SBJ/March 1 - 7, 1999/No Topic Name

Yankees-Nets alliance eyed for impact

BY Daniel kaplan and BILL KING

Staff writers

George Steinbrenner made a bid to upset the apple cart of New York sports and cable TV last week with his agreement to merge the business operations of his beloved Yankees with the New Jersey Nets, a move that may have been born as much from his desire for financial liquidity as from a need for a broadcast teammate.

In the process, he convinced some observers that he had backed out of the corner he was boxed into by Cablevision Systems Corp., which through its MSG Network controls the broadcast rights to the Yankees until next year and had been seeking to acquire the team.

Without another regional sports network in New York to turn to, the Yankees had few options for a new media deal next year, leaving Cablevision in the catbird seat. But with the Nets now bringing the promise of year-round sports programming, Steinbrenner could create his own regional sports network or sell the rights to other sports titans like ESPN or Time Warner Inc.

In creating a new entity to be called the YankeeNets, Steinbrenner has bucked a trend that has seen media companies like Cablevision come to dominate the sports industry. Now, Steinbrenner has revolted against that control and created a new model that demonstrates that individual teams can survive without a cable parent.

"It's a TV-rights play," said Rob Tilliss, a sports banker with Chase Manhattan Corp. "I am sure Steinbrenner, after the deal fell apart with Cablevision, started to say that 'I have to negotiate with these guys in a year.' Strategically [this deal] helps Steinbrenner in his media rights, and strategically it helps the Nets."

What is not clear from that viewpoint is why Steinbrenner would give up equity in one of the most valuable franchises in sports simply to secure the television rights of a franchise that lags a distant second to the Knicks in its own market. As the cornerstone of a regional network, the Yankees likely could launch such a broadcast play without surrendering equity to the Nets.

"In terms of TV, it makes sense to provide year-round programming," said Stan Kasten, president of the Atlanta Braves and Atlanta Hawks. "But I also think that, to a fledgling [network], the Yankees alone are a formidable asset."

More than one baseball source was skeptical of the TV-rights strategy as the Yankees' primary motivation. Instead, a baseball source suggested, the crux of the deal likely was the addition of the Nets owners as partners in the Yankees, generating cash for Steinbrenner at a time when baseball payrolls are soaring. Steinbrenner's goal long has been to add partners who would buy a significant stake without demanding control in return.

Neither side would disclose details of the financial transaction, although Yankee spokesman Howard Rubenstein said that it was a 50-50 partnership. For that to happen, however, the Nets almost certainly would have to make a substantial cash payment to Steinbrenner, experts said.

The Nets' three lead investors paid $150 million for a two-thirds stake in the franchise, pegging the Nets' value at about $225 million. Estimates of the Yankees market value are at least twice that.

It is no secret that Steinbrenner has been searching for a ways to turn his investment in the Yankees, which he bought with partners for $10 million 26 years ago, into cash. When he inked the 12-year, $486 million cable deal with Cablevision in 1986, he obtained a loan for well over $100 million from NationsBank Corp. at the time, said one sports banker.

But now that he no longer has his ship-building company, the Yankees are his sole asset. So obtaining bank financing secured by a new media deal may not have been as clear an option.

Also investing in the new company will be New York real estate developer Tishman Speyer Properties and an investor group led by Allen and Co. Sitting on the new company's board of directors will be Steinbrenner; Nets owners Lewis Katz and Raymond Chambers; Bill Cosby, the comedian who owns a small part of the Nets; Jerry Cohen, the former Nets owner who still has a share of the team; Lester Crown, chairman of Henry Crown and Co. of Chicago; Donald Keough, chairman of Allen and Co.; Thomas Murphy, former chairman of ABC and chairman of Save the Children; Jerry Speyer, president and CEO of Tishman Speyer; Rubenstein; and Harold Steinbrenner and Stephen Swindal, Yankee general partners. Others will be announced later.

Any merger would have to be approved by both Major League Baseball and the NBA.

"George has kept me very much abreast of this, but from what I've seen so far, it's really much too early to comment on it," said Bud Selig, commissioner of baseball. "I think there are still a lot of aspects of it to be worked out."

According to a Yankees representative, Steinbrenner began speaking with the Nets more than a year ago, before Katz and Chambers bought the team.

Steinbrenner had lunch at a Manhattan restaurant with his representative, Rubenstein, and Cohen, who was the Nets owner at the time.

The two owners became friendly, and Steinbrenner later in the year was introduced to Katz and Chambers, Rubenstein said. Rubenstein said the owners would continue to operate their respective teams on their own, dealing as a tandem when it benefited them.

"All options are open," Rubenstein declared of YankeeNets.

"But it doesn't necessarily mean an end to negotiations with Cablevision," said John Mansell, a cable analyst with Paul Kagan Associates. "They could still cut a deal or spin the Nets off."

For the Nets, sponsorship and TV revenue from their Fox Sports deal has been slight.

But with the Nets' sponsorship and TV rights being packaged with the Yankees, that could quickly change.

"I think this is a real coup for the Nets," said Ed Snider, a close friend of Katz and chairman of Comcast-Spectacor, which owns the Philadelphia 76ers and the Flyers. "They really had zero leverage."

How the two managements will coexist is another matter. The Nets ownership is donating 38 percent of team profits to New Jersey inner-city charities and has committed to moving the team to Newark.

By contrast, Steinbrenner, nicknamed the Boss for his autocratic style, has badmouthed the Bronx and revolted against Major League Baseball with his $95 million sponsorship agreement with Adidas.

"Are they going to truly be merged, or are they going to remain separate in most ways?" Kasten asked. "You've got one big asset [in the Yankees] and one asset that's not as big, so the obvious question is who owns what?"

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