Amazon has a better global base to drive value of Fox sports

If you take a careful look at the valuations of TV content, and again at strategies of pay TV operators, MNOs and major digital platforms, it does not take a genius to make sense of Amazon bidding for the Fox US regional sports channels.

Amazon has shown that it wants to compete with Netflix, and that it sees sport as one of its great differentiators to include in an SVoD, and it has already landed key sports in other territories.

Disney has already agreed it cannot hold onto the Fox sports channels and ESPN, as a condition for its gaining Federal permissions to acquire major Fox content properties. Fox had considered taking the channels back inside its own organization, but now that the deal is advanced, that idea has since evaporated. So who else will buy the sports networks?

Key to Amazon’s involvement, which emerged as a surprise bidder in the first round, is that surely it will not only bid, but we feel it is likely to win this auction – Amazon has tons of cash, but more importantly a global audience to exploit it, where few others have that already in place. Google’s YouTube is also a possible bidder which may developed this.

Other companies known to have bid are, for the most part, value bidders, either private individuals, private equity groups, or networks funded by individual wealth. It is understood that Apollo Global Management, Providence Equity Partners, KKR, The Blackstone Group, Silver Lake Partners, William Morris Endeavor and CVC Capital are all interested. These all take the view that they ramp the debt of their assets, use the cash to turn it around, and then sell it on or take it public. Fox Sports doesn’t need turning around however, so indebting it may not pay.

Other bidders include Sinclair Broadcast Group and Tegna, but these broadcasting groups will have to get all their revenues to fund such a deal out of a combination of their own advertising revenues, plus any overseas licensing deals they might cut – but these will not be direct, but instead with ailing overseas broadcasters. The same is true for the private equity groups.

This leaves Charter Communications and Discovery both supposed to be interested, and Discovery will likely be genuinely competitive. Charter has the example of Comcast’s move into US sports networks, and feels it can follow suit, even though it does not own an asset like NBC to house a conglomeration of TV networks.

The deal is complicated in that the Yankees baseball team, represented by Yankee Global Enterprises, has the right of first refusal to buy back ownership of one of the assets, the YES network, which includes Yankees games. Although it may decline to bid.

This is a perfect opportunity for Amazon to steal a march on its home turf, for US based sport, to go with the few overseas rights, including English Premier League rights it has already obtained.

We have said time and time again, the ideal way to build a sports channel, is to copy the progress of Eurosport, now owned by Discovery Group, which is to pay less for “oddment” rights, the overseas rights for major sports which are not valued too highly, along with minor sports which most channels cannot justify buying. Then build an audience from these scraps and an advertising revenue, and finally begin bidding for major sports items. Amazon is pretty much well down this route already, as is, of course, Discovery.

It could be that Sinclair is hungry enough to pay through the nose for Fox Sports, but it would need a cash boost from one of the private equity groups, and Discovery may decide it needs better US sports assets to fuel its shift into sports – but we feel Amazon could be the surprise winner here.