The Decibel - The behind-the-scenes look at how Rogers took over Toronto sports

Episode Date: September 24, 2024

A set of rivals came to an unexpected agreement recently. Rogers Communications Inc. bought BCE Inc.’s 37.5-per-cent stake in Maple Leaf Sports & Entertainment – the umbrella company that owns the Maple Leafs, the Raptors, the Argos and Toronto FC – for $4.7-billion. The deal makes Rogers the majority owner of all of Toronto’s major professional sports teams. Andrew Willis a columnist and reporter for The Globe and Mail’s Report on Business and he explains how Rogers has the money to do this, why Bell sold their stake and how one day investors may be able to buy their own stake in their favourite sport team. Questions? Comments? Ideas? Email us at [e-mail]

At 8.30 a.m. last Wednesday, two rivals sent out press releases about each other. I got a heads up from Rogers that something was coming prior to the announcement. Andrew Willis is a reporter and columnist for the Globe's Report on Business. And the rivals who sent out those press releases were Rogers and Bell. I was gobsmacked that this was Bell giving up Maple Leaf Sports and Entertainment. I have talked to the Bell executives for most of my career. As recently as 18 months ago, they said there was absolutely no way they'd ever sell control of the Leafs and control the Raptors games.

And yet, here we go. The deal was on. This deal is for Rogersgers to buy Bell's share in a company called Maple Leaf Sports and Entertainment, also known as MLSE. It owns some of the biggest sports teams in Canada, the Toronto Maple Leafs, the Raptors, the Argos, and Toronto FC. In buying out Bell, Rodgers will become the majority owner of all of them. On a major transaction like this, everybody wants to get their view of reality out. So I've got advisors, I've got communications people phoning me, I've got briefings from senior executives

on and off the record. Rogers, to their credit, gave us Tony Staffieri, their CEO, on the record to explain the logic of the deal. Rogers agreed to pay $4.7 billion for Bell's 37.5% of MLSC. That puts the entire organization's value at $12.5 billion. This is a really big deal. This sets a high watermark for the value of all Canadian sports franchises. So the money part is really important. But also these are, I would argue, teams like the Leafs and the Raptors, they're what bind us together as a country. But how can Rodgers afford this? Why is Bell selling? And what does all this mean for fans?

Andrew has been reporting out the story all week, and he's here to give us a behind-the-scenes look at how this deal came together. I'm Maina Karaman-Wellms, and this is The Decibel from The Globe and Mail. Andrew, thank you so much for being here today. Thrilled to be here. This is a great story. Yeah, and this is the first time we're having you on the show, so this is really exciting. So I am honored. So let's just start from the very beginning of the story here of how this deal came together. Do we know how it started? Like, did Rogers go to Bell or vice versa? What happened?

I'm going to take you back 12 years very, very briefly. Okay. The Ontario Teachers Pension Plan was the controlling shareholder at Maple Leaf Sports and Entertainment. They wanted out. So Bell and Rogers were both vying for Maple Leaf Sports and Entertainment. At that point, the CEO at Rogers, a fellow by the name of Nadir Mohamed, decided it was no use blowing their brains out just to beat Bell. Why not partner with Bell? Both companies could have the content and both companies could share and not overpay for the asset up front. So they did a deal with the Ontario teachers and that deal valued the whole franchise at $2 billion.

