Bloomberg News

Murdoch’s Fox Sports on Path to Profit With Yankees Games

March 06, 2013

Rupert Murdoch’s 15-year drive to create a competitor to Walt Disney Co. (DIS:US)’s ESPN has put News Corp. (NWSA:US)’s new national sports network on a path to show a profit within two to three years.

Fox Sports 1, announced yesterday by New York-based News Corp., will be available to more than 90 million pay-TV homes and draw from existing rights to the New York Yankees, Nascar, the World Cup, college sports and UFC martial-arts bouts carried on its regional sports channels and networks like FX.

The investments provide a foundation of live events for Fox Sports 1 as it begins operation in August. The new network can share the costs of programming, back-office functions, sales and production with other News Corp. outlets, said Lee Berke, president of LHB Sports Entertainment Media, which helps leagues create channels.

“They are not starting from scratch,” Berke said. “The road to profitability is much shorter for them than a channel that’s just starting out.”

News Corp. has rights to Pac-12 and Big 12 college basketball and football games and owns at least 20 regional sports networks, including three of the five most-watched: No. 1 YES Network, which News Corp. bought 49 percent of last year, Fox Sports Southwest and Fox Sports West.

Fox can carry as many as 18 of YES Network’s New York Yankees baseball games nationally starting in 2014, Sports Business Journal reported in January.

Regional Deals

The company also has U.S. TV rights to soccer’s World Cup in 2018 and 2022, the English Premier League and the annual Champions League tournament.

News Corp. has structured its Major League Baseball deal to include national access to some games that air regionally, said Neal Pilson, a former CBS Sports president and founder of Pilson Communications, which advises teams and leagues. That’s limited the investment in Fox Sports 1 to the tens of millions of dollars, he estimated -- barring costly new programming deals.

For example, when the Yankees and the Los Angeles Angels play, Fox Sports can air the game nationally, because both teams are carried on its regional channels, Pilson said.

The new network will be profitable in two to three years, Pilson estimates. He expects Fox Sports 1 to generate about $1 billion a year in subscriber fees to start, plus advertising and sponsorship revenue.

‘A Cornerstone’

“A lot of the profitability question will be decided internally by Fox,” Pilson said. “It will largely depend on how they allocate rights fees and charges that they have already agreed to pay.”

Lou D’Ermilio, a spokesman for Fox Sports in New York, declined to discuss the channel’s finances.

Fox has been signing contracts for the past year, News Corp. Chief Operating Officer Chase Carey said yesterday at a Deutsche Bank AG investor conference in New York. The new network will sustain losses as Fox seeks to increase the subscriber fee, he said.

“Three to five years down the road, it’s a multibillion- dollar asset,” Carey said. “It could really be a cornerstone for us.”

Speed, the channel Fox Sports 1 will replace, collects 31 cents a month per subscriber on average from pay-TV systems, estimates SNL Kagan. The researcher estimates Fox will seek $1. By comparison, ESPN will receive $5.54 this year, Kagan estimates.

Fox News

Laura Martin, an analyst at Needham & Co., expects Fox Sports 1 to get 60 cents to 70 cents a month per subscriber -- a big jump from Speed’s levels, though still a bargain compared with ESPN. Fox Sports 1 has the opportunity to do to sports networks what Fox News did to news channels, she said.

“Fox News entered as the third news channel and 15 years later dominates the space,” Martin said in a report yesterday. “Fox will be a worthy adversary to ESPN’s dominance in the sports space.”

Fox has been considering a national sports channel “with various degrees of seriousness for 15 years,” David Hill, News Corp.’s senior executive vice president, said at an event yesterday introducing the new channel. The company eventually wants to show NFL games, he said.

‘Be Opportunistic’

“We have to be opportunistic,” Hill said. “All I want is for one friend to say to another, ‘That new Fox Sports channel, it’s a great watch. You should go check it out.’”

If Fox Sports 1 can eventually command the average rate of News Corp.’s existing regional sports channels, the network can add 40 cents to 50 cents to News Corp.’s annual earnings per share, Anthony DiClemente, an analyst with Barclays Capital in New York, said in a report earlier this year. Most of Fox’s current regional properties got from $2.27 to $2.99 a month in 2012, he said, citing Kagan data.

News Corp. is projected to post profit, excluding some items, of $1.68 a share, the average of 25 analysts’ estimates, in the fiscal year ending in June.

The shares fell 1.1 percent to $29.87 at the close in New York. The Class A stock has climbed 17 percent this year (NWSA:US).

News Corp. is preparing to split into two companies -- a publishing operation and an entertainment business with television and films. Murdoch, 81, who built Fox News into a cable powerhouse, will be chairman of both companies and CEO of the entertainment company, Fox Group, including Fox Sports 1.

Mobile Apps

Fox Sports will offer a mobile-phone service called Fox Sports Go, said Bill Wanger, executive vice president of programming and research, in an interview yesterday. The app will offer game highlights and may eventually show games that aren’t on TV, he said.

“It will have everything on it that you need to watch on your phone or your tablet,” Wanger said. “In addition, we’re revamping our Fox Sports website to be more vertical.”

Fox and other major networks have turned to live programming like sports to bolster ratings and draw in viewers, who can easily record other programs to watch later. That’s created a crowd of competitors that includes Comcast Corp. (CMCSA:US)’s NBC Sports, CBS Corp. (CBS:US)’s CBS Sports and regional sports networks from Time Warner Cable Inc. (TWC:US)

Fox Sports 1 is likely to have a bigger impact on NBC and CBS than on the dominant ESPN, said Pilson, the former CBS Sports executive.

“We’re not trying to beat ESPN,” Carey said yesterday. “That wouldn’t make sense. Sports is a big huge arena. We’ve proven over the years we can do some interesting and exciting things.”

Among the new shows announced yesterday, Fox Sports 1 will air a daily program, “Rush Hour,” with talk-show host Regis Philbin. Former Pittsburgh Steelers quarterback Terry Bradshaw will appear on “Fox Football Daily.”

ESPN’s most valuable franchise is its “Sports Center” talk show, Carey said.

“Our real job and challenge is to put together the right portfolio of rights first, and add dimensions that really resonate with consumers,” Carey said.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Alex Sherman in New York at asherman6@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net; Nick Turner at nturner7@bloomberg.net


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