If you’re the kind of person that follows the business and economics of baseball, you received some news this morning that you’ve been waiting on for a while. Per Forbes, the Yankees are set to announce they’ve bought back the YES Network, the most lucrative regional sports network (RSN) in the game, in partnership for a total sale value of $3.47 billion in cash.
The Yankees are partnering with the controversial Sinclair Broadcasting Group, who is expected to handle the on-air broadcasts, as well as Amazon, who will likely be instrumental in growing the Yankees’ presence in online streaming services. You don’t have to be a consultant to know that the future of live sports is in online streaming, and the Yankees seem to have roped in a critical strategic partner to get ahead of the rest of baseball.
The valuation for YES seems to have fallen from earlier this winter. Back in December, the Wall Street Journal correctly reported the budding partnership with Sinclair and Amazon, but overshot the valuation multiple by about a billion and a half. At this time we don’t have enough information to say if the valuation fell because of an overall decline in the valuations of the migrating FOX RSNs, or if the “fair value” clause in the buyback agreement disagreed with the earlier reported valuation.
One point I want to make about this is that it reflects confidence in future revenues on the part of the Yankees. Before agreeing to any major purchase, investors have to be confident that the return will extend beyond a certain threshold - 10%, 15%, whatever. As time goes on, the monies recouped by the investment are discounted, so we have to assume that the net present value of this purchase for the Yankees already includes a healthy return. As well, the leveraging of the purchase introduces an additional interest expense, lowering the revenue for tax purposes while maintaining or growing free cash flow, the chief driver of enterprise valuation. They’ll make a boatload on this deal.
YES Network is estimated to generate north of $400 million in free cash flow in 2019, the most of the RSNs in the FOX orbit. The Yankees, Sinclair and Amazon seem well-poised to provide an accelerant to those earnings.