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SBJ/April 27 - May 3, 1998/No Topic Name
Has the fox trapped the mouse in L.A.?
Published April 27, 1998
In the war for dominance of the sports cable industry. Rupert Murdoch’s Fox Group has dealt a body blow to Disney’s ESPN by announcing it has bought or secured the rights to equity stakes in the three most popular professional sports teams in Los Angeles.
Less than a month after winning approval to buy the Dodgers, Fox Group has secured the rights to buy 40 percent of the Los Angeles Kings and a 10 percent stake in the Los Angeles Lakers.
Additionally, in partnership with Kings owners and Staples Center arena developers Ed Roski Jr. and Philip Anschutz, Fox and its cable broadcast partner, Liberty Media Corp, have obtained the rights to buy 40 percent of the new arena, which will house the Lakers, Kings, and Clippers when it opens in 1999.
"They have become, de facto, the official pro broadcaster of sports in Los Angeles," said Rick Burton, director of the Warsaw Sports Marketing Center at the University of Oregon’s College of Business. The move on the Los Angeles pro teams "says that Murdoch is really serious about his global sports play, " Burton added.
Neil Begley, senior media analyst at Moddy’s investor’s service, said the move to buy a piece of the Los Angeles teams is part of Fox’s strategy to lock up broadcasting rights to regional favorites in markets where it has its regional network. Fox, with its partner Liberty Media, operates 22 regional networks that broadcast pro and college sports in the 25 largest markets in the country.
Bryan Burns, ESPN vice president of distribution and development, said he has heard plenty about a competition between ESPN and Fox and "everyone seems to be focused on that but us." Despite Fox’s recent Los Angeles deal, he said, "We call ourselves the worldwide leader in sports and we are."
Begley said that while ESPN still wins one numbers game – it reaches 74 million homes vs. 55 million for Fox – Fox has won the advantage long term by signing exclusive agreements with nearly 70 teams for local broadcast rights.
Analysts said that the Los Angeles move by Fox could not have come at a much worse time for ESPN, which is gearing up to launch its first regional sports channel – ESPN West – in Nevada, Hawaii and Southern California in October.
"ESPN West?" said Jeff Shell, chief financial officer of Fox/Liberty Networks, which owns and operates the regional sports channels. "We actually call it ESPN Orange County over here," he said.
While ESPN West has the rights to broadcast the California Angels and the Mighty Ducks – both Disney-owned teams based in Orange County – Shell noted that "we have the Lakers, Kings, Dodgers, Clippers and Pac-10 teams" signed to long-term contracts. Those relationships have been solidified by Fox’s deal to buy minority stakes in the Lakers and Kings.
While the agreement does not preclude ESPN from bidding on future broadcast contracts, analysts say it would be hard for ESPN to compete with Fox. If Fox owns 40 percent of the Kings, "ESPN would be at a 40 percent disadvantage to Fox in a bidding war" for those broadcast rights, said Neal Pilson, former president of CBS Sports.
Shell said that Fox’s lineup in Los Angeles is a mirror of its programming in other cities across the United States. In New York, Fox/Liberty owns a 40 percent interest in the Rangers and Knicks and in Madison Square Garden. In other major cities, Fox does not own a stake in the teams but has long-term contracts with regional favorites, he said.
"We believe that regional sports marketing is the way to go," Shell said. Building a network of regional channels is more "powerful" than building a national network, he said because " you will always watch your home team."
As for ESPN and its parent Disney, analysts advise that the two should get aggressive – and soon.
"Fox stepping up with the Lakers and Kings deal is part of a worldwide competition to outflank Disney," Pilson said.
He added that if he were running Disney, "I would start thinking about buying the Yankees."