In a world where the established cable bundle is in secular decline, monetizing an expensive, segmented regional sports network at scale has become a challenge. As recently discussed, non-live content is not going to provide RSNs with the answer to their distributor troubles. But Monumental Sports and Entertainment founder and CEO Ted Leonsis says folding the cable networks into a larger sports and entertainment portfolio could—at least in some markets. “You could see a solution for RSNs if they roll into [a] bigger enterprise, so that business ends up with buildings and teams and the network,” he said. That would give the RSN “a platform to buy [another] team locally or merge with [another] team locally in another league, so that it is getting the roll-up effect, but it’s geographic in nature.” That way, he said, the RSN “can get some true leverage.”
JWS’ Take: To be clear, tying a regional sports network to a larger sports and entertainment portfolio is not a new concept. Dr. Jerry Buss, who owned the Los Angeles Lakers, the Kings and the Los Angeles Forum at one time, co-founded Prime Ticket (now Bally Sports SoCal) in the mid-1980s. The pay-TV channels became a way for teams to monetize local video broadcast inventory that was not airing anywhere else.
By the time the 1990s rolled around, the pay-TV industry was evolving, and RSN owners began to recognize that if they programmed the network with live events year round, the channel would be worth more to distributors. That led to the creation of platform sports businesses in Philadelphia, Washington D.C., Denver and New York.
Comcast sold the 76ers in 2011, and MSG chose to spin off MSG Networks from its portfolio of teams and venues a few years later. Leonsis called it “the right strategy for the time.” Back in the mid-2010s, RSNs held peak value, and there was a perception the assets were intrinsically undervalued within the greater MSG portfolio.
But the media ecosystem has shifted over the last half-decade. Sports teams today are valued at 6-12x revenues, while RSNs are valued at 4-5x profit. It’s not unreasonable to suggest an NBA team (think: $2 billion) is worth 10x the RSN (think: $200 million) its games air on. It was the other way around just a decade ago.
RSNs now also require a solution that allows them to continue enjoying the economics of the established bundle, while they wait for profitable digital distribution to emerge. And Leonsis believes marrying the cable channels to the local teams (beyond the rights deal) and venues could be a viable one. If the RSN is tied to assets like teams and venues, the media network could benefit from stable economics derived from diverse but related businesses, to help compensate for cord-cutting and maintain its operating margins (which would allow it to serve as a force multiplier for the assets that are currently growing within the greater portfolio).
RSNs on their own can still be profitable businesses; they are just not growth businesses at this point. But to maximize their value in the current media environment, there is a strong argument to be made that they need to be part of a larger sports enterprise. MSG paired up its venues with its cable channels again last summer. Among the benefits cited was the combined company’s strengthened ability to pursue future growth opportunities, including those in mobile sports betting. MSG Entertainment president Andy Lustgarten said back in August that the decision “created a company with greater scale and revenue diversity, as well as enhanced financial flexibility.” It also gave the company a portfolio of assets that could “blanket the New York market and the Greater New York market in a way nobody else in the industry does across online, linear networks, media, on the web and in person”—valuable for sports betting operators looking to drive business.
In some markets, the sports roll-up may need to include a second RSN business. While teams and arenas can be useful levers to pull in distributor negotiations (because they offer alternative revenue streams), they do not guarantee carriage (see: the MSG/Comcast dispute in N.Y. and Conn.). Having multiple media assets under the same roof would not guarantee it either, but control over a second network would strengthen the enterprise’s position during negotiations (and provide for additional opportunities for negotiation). Bundling is viewed as the most efficient way to gain leverage. Like MSG, Altitude (which has also encountered carriage issues) is an RSN that would benefit from having at least one incremental network alongside it.
Adding a second RSN would also put the sports enterprise in a better position as the digital landscape takes form. Having multiple networks and teams may be necessary to make a DTC service viable (i.e., a bundle).
Of course, as we’ve seen with Diamond Sports, figuring out which RSNs to align with to make the channels a “must have” with distributors is the challenge. Sinclair Broadcast Group acquired a bundle of RSNs that were built by Fox, for Fox. What remains of that portfolio may not be optimized for their use (i.e., the RSN footprint doesn’t directly match up with its station portfolio), which could be among the reasons the company has been unable to get a deal done with DISH for the cable channels. If Sinclair reconfigures the portfolio, there may be opportunities for a sports enterprise to buy an RSN from them. Sinclair did not respond to requests for comment.
It is also possible there could be opportunities to pick off one of the four AT&T RSNs from WarnerMedia/Discovery. Then again, “Cable Cowboy” John Malone—who levered the RSN concept multiple times via TCI and Liberty Media over the past four decades—may want to keep the assets and add to the portfolio. It wouldn’t be at all surprising if Liberty Media ended up owning a number of RSNs when the industry shakeout is complete. Liberty Media declined to comment.