 million. But the privately owned Augusta National Golf Club, which hosts the Masters, opts for controlling the brand and providing the optimal experience for the players, spectators and television audience rather than maximizing revenue. The Masters generates no domestic broadcasting revenue (the U.S. Open gets $93 million per year for its domestic TV rights) and undercharges for both tickets (obtained through a lottery) and concessions (sandwiches cost about $3 each; beers go for about $5). Augusta currently has six corporate sponsors for the Masters—AT&T, Mercedes-Benz, IBM, Rolex, UPS, Delta—each of which contributes $6 million to $8 million per year to cover the costs of the tournament. However, those sponsors are not allowed to advertise on the course. (If Augusta National allowed sponsors to advertise, the club could modestly add $10 million per sponsor, or $60 million in all.) Consequently, total revenue during the week of the Masters has been about $115 million in each of the last five years. In contrast, the U.S. Open rakes in $165 million in revenue. The table below shows our conservative estimate of what we think the Masters could generate in revenue if it were monetized. A smart IMG or CAA executive just needs to come up with a plan that can convince Augusta National the tournament’s prestige won’t be damaged.
MANCHESTER UNITED’S NEW SHIRT DEAL COULD BE A WINNER
At first blush, it looks like Manchester United will be taking a hit on its new shirt sponsorship deal. The English soccer team gets $88.3 million (£64 million) per year from its current shirt sponsor, Chevrolet, in an agreement that expires in December. (The seven-year agreement was supposed to end in June 2021 but was extended for six months because of the pandemic.) Under a shirt deal it recently reached to replace the Chevrolet agreement, Manchester United will sport the logo of TeamViewer, a German software company, starting in the 2021-22 season. This deal is for five years and an average of $64.9 million (£47 million) annually. But given the havoc the pandemic has wreaked on companies and soccer teams, that should be viewed as a win. Even the lower amount of the new agreement represents the largest shirt sponsorship deal signed during the coronavirus pandemic and will keep Manchester United in first place in the English Premier League in terms of the average annual value of a shirt sponsorship. And while the deal with TeamViewer does represent a pay cut at its base, there are fewer commercial rights involved in this agreement; Man U can now look for another manufacturer to be its “Official Car Provider,” so the club could wind up matching or even exceeding its deal with Chevrolet. As seen in the table below, there are plenty of teams whose shirt sponsorship deals are expiring soon. Experts we have spoken to say they are expecting the major clubs—especially those with a large number of supporters—to see an increase in their commercial rights deals.
ENGLISH SOCCER BAILOUT, ROUND 2
In December, the Premier League, England’s top soccer league, bailed out the English Football League Championship, which has 24 teams and is the country’s second-highest soccer division, with $345 million (£250 million) of loans—$69 million (£50 million) for two teams and a $276 million (£200 million) interest-free loan facility. This week, the insurer MetLife agreed to lend the Championship another $162 million (£118 million). The money was desperately needed, particularly after a $104 million (£75 million) loan facility the league had arranged in January with the Bank of England fell through. The Championship expects to have a decline of approximately $207 million (£150 million) in gate receipts and other match-day revenue streams from playing the equivalent of an entire season without spectators in attendance, and small Championship teams have gotten whacked. For the year ending May 2020, Bristol City posted revenue of $38 million (£27 million) and negative EBITDA of $29 million (£21 million). Its debt stood at $99 million (£72 million). Middlesbrough had negative EBITDA of $2.6 million (£1.9 million) on revenue of $27 million (£19 million) for the year ending June 2020. Its balance sheet showed a shareholders’ deficit of $118.5 million (£85.8 million). This season, most Championship teams have not had spectators at all, with the other teams permitting around 2,000 per game.

Despite the loans, I suspect some of these teams will be sold at fire-sale prices. Crystal Palace, which is among the smaller teams currently competing in the top-flight Premier League, posted revenue of $214 million (£155 million) and EBITDA of $22 million (£16 million) for the year ending July 2019. It has now been on the block for over a year with an asking price of around $275 million (£200 million) and has found no takers.
SERIE A FALLS SHORT ON TV DEAL
Serie A, the top-flight Italian soccer league, currently gets $1.14 billion (€973 million) per year for its domestic broadcasting rights. The league said it was looking for a 20% increase in a new pact, which would have worked out to $1.35 billion (€1.15 billion) per season. Bidding was cool, and in the end DAZN nabbed a three-year agreement for the rights from Comcast’s Sky for an average of about $995 million (€850 million) a year beginning with the 2021-22 season. In contrast, Germany’s top soccer league, the Bundesliga, agreed last June to a four-year broadcasting deal with DAZN and Sky that averages $1.29 billion (€1.1 billion) a season, beginning with 2021-22. On an annual basis, the Bundesliga beat Serie A by 29%. But Italy shouldn’t feel too bad: Germany also saw a drop in value with its new deal. The Bundesliga’s current four-year agreement with Sky, Discovery-owned Eurosport and public-service broadcaster ARD is worth $1.36 billion (€1.16 billion) a season.
Correction: The March 19 edition of SportsMoney Premium misstated the year in which Amazon’s new streaming deal with the NFL begins. It is 2023.
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Mike Ozanian
Assistant Managing Editor
I'm the assistant managing editor for SportsMoney at Forbes Media and the managing editor and cohost of the Forbes SportsMoney TV show on the YES Network. I've been compiling valuations for professional sports teams for three decades.
You can follow me on Twitter @MikeOzanian.
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