12 years later, Bell's in a different situation. So Bell decided last July, so July, 2023, that if Rogers could pay them enough money, they would exit Maple Leaf Sports and Entertainment. But Bell in doing so wanted a few things. One of the most important things for Bell was continuing to have access to Leafs games and Raptors games for their sports network, which is called TSN. And the moment that that call came in, it was game on because Rodgers has always wanted to control these assets. And it's important to remember Rodgers already owns 100% of the Toronto Blue Jays. So they are kind of the dominant player in Toronto sports to start with. There was just a split in

the two companies' strategies over the last 14 months. And Bell got this whole thing rolling by reaching out to Rogers and saying, look, we are a seller. Okay. So Bell reaches out to Rogers last summer, it sounds like then. And then what happens? So what happened was these things happen in a very tight group. And the original phone call was Mirko Bibic, who's the CEO at Bell. He's talking with his opposite number at Rogers, Tony Staffieri, an entirely separate thing. I think they were talking about actually some legal issues between the two companies. Mirko says, by the way, we've had a shift in strategy here. We need to raise some dough. We're sellers of Maple Leaf Sports and Entertainment at the right price. Are you interested? Tony says, very interesting. He says, let me check with my

board. Let me check with my people. Comes back within hours. Comes back actually the very next morning and says, yeah, we're interested. And then things got interesting. So Rogers is known for six months. Bell might sell. There's another meeting on another subject between Bell and Rogers. And during that meeting, Tony Staffieri, the CEO at Rogers, he's taken the time to print out a one-page, they call it a term sheet. It's basically a one-page offer saying, here's what we're willing to guarantee you on things like future games, future sports content, and here's the price we're willing to pay for your stake in MLSC.

And he slides that one pager across the table to Mirko Bibic during the meeting and takes Mirko completely by surprise. Wow. So that March meeting became the catalyst to getting a deal done. And then it took six months to negotiate from there. Let's just focus on this deal here a little bit longer here, Andrew. So it sounds like in August, they signed the deal. And then last week, this was announced to the public, right? So Rogers bought Bell's 37.5% stake in MLSE for $4.7 billion. Let's talk about that price, right?

What does that mean in terms of the total valuation of Maple Leaf Sports and Entertainment? Sure. So if Bell's stake is worth $4.7 billion, then the entire company is worth $12.5 billion. So it's a six-fold increase from what these franchises were valued at back when Rogers and Bell did the original deal. Huge then, wow. Yeah. So when this deal closes, and it's expected to close by the middle of next year, Rogers will control 75% of the company. So who controls the other 25%? It's a billionaire named Larry Tannenbaum who made his money in obscure industries like paving. And he actually was an investor in cable and sold some assets to Rogers years ago. So Larry's now

sitting there. Larry's been around since day one. He helped buy the company from Harold Ballard, who was a terrible Leafs owner, but we won't go into that. He helped merge what was Maple Leaf Sports and Entertainment without basketball into the Raptors. He was there with the teachers. He has always been around. The next stage of this deal will take place in about two years' time because Larry Tannenbaum years ago agreed that he would give Rogers the right to buy his shares in 2026. So at some point, Larry Tannenbaum is expected to get a massive check. The floor price right now would be about $3 billion. And he will eventually also sell to Rogers. There is a path forward to Rogers owning 100% of all the professional

sports in Toronto. Very interesting. It's a pretty unique group of assets. And just to be clear, this current deal with MLSC, is this a done deal for Rogers buying Bell Stake? Are there regulatory hurdles? What do we need to know here? Yeah, there's a couple of groups that need to check off on this. We believe it's going to be pretty straightforward. But first of all, all the professional sports leagues have to say yes. This is a very exclusive club. So the NHL, the NBA, the CFL, they've all got to sign off on Rogers moving to 75% control. Rogers is already in the tent. So I don't think that's going to be a big issue.

