When billionaire hedge fund manager Steve Cohen reached an agreement earlier this month to buy the New York Mets from the Katz and Wilpon families for some $2.42 billion, one of the franchise’s most attractive assets wasn’t included in the bill of sale. And while Cohen is said to be keenly interested in taking a majority stake in the SNY regional sports network, a formal offer has yet to be made on either side of the table.
While laden with debt under its current ownership, the SNY channel would provide Cohen with yet another license to print money should the Sterling Equities holding company choose to sell its 65% stake. But sources close to the Mets say the Wilpons may not put SNY on the blocks until after MLB owners vote to approve Cohen’s purchase of the Mets—a formality that some insiders believe will happen well before the bosses meet for their annual mid-November conclave.
The vote on Cohen’s baseball bona fides could take place as soon as late October, after Fox wraps its coverage of the 2020 World Series. The would-be Mets owner needs the approval of 23 of the 29 U.S. club owners in order to move forward with the deal.
That Sterling Equities didn’t bundle SNY with the Mets package is believed to have little to do with the Wilpons’ desire to retain the property. There are tax issues to be worked out, and at $800 million, the debt that’s being carried by the network is onerous.
Obviously, a deal that would keep the ownership of SNY more or less in-house—the remaining 35% stake is shared by Charter Communications and Comcast’s NBC Sports Group subsidiary—would be in the best interests of all parties. Last season SNY televised 133 Mets games in the New York market and is on track to carry 56 of this season’s 60 regular-season games in this anything-but-regular 2020 season.
SNY’s primetime Mets coverage in 2019 averaged a 2.47 household rating in the team’s home market, which marked a 7% improvement compared to the previous season’s deliveries. In terms of the average number of households that tune in for Mets games (175,000), SNY trails only crosstown rival YES Network and its Yankees coverage, which last season averaged 237,000 homes per outing.
For Cohen, picking up SNY just makes good horse sense. For one thing, the network is a hedge against a ball club that hemorrhages money; over the course of an average season, the Mets lose an estimated $50 million, of which only $1.19 million finds its way into Bobby Bonilla’s pocket every July 1. (Losses for the coronavirus-shortened 2020 season may add up to as much as $200 million.) SNY, on the other hand, generated around $140 million in EBITDA, per Kagan estimates.
Much of the value of SNY lies in the affiliate fees it collects from the cable and satellite distributors that pipe the channel to their subscribers. Operators pay SNY a going rate of $3.08 per sub per month, making it the 19th most expensive regional sports offering on the dial. And the RSN’s reach extends far beyond the five boroughs; SNY is available to 6.2 million subs throughout the Empire State and in select areas in neighboring New Jersey, Connecticut and Pennsylvania. Those affiliate fees alone account for $229.2 million in annual revenue at SNY.
Unfortunately for SNY’s backers and pretty much everyone else with skin in the RSN game, the wheels have begun to fall off the lucrative pay-TV model. Multi-channel video programming distributors in the second quarter of this year endured record subscriber losses, as cord-cutting reduced the total number of traditional cable/satellite-TV customers by 8.3%. As MoffettNathanson analyst Michael Nathanson observed in a recent note to investors, should this trend continue, “the traditional pay-TV universe will be cut in half in 8 years.”
Kagan estimates paint a somewhat less grim picture of the pay-TV landscape, although the S&P Global research unit’s forecast is far from rosy. Given a current base of approximately 84.4 million subscribers, Kagan sees the traditional pay-TV bundle shrinking by nearly 30% to just 60.2 million subs in the next five years.
It became evident that the Street had begun to sour on the RSN model last spring, when Disney was forced to offload its 21 former Fox Sports-branded channels to Sinclair for $9.6 billion—less than half of the initial estimates of $20 billion to $22 billion. While YES Network wasn’t part of the big RSN selloff, the absence of the Yankees’ megaphone wasn’t what drove Disney’s asking price down into the Filene’s Basement range. Given the state of the legacy MVPD market, the regional sports networks simply aren’t worth as much as they were even two short years ago.
Despite the massive size of its hometown market, SNY is no less vulnerable to the predations of cord-cutting than an RSN that serves a much smaller fan base. Since 2007, the New York DMA has lost 524,500 TV homes, which effectively reduced the number of Gotham-area viewers by 15%.
At the current moment, ownership of a controlling stake in a big-market RSN remains an enviable proposition, and it’s understandable why Cohen is expected to make a play for SNY once the ink on his contract with the Amazins is dry. If Cohen can work out a deal that’s as favorable as the one that will set him up as the new owner of the Mets, picking up SNY is a no-brainer. After all, as dire as the distribution outlook appears from this vantage point, the bottom hasn’t fallen out quite yet.
The future of RSNs may lie in going the premium-subscriber route or teaming up with nearby players to form a powerful bloc of “super RSNs”; however things shake out, there’s still a lot of money to squeeze out of SNY.
Now if the new boss can only bring a World Series title to Queens….