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The big BAM theory

The big BAM theory

By Eric Fisher, Staff Writer

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The dark circles were back under the eyes of Bob Bowman, MLB president of business and media. That meant another landmark deal was done, this one easily one of the biggest in his nearly 16 years at baseball, and perhaps the toughest yet to close.

It was the day after Disney, parent of ESPN, announced its $1 billion investment for a one-third stake in MLB’s BAM Tech, the spinoff from MLB Advanced Media serving outside entities that Bowman built from scratch.

It also meant the end of a nearly yearlong grind of negotiations, calls and deal points, and the drafting of literally 37 different contracts covering everything from content rights to Disney’s option to ultimately acquire a controlling stake of BAM Tech.

BAM Tech clients

HBO
NHL
PGA Tour
WWE
Blaze TV
120 Sports
Ice Network
Minor League Baseball
Sony
ESPN

Source: SportsBusiness Journal research

“This one was really hard to put together. Nobody’s done anything like this before, and it’s a very nuanced deal,” said Bowman, a principal architect of the deal on MLB’s side, working closely with Kevin Mayer, Disney senior executive vice president and chief strategy officer. The pair were in contact on essentially a daily basis in the final weeks of the construction of the deal, a massive agreement that will establish how Disney develops and distributes digital content as well as MLB’s position in the future of media.

For Bowman and MLB, the deal represents another milestone in their effort to build a technology juggernaut that powers consumer-facing digital operations for the likes of HBO, Sony, the NHL, PGA Tour, WWE, and now a crown jewel in Disney.

Non-sports Disney efforts will be part of the relationship, but lying at the heart of Disney’s investment is a planned ESPN-branded multisport, over-the-top digital network that is set to debut by the end of this year.

The move by Disney and MLB beyond the single-sport networks that dominate the OTT sports media landscape takes aim at a difficult, moving target. For the venture to work, it must provide sufficient value and programming to garner subscription buys, while also honoring existing media contracts and business models that ESPN, MLB and their various partners have.

The much anticipated deal has vast implications for the entire sports industry.

“You have to be really careful. More is not always more, and you want to have a good amount of content, enough content, but not too much,” Bowman said. “In some ways, we’re almost trying to replicate ESPN of 20 years ago, where they had a good amount of programming, but not everything.”

Specific programming details for ESPN’s OTT network have not been disclosed. But it will include MLB, NHL and PGA Tour coverage, along with college basketball and football, tennis, rugby and cricket. Bowman said the network will include live games from MLB, NHL and the PGA Tour, each entity already being supported by MLBAM and BAM Tech, in addition to studio-based programming.

But announcing the deal last week, Disney Chief Executive and Chairman Bob Iger said protecting the traditional cable bundle and the content rights that support it remains a critical company priority, even as that bundle faces an array of challenges.

“The goal is not to take product off ESPN’s current [linear TV] channels, but to use sports and product that ESPN has already licensed that’s not appearing on the channels,” Iger said.

ESPN, as part of its rights renewal with the NBA nearly two years ago, indicated plans to develop an OTT basketball service with that league. Details on that project have been scant, however, and the NBA is not thought to be in the initial programming mix for the new multisport product.

ESPN, meanwhile, has insisted for some time that all of its new rights agreements contain wide provisions for the deployment of content on current and future platforms. Because of that, a deeper dive into ESPN’s programming vault for events not now televised on the main networks is likely.

No additional rights acquisitions are planned immediately to support the new network, Iger said, but they could be considered at a later date.

MLB discussed potential BAM Tech investments from variety of entities. WME-IMG and private equity firm Silver Lake Partners were among those seriously looking at a BAM Tech investment besides Disney. But with the Disney deal now done, MLB Commissioner Rob Manfred said finding additional investors is not a priority.

“I don’t necessarily expect to have more partners,” Manfred said. “This one was a lot of work to get done, and we feel really good about where BAM Tech is now positioned and its prospects for growth.”

The completion of the Disney investment also clarified the equity stake that the NHL holds in BAM Tech. As part of a rights deal struck a year ago, the NHL received a 7 percent to 10 percent stake in BAM Tech. That range was based roughly on a $300 million value for that piece of equity, and with the $3 billion valuation for BAM Tech now in place, the NHL’s position will be at the high end of that range at just shy of 10 percent. That in turn leaves MLB owners with slightly more than 57 percent of BAM Tech and Disney at 33 percent.

Disney’s $1 billion BAM Tech investment will be paid in two installments, now and in January. There will be an undisclosed split of the proceeds between returning money to BAM Tech to develop the business, and a distribution to the 30 MLB team owners that collectively own MLBAM. Team owners unanimously approved the Disney transaction in a conference call last month.

But that distribution of funds is not expected to result in a huge payout to teams, MLB and team executives said. Even if all $1 billion from Disney was split among the team owners, it would amount to $33.3 million a club — a sizable chunk of money, but not something that would by itself radically realign the sport’s economics.

“The goal and preference is to keep BAM Tech growing and building value, so no, I wouldn’t expect a big distribution now from this,” said Larry Baer, San Francisco Giants president and chief executive. Baer sits on MLB’s business board of directors that oversees MLBAM. “What this deal does is really put the foot on the accelerator for BAM Tech. There were other scenarios to do a more financially oriented deal, but this is a true strategic partnership.”

The Disney investment is not expected in the short term to prompt additional staffing for BAM Tech or a change in their facilities in New York and San Francisco. Development staffs at BAM Tech will also work on Disney projects such as the forthcoming ESPN OTT network.

Several ESPN executives, meanwhile, have already touched the deal. Marie Donoghue, recently promoted to executive vice president of global strategy and original content, played an extensive role in the agreement’s development along with Mayer and ESPN President John Skipper, and chief technology officer and executive vice president Aaron LaBerge was an active figure during due diligence.

Donoghue is also expected to lead ESPN’s relationship with BAM Tech going forward.

Ultimately, BAM Tech will begin to lessen its dependency on joint ancillary functions with MLBAM in areas such as legal, finance and human resources.

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