Why Larry Tanenbaum’s MLSE sale is likely to please other team owners
As Larry Tanenbaum cashes in a portion of his stake in Maple Leaf Sports & Entertainment for $400 million, other team owners — and current partners BCE and Rogers — will likely be cheering him on from the sidelines, sports business experts say.
With reports that Tanenbaum is planning a 20 percent stake in his sports holding company Kilmer Sports Inc. own franchises skyrocket.
The deal puts the total value of MLSE – which owns the NHL’s Toronto Maple Leafs, the NBA’s Toronto Raptors, MLS’s Toronto FC and the CFL’s Toronto Argonauts – at $8 billion.
That, says sports analyst and adviser David Carter, trumps all other considerations, including including another stakeholder in an MLSE ownership group that already includes Rogers Communications and BCE.
“If the house next door is about to sell for a huge premium, you really don’t care how many owners sign up for that mortgage. What you really care about is what that does to the value of your home,” said Carter, president of the LA-based Sports Business Group.
BCE and Rogers each own a 37.5 percent stake in MLSE and had the right to purchase Tanenbaum’s shares. Kilmer Sports owns 25 percent of MLSE.
According to a report in the Globe and Mail, BCE and Rogers have the right to buy out Tanenbaum’s remaining stake — as well as OMERS’s share — within three years. BCE, Rogers, Kilmer, OMERS and MLSE declined to comment.
The NHL, NBA, MLS and CFL must approve the transaction, as do Rogers and BCE.
In 2012, BCE and Rogers purchased a 79.5 percent stake in MLSE for $1.32 billion from the Ontario Teachers Pension Plan.
While professional sports leagues once favored a simpler ownership structure for their franchises, the high price tags fetched by big-market teams are largely making the days of ownership by one company or one person a thing of the past, Carter said.
“The numbers have gotten so big that it has become really, really hard for the old-school sole proprietor to write a check for that size… The need to have a handful of minority owners has become really critical, purely because of asset value,” said Carter, who noted that team owners sometimes borrow against the value of their teams.
Even if other team owners didn’t like the new ownership structure, they’d probably keep their noses up because of the numbers, Carter added.
“There is a little trade-off between deal structure and overall franchise value. For a high valuation, they would be more flexible,” Carter said.
In December, the NBA’s board of directors approved a rule change opening up team ownership to institutional investors such as pension funds and sovereign wealth funds. In 2020, the NBA let private equity funds take ownership stakes. (A league spokesperson was unable to immediately clarify why OTPP was allowed to control MLSE before the 2022 rule change.)
Franchise values have gotten so high that BCE and Rogers may have hesitated to exercise their rights to buy the stakes OMERS is getting, said Scott Rattee, a telecommunications stock analyst for DBRS Morningstar.
“It may have been difficult for them to justify spending the money. They are now both focused on their networks,” said Rattee, who noted that both companies have divested media and entertainment assets. “It’s a very different environment than when they bought this.”
In 2011, when Rogers and BCE unveiled the deal to come together to buy a majority stake in MLSE, both companies touted the deal as a way to increase viewership to their respective TV, radio and mobile networks, as well as to their online media properties. .
Since then, both companies have slashed their spending on media assets, including recent job cuts at BCE-owned Bell Media.
“I don’t think they’re interested in putting any more money into owning more of these assets right now,” Rattee said.
Still, he added, that doesn’t mean the telecom giants are necessarily looking for an exit strategy.
“These are very unique, desirable properties and they are very valuable, so I don’t think they would mind owning them,” Rattee said.
And, said BMO analyst Tim Casey, neither company would likely want to become second fiddle to their arch-rival if the other bought a larger stake in MLSE.
“We find it difficult to contemplate a scenario where BCE or Rogers would allow the other party to own a senior equity position or gain a path to control,” Casey wrote in a research note after news of the deal first broke. made on the sport. business news site Sportico.
