Rogers Communications Inc., Canada’s top wireless firm, is set to renew its 12-year broadcast deal with the National Hockey League for $11 billion (US$7.7 billion), according to a report in Sportico. The shares dropped.
The agreement is worth more than double the previous $5.2 billion deal that Rogers signed in 2013. That contract gave Rogers national broadcast rights, including to the valuable Hockey Night in Canada package of games that airs on Saturday nights.
Rogers declined to comment. The company’s shares fell 5.9 per cent on Tuesday to close at $36.17 in Toronto, reaching their lowest intraday level since 2012.
The drop was also driven by a downgrade on Tuesday from Bank of Nova Scotia analyst Maher Yaghi, who lowered his rating to sector perform without citing the NHL deal. Yaghi pointed to the lagging Rogers Bank business, which his team called a “significant drain” on Rogers’ cash flow over the past two years. He added that the costs to finance the new Rogers Bank credit card more than offset the company’s efforts to reduce wireless churn.
Cash flow concerns led TD Cowen’s Vince Valentini to cut his price target for Rogers by two Canadian dollars to $62 on Tuesday. His team’s analysis suggested cash flow would be negatively affected by “increased customer adoption of zero-interest device financing over four years on Rogers Bank credit cards.”
As for the NHL deal, investors are already wary of Rogers’ balance sheet and funding headwinds, “so we could see some short-term weakness in the stock if terms of this contract renewal are not clarified soon,” Valentini said in a separate note Tuesday. “But once the dust settles, we do not expect this rights renewal to be either a negative for Rogers, nor an overly material event.”
Rogers incurred less than $3 billion in operating costs from the original deal, Valentini estimated. The company sold a portion of its rights to others, including TVA Group Inc., a French-language broadcaster in Quebec.
National Bank of Canada analyst Adam Shine said there was likely little competition among media firms for NHL broadcast rights, and said he’s watching to see if Rogers brings on partners to share costs.
Shine suggested the NHL deal would increase the value of Toronto’s hockey team, the Maple Leafs, which Rogers partly controls through its 37.5 per cent stake in Maple Leaf Sports & Entertainment Ltd. He also noted that sports content resonates the most with viewers and advertisers.
“Still, escalating costs of premium sports content is sure to lead to material hikes in the price of Sportsnet subscriptions at a time when streaming costs are steadily rising and aggregating to sums that had previously triggered cord-cutting and cord-shaving among linear TV subscribers,” Shine said.
Rogers’ sports portfolio also includes the Toronto Blue Jays baseball team. In September, the company said it would purchase BCE Inc.’s stake in MLSE, which owns the Maple Leafs and the Toronto Raptors basketball franchise.
Stephanie Hughes, Bloomberg News
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