Amazon Going to Bat for the Yankees Offers Lessons for Hollywood

(Bloomberg Opinion) -- Plenty of media companies are praying to the M&A gods that they’ll get takeovers offers from Amazon.com Inc. and its ilk. Unfortunately for them, Amazon’s deal with the New York Yankees to acquire the YES Network reveals that the industry is now firmly a buyer’s market.

Amazon is part of a consortium including Sinclair Broadcast Group Inc. and billionaire Michael Dell’s family office that’s backing the Yankees’ effort to buy the YES Network, the TV channel that airs the Major League Baseball team’s games, Bloomberg News reported, citing people familiar with the matter. The potential acquisition reportedly values the YES Network at $3.5 billion. It’s the most valuable of the 22 regional-sports channels that regulators are requiring Walt Disney Co. to divest as part of its $85 billion merger with 21st Century Fox Inc.

Even though Amazon’s interest in the network is good news for sports leagues and franchises, the bidding group’s offer is much lower than most expected. It’s a disappointment not only for Disney, but for other media companies looking for an exit as it gets tougher to compete in the new age of streaming. Based on analysts’ Ebitda estimates for the YES Network, the group’s offer would value the network at anywhere from 7.4 times to about 9 times Ebitda – either way, that’s low. Disney paid about 15 times Ebitda for Fox’s regional-sports networks, according to Geetha Ranganathan, an analyst for Bloomberg Intelligence. The terms of the YES Network deal are a possible sign that cable-subscriber defections will accelerate and that there are more eager sellers than acquirers for traditional media assets. 

Sure, Disney is in the unfortunate negotiating position of being a forced seller. But broadly speaking, M&A valuations in the U.S. have also come down sharply in recent months from all-time highs as a five-year dealmaking frenzy has started to cool off (and some buyers have begun to feel the painful effects of their overpaying):

The YES Network deal is a lesson for Hollywood. Film studios such as Sony Corp.’s Sony Pictures Entertainment and Lions Gate Entertainment Corp., as well as TV-network operators like Discovery Inc. and CBS Corp., may struggle to stay relevant as larger rivals like Disney bulk up and deep-pocketed tech companies join the competition with their own web-video streaming services. Apple Inc. is set to introduce its version of Netflix later this month, and Amazon seems to view video entertainment as a way to drive Prime subscriptions.

The also-rans of the media industry will probably look to capitalize on the heightened demand for content before they get crushed at their own game. But unlike the movie-making business, sports programming is the rare asset that tech giants can’t replicate in house. Unless Amazon wants to start a league of its own – the way wrestling titan Vince McMahon is trying to reboot the XFL – then acquisitions like the YES Network are its best option. It’s much harder to make the case for buying an entire media company. 

So far, Netflix Inc. and Amazon have opted to buy certain content from the studios and pursue deals directly with Hollywood talent instead of splurging on big corporate takeovers. Last year, Netflix signed Ryan Murphy, creator of “American Horror Story” and “Glee.” My colleague Shira Ovide wrote at the time that the deal offers a better blueprint for Netflix’s peers than M&A: “Apple could hire 70 potential Ryan Murphys for less than the cost of buying CBS.” Notably, the market values of CBS, Lions Gate and Sony have all shrunk since then.

That’s not to say media investors won’t wake up one day to a giant acquisition by Amazon or Apple or whoever else. It’s just difficult to predict when that would happen and which company would be the chosen one. Recall how Amazon’s $13.6 billion takeover of Whole Foods in 2017 came as a surprise.

George Steinbrenner, the late owner of the New York Yankees, was said to have compared owning the team to owning the Mona Lisa: “You don’t sell it.” That may still be true for the team, but its YES Network certainly didn’t get a Mona Lisa price.

The Yankees already own 20 percent.

To contact the editor responsible for this story: Beth Williams at bewilliams@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a Bloomberg Opinion columnist covering deals, Berkshire Hathaway Inc., media and telecommunications. She previously wrote an M&A column for Bloomberg News.

©2019 Bloomberg L.P.