Terms call for News Corp. to acquire a 49% equity interest in YES, the exclusive live local television broadcaster of New York Yankees baseball and Brooklyn Nets basketball, as well as other sports programming. YES took the occasion of announcing the agreement, which did not reveal financial terms, to disclose that another agreement will keep Yankees baseball on YES through 2042.
News Corp. will receive its equity in YES from interests held by its current owners. This group includes Yankee Global Enterprises, which owns all of the Yankees and started out with a YES stake of 34%, as well as financial backers Goldman, Sachs & Co., which is expected to reduce its 30% allotment when YES was founded in 2002 to 12%, and Providence Equity Partners LLC, which seems likely to cash out its initial 7%. NJ Holdings, a group headed by former Brooklyn Nets owners Louis Katz and Ray Chambers, is also expected to contribute from its original 24%.
Sources close to the transaction said that, on cashing out, YES's backers would make close to 5 times the amount they invested. Despite the enticing payoffs, the backers were said to be unanimous about limiting sales discussions to strategic buyers that could advance the franchise with their operating experience. "No way were we selling out to a TPG or a Carlyle," one said.
Terms also allow News Corp. to increase its YES ownership to 80% after three years, most likely leaving Yankee Global Enterprises with the rest. This step-up clause is based on a future valuation of $3.8 billion.
Meanwhile, the extension that secures Yankees baseball through 2042 reportedly provides an annual increase between 4% and 5% above the $85 million that YES now pays for broadcast rights. This figure suggests YES will be liable for as much as $380 million in annual broadcast payments when the extension ends -- an indication of News Corp.'s faith in the ability of sports to deliver eyeballs, subscribers and advertisers.
As News Corp. deputy COO James Murdoch put it: "Partnering upstream with rights holders is even more important today in the dynamic media marketplace in which we compete. This is a tremendous opportunity to enhance News Corporation's industry-leading portfolio of sports properties, while also strategically re-entering the New York market."
YES has steadily increased its footprint over the past decade to include 9 million households in New York, Connecticut, New Jersey and Pennsylvania. It's also available nationally through several pay-TV operators.
For legal advice, News Corp. used a team co-headed by Stephen Kay, partner in the Los Angeles office of Hogan Lovells US LLP, and Carissa Coze, partner in the Los Angeles office of Jenner & Block LLP. Goldman used a Skadden, Arps, Slate, Meagher & Flom LLP group that included M&A partner Thomas Greenberg, as well as tax partners Dean Shulman and Matthew Rosen. Providence turned to Weil, Gotshal & Manges LLP, particularly to private equity and M&A partners David Duffell and Michael Weisser.
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