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Mega-Deal for Sunday Ticket, Stake in NFL Media Biz Would Boost Club Valuations

johnwallstreet
·5 min read

Earlier this week, Sportico released its annual NFL team valuations report (the corresponding virtual event headlined by Dallas Cowboys COO Stephen Jones is scheduled for 12 p.m. EST, you can register here). The clubs were valued at between 5.5-7 times expected revenues, which for 2021 could be around $550 million. Inner Circle Sports’ William DiBlasi explained that team values would typically include “each team’s stake in [various] league-wide assets,” including NFL Network, NFL RedZone, NFL.com and their international broadcast rights. So, it is logical to wonder how club valuations would be impacted should the league end up selling part of its media business. Remember, back in June, it was reported the NFL hired Goldman Sachs to explore a variety of options for those assets, including a minority sale.

The one-time cash payment the clubs receive would not affect franchise valuations. But Sportico valuations authority Kurt Badenhausen said, “If [a deal] were to establish a very high asset value for the remaining percentage [of the NFL’s media business], that could change the multiple.” Sports media strategist Lee Berke (owner, LHB Sports, Entertainment & Media, Inc.) suggested the league would command the greatest valuation on its media business if it packaged the stake in a “mega-deal” that also included the broadcast rights to Sunday Ticket.

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Our Take: The NFL has been shopping a stake in NFL Network (a significant component of its media business) on and off for years and has been looking to find a home for Sunday Ticket for nearly as long. As standalone offerings, neither has managed to find a buyer yet.

But a package offering that gives potential strategic partners the opportunity to buy the assets together could be the answer to the league’s problem. In theory, a “mega-deal” would enable the NFL to maximize revenues generated by its next out-of-market broadcast package (begins in 2023), provide an immediate lift to team valuations (particularly if it fetches a big number) and put the league in a position to grow its media business moving forward.

Logic says a buyer might also be willing to overlook the negatives associated with the NFL’s media business and Sunday Ticket (see: declining value of NFL Network, the perception that RedZone is a better product than Sunday Ticket)—and pay top dollar for both—if they were ensured of the opportunity to create new products and value. The emergence of the various streaming platforms over the last two years has grown the pool of prospective buyers.

The idea of a “mega-deal” increasingly makes sense when one considers the substantial overlap among potential buyers of the two individual assets. As Berke noted, “Sunday Ticket is up [for renewal], and every indication is it will land on one or more streaming platform. Streaming works really well [for the product] because there will likely be an increasing number of presentations of NFL games and in order to do that, [the league] needs to maximize bandwidth.” The media strategist envisions the league’s Sunday Ticket partner offering up alternative broadcasts of games (think: sports betting feed, analytics feed) and additional channels as they look to reach niche audiences.

Companies with a robust streaming presence are also the ones the NFL is likely to value from a strategic point of view. “All indications are that [the league] wants a partner capable of bringing new forms of cutting-edge media distribution, technological skills, resources and approaches. They need a really resourceful partner, who doesn’t trip over the relationships they have on a linear basis,” to maximize the value of the portfolio, Berke said.

A deep-rooted tie-up between the league and a media partner makes sense from a cost standpoint too. Any outlet paying the quantum leap the NFL desires on Sunday Ticket rights is going to want the freedom to commercialize the package above and beyond what DirecTV has done (see: the alternative feeds/channels referenced). “And in order to do that, they are going to need the rights [which reside under the NFL media business umbrella],” Berke explained. For what it’s worth, the satellite broadcaster currently pays roughly $1.5 billion/year for the package.

The NFL has been private in terms of what its media business generates, revenue-wise, and the collective of assets has never been valued publicly. But Berke thinks the league is likely looking for a deal that “values the overall operation in the tens of billions of dollars.” He reasons if Disney was willing to pay $1.58 billion for 42% of the BAMTech platform at a $3.5 billion valuation without any MLB game rights (they already owned 33% at the time), an offering that includes seven exclusive domestic broadcasts annually and all of the league’s international rights (plus streaming and digital assets) would be worth multiples more. “It’s an opportunity [for a company] to build their own media value,” he said.

DiBlasi wasn’t prepared to put a number on the NFL’s media business. But he called it the “type of world-class asset, that doesn’t come to market very often” and said he “could see potential partners putting a tremendous value on it.”

Few companies will be able to offer up the financial resources, the technological expertise and global presence the NFL wants in a strategic partner. But Amazon (with Prime) and Apple (with Apple TV+) would fit the bill. Disney, Comcast, ViacomCBS and Liberty Media (if they can gain approval for the WarnerMedia-Discovery merger) could also make sense.

If the league ultimately ends up deciding to sell Sunday Ticket and its stake in the media business separately, “then all current NFL partners will likely be bidders for Sunday Ticket,” Berke said.

(This story has corrected Cowboys’ executive Stephen Jones’ title to COO in this first paragraph.)