SBJ/July 6-12, 1998/This Weeks News

Fox roars with creation of a new sports unit

If Rupert Murdoch’s News Corp. comes to dominate the U.S. and international sports markets, his decision last week to create a stand-alone entertainment and sports company, the Fox Group, may mark the seminal moment in his conquest.

While Murdoch’s purchase of the Los Angeles Dodgers, the founding of the Fox Sports cable network and his lavish spending on sports programming may seem more significant, Fox Group could become the vehicle from which News Corp. launches a series of aggressive sports acquisitions.

“Murdoch is going to try to make a play to be the most dominant player on the American sports scene,” said Dean Bonham, president of The Bonham Group, a Denver-based sports marketing company. “His strategy is relatively clear: Buy the broadcast rights, buy the sports teams, buy the sports facilities.”

Fox Group will be the television, entertainment and sports machine that buys programming, teams and even leagues, said Robert Caporale, a principal with Game Plan LLC, a sports investment banking boutique.

Indeed, Caporale sees Fox Group expanding overseas and in the United States in a bid to control all sides of the sports matrix: teams, television and arenas. News Corp. is expected to raise several billion dollars from its plan to sell 20 percent of Fox Group to the public. These funds could then be used for acquisitions.

In a statement announcing the new company, News Corp. said the funds will be used to pay down debt, repurchase stock, and general corporate purchase, which could include acquisition.

“Murdoch is realizing the potential that sports has on Wall Street, and the credibility it has,” said David Moross, a managing partner with IMG/Chase Capital. “There is terrific investor interest in sports as an industry unto itself.”

Fox Group could even pressure other media conglomerates like Time Warner Inc. and the Walt Disney Co. to focus their sports efforts in such a concentrated manner, Moross said.

Time Warner, which owns three of Atlanta’s four professional sports teams, and Disney, which owns the Anaheim Angels and ESPN, declined to comment. News Corp., however, was under pressure from investors to create Fox Group because of its lagging stock price, so other companies may not be as quick to follow Murdoch’s lead.

Fox Group will include News Corp.’s U.S. television, film and cable assets – including Fox-Liberty Sports – and interests in, and options to buy, teams.

Fox/Liberty, which is half owned by Tele-Communications Inc., broadcasts games for 24 NBA teams, 23 MLB teams and 19 NHL teams and reaches 55 million households. Murdoch also owns options to buy 10 percent of the Los Angeles Lakers and 40 percent of the Los Angeles Kings. He also owns 40 percent of the new Staples Center in Los Angeles.

While hard sports assets such as the Dodgers and Fox/Liberty account for less than 10 percent of the new company, Fox Group’s overall involvement in the sports industry is far greater – once the huge tab Fox paid for broadcast rights to NFL, NHL and Major League Baseball games is considered.

“The hottest ticket in cable, in TV programming and even in Internet Web sites, is sports,” said Bishop Cheen, an entertainment analyst with First Union Capital markets. “Fox is a bundler of content … and sports will continue to be a big part of that.”

Adding even more luster to the new company is a glamor asset like the Dodgers. Some analysts believe investors may buy shares of the new company simply to own part of the ballclub.

“There is some interest in this asset because of the visibility of the Dodgers,” said Bob Graziano, the team’s president and CEO.

By creating a company so reliant on sports, and one with the girth and synergies to be profitable, News Corp. will give investors a solid opportunity to invest in the industry.

To date, sports investments have been slim, either through public teams such as the Boston Celtics, or through huge companies such as News Corp., where sports is only one slice of a much larger pie.

By breaking it out into a smaller company, Murdoch will give investors a chance to value News Corp.’s sports holdings.

“If [Fox Sports] ratings improve, I’m sure the stock will go higher,” said Brian Eisenbarth, an analyst with Collins & Co., a Larkspur, Calif.-based management firm.

Murdoch’s strategy is mirrored elsewhere. Tom Hicks, owner of the Texas Rangers and Dallas Stars, is planning an initial public offering of his media, sports and real estate assets, though his company would be a regional, rather than a national, player.

In New York, Cablevision Systems Corp. owns Madison Square Garden, which owns the Knicks and Rangers, plus broadcasting rights to those teams and to the New York Yankees. In fact, News Corp. owns a piece of MSG.

Murdoch’s new company, because of his enormous reach and demonstrated willingness to pay the price for expansion, may be the most audacious sports-based conglomerate formed to date.

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