Television station powerhouse Sinclair Broadcast Group Inc. has agreed to buy 21 regional sports networks from Walt Disney Co. for $9.6 billion, accelerating the Maryland company’s push into major television markets.
The purchase, announced Friday, includes three sports networks in Southern California: Fox Sports West, Prime Ticket and Fox Sports San Diego. The channels — which televise Angels, Clippers, Kings, Ducks and Padres games — previously were part of Rupert Murdoch’s 21st Century Fox entertainment company.
Disney acquired the sports channels in March as part of its $71.3-billion takeover of much of 21st Century Fox. But the Burbank entertainment giant wasn’t allowed to keep them. Last summer, the U.S. Justice Department demanded that Disney sell the regional sports networks as a condition of its takeover of Fox.
Antitrust regulators were concerned that Disney, which already owns sports juggernaut ESPN, would have too much sway in the TV sports market. The government gave Disney 90 days to unload the channels after it acquired them. The clock started ticking at the close of the Disney-Fox transaction. The sale to Sinclair must still be approved by the department.
“We are pleased to have reached this agreement with Sinclair for the sale of these 21 [regional sports networks], subject to the conditions of the consent decree with the U.S. Department of Justice,” Christine McCarthy, Disney’s senior executive vice president and chief financial officer, said in a statement.
The portfolio of regional sports networks is the nation’s largest with local rights to 42 professional teams, including 14 Major League Baseball teams. The channels also televise games from 16 National Basketball Assn. teams, and 12 National Hockey League teams. Last year, the networks delivered a combined $3.8 billion in revenue and reached 74 million homes.
Los Angeles businessman Byron Allen is joining the deal as an equity and content partner of a separate subsidiary of Sinclair. Allen, the founder of Entertainment Studios, last year purchased the Weather Channel.
The channels also drew interest from Liberty Media Corp., Major League Baseball and Big3, an upstart basketball league run by the rapper-actor Ice Cube and Hollywood businessman Jeff Kwatinetz.
Disney had hoped Fox’s cluster of 22 regional sports networks would garner about $20 billion — but they fell short of that goal. A hoped-for frenzied bidding war failed to materialize because such major entertainment companies as Comcast Corp., AT&T Inc.’s WarnerMedia and even Fox Corp. sat on the sidelines.
“With regional footprints that traverse several major U.S. markets, the regional sports networks had been expected to fetch a much higher valuation,” Tuna Amobi, media analyst at CFRA Research, wrote Friday in a research note. He also noted that Disney could use the proceeds from the sale to pay down its debt.
Despite the sale of major assets to Disney, Rupert Murdoch and his family haven’t entirely exited the TV industry. Their slimmed-down holdings, now called Fox Corp., include Fox News Channel, Fox Business Network, two national sports channels, FS1 and FS2, as well as the Fox Broadcasting network. Fox also held on to its chain of TV stations, including KTTV Channel 11 and KCOP Channel 13 in Los Angeles.
The Murdochs had considered reclaiming the regional sports channels, but senior Fox executives were discouraged by the weakening economics of cable television. Consumers have been canceling their pay-TV service in favor of lower-cost streaming platforms, and pricey sports channels are particularly vulnerable to the trend.
In addition, TV broadcasters have been squeezed by the sky-high fees that professional sports teams have demanded in exchange for the rights to broadcast their games. Regional sports channels are no longer the growth business they were 15 years ago. And some teams, including the Los Angeles Dodgers, own their own TV outlets — adding to a proliferation of sports channels, which causes consumers’ pay-TV bills to rise.
Sinclair’s deal is for 21 of the 22 Fox regional sports networks and the Fox College Sports channel. The channels are expected to be rebranded.
The crown jewel, YES, which is home to New York Yankees broadcasts, reportedly is being purchased by Sinclair, Amazon.com Inc., the Yankees organization and private equity firm Blackstone Group for about $3.5 billion.
“This is illustrative of Sinclair’s grand ambitions to be a leader in broadcast and sports, and these heavier investments are a positive, as sports is one of the last strongholds in broadcasting,” Patrice Cucinello, a director of Fitch Ratings, said in a Friday research note.
Sinclair, one of the nation’s largest TV station owners with outlets in Bakersfield and Fresno, has been trying to expand into the nation’s largest television markets, including Los Angeles, Chicago and New York. The regional sports networks the company plans to acquire will enable it to reach fans in such markets as Los Angeles, Phoenix, Dallas, Miami and Detroit.
Sinclair, which has its headquarters in the Baltimore suburb of Hunt Valley, Md., announced in February that it was teaming up with the Chicago Cubs to launch a new network in 2020 that would exclusively broadcast the team’s games. The move takes a page from the Dodgers’ playbook.
Sinclair bought the Tennis Channel, a cable network in Santa Monica, three years ago for $350 million.
“While consumer viewing habits have shifted, the tradition of watching live sports and news remains ingrained in our culture,” Chris Ripley, Sinclair’s chief executive, said in a statement. “As one of the largest local news producers in the country and an experienced producer of sports content, we are ideally positioned to transfer our skills to deliver and expand our focus on greater premium sports programming.”
The broadcast company spent part of last year trying to buy Tribune Media, including KTLA Channel 5 in Los Angeles, but that deal was blocked by regulators. The chairman of the Federal Communications Commission, Ajit Pai, refused to approve Sinclair’s purchase of Tribune stations last summer because Sinclair’s proposal to divest certain stations was in violation of the law. Instead, Nexstar Broadcasting Inc. agreed to buy the Tribune stations for $6.4 billion late last year.
The conservative-leaning Sinclair made headlines last year when a viral video showed anchors from its news stations nationwide reading a company-mandated promotional announcement warning against media bias and “false news.”