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Volume 21 No. 6
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BAMTech produces big payoff

MLB teams to get about $50M each from Disney’s deal for controlling stake

Major League Baseball club owners are looking at a giant payday of about $50 million each thanks to the latest Disney deal to acquire a controlling stake in BAMTech.

Multiple baseball sources said the vast majority of the funds from last week’s $1.58 billion deal, in which Disney upped its equity stake in BAMTech from 33 percent to 75 percent, will be returned to team owners. The exact amount is yet to be determined, and it might be early next year when the money is actually distributed. But the share for each club could surpass $50 million.

“There will be a distribution of the funds to the owners,” said an industry source speaking on the condition of anonymity as the plans for the money are not yet finalized.

That $50 million amount is similar to a central fund payment clubs receive from the league each year representing a share of national revenue such as broadcast rights, licensing and sponsorship. The forthcoming BAMTech payout was described by ownership sources as “very impactful.” The $1.58 billion sum Disney paid for the additional BAMTech equity, representing one part of a spinoff of the league’s digital operations, is equal to about 15 percent of MLB’s $10 billion of total industry revenue last year, an indication of just how large the deal is. The deal values BAMTech at $3.76 billion.

First Look podcast with discussion of the BAMTech/Disney story:

MLB’s Bob Bowman led four weeks of negotiations.
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Disney’s Bob Iger made his intentions known to MLB.
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The planned distribution of the BAMTech funds differs from last year’s initial $1 billion deal in which Disney acquired a third of BAMTech, created by MLB Advanced Media to support third-party streaming operations and established as a stand-alone entity in 2015. That first deal involved an undisclosed split of funds — there was a payout to team owners but also an investment back into BAMTech to grow the business. This time, more money goes back to the owners and no money goes back to BAMTech.

Assuming the latest disbursement of the BAMTech money goes forward as expected, “this will be one of the largest one-time special payouts to teams in any sports league ever. I don’t believe there has ever been a distribution quite like this,” said Marc Ganis, a Chicago-based consultant who works with MLB teams.

NFL owners are sharing more than $1.5 billion in relocation fees from the Los Angeles Rams and Chargers and Oakland Raiders, with each of the non-relocating teams getting about $55 million. But unlike the BAMTech proceeds, those NFL fees will be paid out in installments over multiple years, and didn’t involve the creation of an entirely new business.

The BAMTech funds are not expected to have an immediate impact on player salaries. The new labor deal contains luxury tax thresholds for each year between now and 2021, with penalties for exceeding those thresholds that include heightened surcharges and reduced draft positions.

Unlike that first Disney-BAMTech deal that involved nearly a year of often-arduous negotiations, the most recent agreement went much quicker and involved about a month of active talks. Disney Chairman and CEO Bob Iger reached out to MLB Commissioner Rob Manfred in late June, indicating his desire to exercise that option. That set off four weeks of negotiations between MLB’s president of business and media, Bob Bowman, and Kevin Mayer, Disney’s senior executive vice president and chief strategy officer. Manfred then presented the deal to team owners early last week prior to the formal announcement on Aug. 8. The transaction is slated to close in the fall.

Disney’s move paves the way for the debut of a long-discussed ESPN streaming-only offering early next year, followed by a Disney-branded over-the-top network in 2019, with both supported by BAMTech technology. The ESPN network is slated to include more than 10,000 live events per year, including MLB, NHL and MLS games, though specifics such as pricing have yet to be determined.

Disney’s acquisition of majority control of BAMTech does not have any direct bearing on MLB’s $5.6 billion rights deal with ESPN that runs through 2021 and covers the “Sunday Night Baseball” franchise among other inventory. There will be a daily out-of-market MLB game on the ESPN streaming network that involves a supplemental rights fee to the league. But even without a formal covenant on a future TV rights deal, the bond between MLB and ESPN is unquestionably tightened.

“We have a great partner in ESPN, and it obviously doesn’t hurt to make moves like this that only serve to help solidify that partnership,” said Larry Baer, San Francisco Giants president and chief executive officer, and a member of MLB’s business board of directors that oversees MLBAM.

Baer, among others around the game, marveled at the growth of BAMTech and the economic value and industry impact it has created so soon after its creation. Beyond Disney’s own plans, other BAMTech clients include HBO, WWE and the PGA Tour, among many others.

“This is a really impressive story, that we have had technologists working for baseball out of Chelsea Market [in New York] creating proprietary technology that has created this kind of demand,” he said.

With Disney now set to take majority control of BAMTech and that operation under the day-to-day management of chief executive Michael Paull, Bowman and other key lieutenants such as MLBAM executive vice president of business Kenny Gersh will refocus on baseball after being involved in both MLBAM and BAMTech, and MLBAM itself remains fully owned by the 30 MLB club owners. Until MLB’s planned move to a new midtown Manhattan headquarters in 2019, MLBAM and BAMTech will remain physically housed together, but the operations will be largely separate going forward.

“This continues that path of focusing exclusively on baseball and its fans and its products, and we anticipate better, deeper and more products for the 2018 season,” Bowman said.

The transaction leaves MLB with slightly more than a 15 percent equity stake in BAMTech. The NHL’s share, included as part of a larger digital rights deal with BAMTech struck two years ago, was unchanged at slightly less than 10 percent. NHL games will be on the planned ESPN streaming network, by virtue of the league’s digital rights held by BAMTech that were part of the Disney transaction. That means the NHL is slated to be back on an ESPN-branded network for the first time since 2004. NHL Deputy Commissioner Bill Daly said it was too soon to assess the impact of that. But he said the increased valuation of BAMTech was certainly beneficial to the league, with that stake now worth about $370 million.

“From an operational perspective and the day-to-day workings of the entity that we have a contractual relationship with, we don’t think that will change a whole lot,” Daly said.

Staff writer Ian Thomas contributed to this report.