The attempt by Disney to acquire major chunks of 21st Century Fox is a wide-ranging media industry story, with a vital sports component, namely the nearly two dozen Fox-owned regional channels that air games of teams in their local markets.
Meg James’ story for the Los Angeles Times, “Disney wants Fox’s regional sports networks to boost ESPN,” is a strong summary of all that is in play, including the value that adding local content would bring to the planned ESPN streaming service. One thing, though, jumps out as a red flag – hidden though it may be in corporate wordplay.
“Fox’s regional sports networks are valued at $22.4 billion,” James wrote, “according to an analysis Wednesday by Guggenheim Securities.”
Not to impugn the work done by the folks at Guggenheim Securities, while also remembering that money totals at this level are generally flights of fancy anyway, there is a whiff of conflict of interest at play.
Guggenheim Securities is part of Guggenheim Partners, which also includes under its umbrella Guggenheim Baseball Management, the consortium that owns the Los Angeles Dodgers. The regional sports network that airs Dodgers games, Spectrum SportsNet LA, is a 50-50 venture between Charter Communications, which is Spectrum’s parent company, and Guggenheim Partners.
So, here’s Guggenheim, valuing regional sports networks at an average of a little north of a billion dollars apiece, while at the same time holding a 50 percent stake in one… and it just so happens that the regional sports network in which Guggenheim holds a 50 percent stake is a regional sports network that is widely unavailable in its own region.
Spectrum SportsNet LA has broadcast Dodgers game for four seasons so far in its 25-year, $8.35 billion rights deal, and thanks to an inability to reach a carriage deal with DirecTV and other non-cable distributors, less than half of the Los Angeles area has been able to see any games on the channel.
What might Spectrum SportsNet LA be worth now? What might it be worth if people in Los Angeles could actually watch it, carrying a team that just went to Game 7 of the World Series? What does this valuation of a cadre of regional sports networks mean to the other major player in the Los Angeles dispute, DirecTV, which happens to own AT&T SportsNet, a chain of four regional sports networks that in addition to airing games, also make use of Fox Sports Net programming – subject, perhaps, to change if Disney brings Fox Sports Networks into the ESPN fold?
It’s all of this interconnectedness that makes it impossible to tell, if Guggenheim had insidious intentions of any kind in its Fox valuations, which way it might tip the scales. Making regional sports networks appear more precious than they really are might give the other half of Spectrum SportsNet LA’s ownership an inkling to sell, perhaps leading to a carriage deal and better days ahead for that channel. Undervaluing the networks would benefit Disney, a company whose stock price dropped in October after negative analysis from… Guggenheim.
On Wednesday, Disney stock closed right at Guggenheim’s price target of $105, which certainly speaks well for the work the firm is doing. It’s just that, with all the overlap all over this industry, the system ever more has the appearance of being set up so that the same people can make money both coming and going.