Is Murdoch Taking Aim at the Yankees?

News Corporation (NASDAQ:NWSA), the media empire owned by Rupert Murdoch, announced on Tuesday that it will acquire a 49 percent stake in the Yankee Entertainment and Sports Network. The network, which is anchored by broadcasts of Yankees and Brooklyn Nets games, claims about 15 million subscribers and the deal values it at a total worth of $3.4 billion dollars.

YES Network is currently 34 percent-owned by the New York Yankees and 30 percent-owned by Goldman Sachs (NYSE:GS). While it’s unclear how much, if any, of News Corp’s stake will come from the Yankees, the arrangement will reduce Goldman’s stake to about 12 percent. Goldman invested $335 million in the network 11 years ago. Long-time stakeholders in the network are expected to make returns of about five times their original investment.

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Ostensibly the arrangement seems out of place, but Murdoch’s media empire has been indicating a change in how business is done for a while. Murdoch is launching his own sports network called FoxSports 1, and having the strong regional network as an anchor would be a great start. It’s also important to point out that his son, James Murdoch, sits on the board of the Yankees’ holding company.

The agreement comes loaded with an option allowing News Corp to increase its stake to 80 percent after five years, triggering deep concern from some fans. Out of all the forms of entertainment broadcasting, sports programming is expected to remain particularly lucrative. An 80-percent stake in YES Networks would make News Corp a significant player in sports broadcasting.

The Yankees have agreed to extend broadcast rights to the network through 2042 for $500 million to be paid in two parts, one when the deal closes and one in about three years’ time. An annual fee of $85 million is due to compound 4 percent annually, with the rate rising to 7 percent through 2042.

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