Wanted: A junior partner for the undisputed king of Toronto sports.
No, that’s not a classified ad. But that’s exactly what Rogers Communications is looking for now that it’s set to take full control of Maple Leaf Sports & Entertainment later this year.
After agreeing to snap up the remaining 25 per cent of MLSE in a deal worth $4.35 billion, Rogers is poised to have control of most professional sports in Toronto: the Maple Leafs, Raptors, Toronto FC, Marlies, Argonauts, Scotiabank Arena, as well as the sports and media assets it already fully owns — the Blue Jays, Rogers Centre, Sportsnet, and other broadcast outlets.
But having just bought out Larry Tanenbaum’s Kilmer Sports stake, why are they now looking to shed a similar sized chunk of their sports and media holdings?
It’s partly to pay down debt, and partly to set a market value for the combined sports and broadcast holdings, according to the company and sport business experts. And with Kilmer out of the picture, they now have a free hand to set things up exactly how they’d like.
Company spokesperson Sarah Schmidt reiterated that the company is looking to sell off a stake in its sports and media portfolio.
“We plan to bring in capital from outside investors and use those proceeds to further bolster our balance sheet,” adding that having all the teams under one roof is a way for Rogers to attract more customers to its cable and mobile offerings.
Experts say the company would prefer someone with deep pockets
“We aren’t just assembling a collection of assets,” Schmidt said via email. “We are maximizing our mix of assets to compete and differentiate in a very crowded, competitive market — to give Canadians more reasons to choose Rogers.”
Sports business experts say the company would likely prefer someone with deep pockets, but not someone who wants a big say in how Rogers’ sports empire is run.
“You want money partners, not operating partners,” said Marc Ganis, president of Chicago-based sports consultancy Sportscorp. “You want long-term money that appreciates the value of the asset class.”
David Carter, founder of California-based Sports Business Group, called Rogers’ sports and media assets “truly extraordinary,” and said finding a partner who appreciates the value of having them all under one roof is paramount.
“Ensuring that the collective holdings are worth more than the sum of its individual pieces,” Carter said, “is the business riddle they face.”
Spinning off those assets into their own company with an initial public offering might be a tempting way for Rogers to cash in, but it could backfire if the timing isn’t perfect, Carter warned.
Investor needs to understand long-term appreciation of franchise
“Going forward with an IPO at some point could make both financial and strategic sense,” he said, “but … getting an IPO ‘wrong’ would be a major setback.”
The biggest need, said Sportscorp’s Ganis, is an investor who understands that the biggest value of sports teams is not in traditional quarterly earnings, but in long-term appreciation of franchise value.
With people’s screen time increasingly fragmented between streaming services, social media and traditional cable, sports is one of the few mass appeal pieces of entertainment still consumed live. And it’s not something that can be replaced by AI actors or musicians.
“Sports is the only protected asset class in entertainment as the world moves to AI,” Ganis argued.
The deal to buy out Kilmer shows some of the trouble in determining what sports teams are worth. The Kilmer buyout puts MLSE’s overall value at $17.4 billion. With the Blue Jays valued at roughly $3.4 billion, according to Forbes, that puts Rogers total sports portfolio at almost $21 billion — not including Sportsnet.
By comparison, the entire market cap of Rogers Communications Inc. shares is just over $26 billion. That’s not because the rest of the company is worth just $5 billion, but because by traditional measures sports franchises don’t add much to earnings, according to industry analysts.
Still plenty of investors who’d be interested in MLSE stake
In a speech at a conference in June, Rogers CFO Glenn Brandt hinted the company might sell stakes in the sports and media assets a tiny bit at a time, so stock watchers look at them as a plus, rather than a drag on the company’s share value.
“I would expect at least annually, we will provide our view based on transactions over the past year, our view on what those assets are worth,” Brandt said. “I think more and more, that will then provide a basis for reflecting the value of those sports and media assets in the RCI share price.”
There are still plenty of investors who’d be interested in taking on a chunk of what Rogers has put together, said Ganis.
“No-one on the planet has the package of assets that Rogers now does,” said Ganis, noting that companies sometimes considered peers are missing chunks of what is in the Rogers sports and media collection.
“MSG has the (NHL’s) Rangers and (NBA’s) Knicks. But they don’t have baseball, and they don’t have a national network,” said Ganis.
(The closest parallel, said Ganis, is U.S. billionaire Stan Kroenke who owns the NFL’s L.A. Rams, NBA’s Denver Nuggets, NHL’s Colorado Avalanche, MLS’s Colorado Rapids, as well as English Premier League giants Arsenal and their top-tier women’s side.)
Buyers who’d be a good fit, suggested Ganis, include major pension funds, which have deep pockets and a long-term outlook.
Private equity firms would also likely be salivating at getting a piece of the action, though the NBA and NHL limit PE ownership stakes in any of their teams to 30 per cent. Real estate development companies could also be in the mix, he said.
But while they may be tempted to get a quick cash hit and pay off some debt, Rogers shouldn’t be in any rush.
“Six months, 12 months, two years, it doesn’t make a big difference,” said Ganis. “They don’t need to hold a fire sale.”
And finding a relatively silent but like-minded partner — or partners — rather than the permanence of an IPO, is likely the best move for the moment, he added.
“I wouldn’t do anything permanent today,” said Ganis.