And then there are two government bodies that need to be heard from. That's the Competition Bureau and the CRTC, which controls broadcasting. And again, it should be straightforward. I say that, though, with some hesitation because the Competition Bureau tried to block the Shah takeover by Rogers. Eventually, Rogers prevailed in court, but it took a very long time. So the competition bureau may have something to say, not so much about the sports, but about Rogers' control of all the entertainment venues. So this'll be an interesting regulatory process. Yeah. All right, Andrew, let's talk about how Rogers is paying for this. I think this is an

interesting point because as you brought up, they acquired Shaw last year and they took on nearly $20 billion of debt in order to do that, right? So how did they convince Bell that they had the money to actually make this purchase? Well, it was part of the negotiations. And Rogers has got a couple of different audiences it has to please at the same time. They've got credit rating agencies who are saying, wait a minute, are you going to be borrowing to buy MLSC? Because in which case we're going to knock down your credit rating and that raises your interest costs. So Rogers is saying, no, no, no, we're not going to take on more leverage. And this gets to the idea of Rogers inviting billionaires or pension plans in as co-investors in all their sports properties. That's what Rogers is saying is, look, obviously 4.7 billion is a lot of money. We're a really big telecom company.

We're paying down debt aggressively, and we're going to invite in some minority partners. That's where part of the cash is coming from. So like literally other billionaires who want to buy part of the sports team kind of thing? There is a – Tony Staffieri, Roger, said there's a lineup of individuals who would love to own a piece of Maple Leaf Sports and Entertainment. The other part of this is Rogers actually generates a huge amount of cash every year. All the cell phone fees we pay, all the cable fees we pay, they're generating 3 billion bucks a year in cash. And they are selling some assets right now. This is out of the Shaw deal. Rogers is selling what's known as a data center's business. It's a business,

basically computer servers in a room. They've owned that for a few years. They're going to get rid of that. They're going to sell some of their extra real estate. So Rogers has lots of different levers to pull to raise money. And Rogers' promise to its lenders and to, frankly, to the shareholders is we can get this done in a sensible way that's not going to mean our credit ratings are affected. They're going to do this deal by selling assets, by bringing in outside investors, not by borrowing more. This will be a complex deal. But right now, Rogers has been able to do this on a sort of a trust me basis. We're going to have the money, $4.7 billion when this deal closes, hopefully sometime next year. Okay. All right. So that's Rogers'

side of this deal then. Let's turn to Bell. Why does Bell want to sell? I don't think Bell did want to sell. Bell's got itself in a pickle. Look, Bell has invested heavily in 5G networks. That's got itself in a pickle. Look, Bell has invested heavily in 5G networks. That's good for Canada. They've invested in fiber to the home. So you and I can watch all the movies we want and we can game or whatever we want to do at home. The money that paid for those systems upgrade, a lot of it was borrowed. So Bell went into this last interest rate cycle with a lot of debt on their books. And when interest rates started rising, Bell's interest rate costs started jumping up. And Bell, like Rogers, generates about $3 billion a year in free cash. That's an important number because Bell is paying

out $3.5 billion a year in dividends on its common shares. And that Bell as a stock is owned probably by more Canadians than any other company. It is the classic, we call them the widow and orphan stock. People rely on the Bell dividend. Bell would never want to cut the dividend. Their stock price would fall dramatically and Bell takes that obligation very, very seriously. And so not only are they paying the dividend, but for 16 consecutive years, they've raised the amount of money they give out to their shareholders. If you have an RRSP, you've probably got Bell in your RRSP and you probably are counting on that dividend. So for Merkel Bibic, the boss at Bell, preserving the dividend was probably job one. Holding onto

sports teams was not job one. So when he started to think, okay, how do I pay down my debt? How do I cut my interest costs? How do I keep that 16-year track record for raising the dividend? Selling the Leafs and the Raptors became an easy decision. By the way, Bell stock jumped on this news. A lot of investors thought they were doing the right thing by getting out of sports. Okay. That's an interesting point too. I guess I just want to make sure I understand this though, Andrew, because you're talking about how Bell needed to sell because they have an intense debt that they need to pay down. I think it's like $39 billion in debt, right? Yes.

But Rogers also has similar levels of debt, right? Don't they have just a bit over $40 billion in debt, like almost equivalent here? Why is Bell selling and Rogers is buying? Rogers positions itself differently with investors. Rogers does pay a common share dividend too. It's not nearly as big as Bell's as a percentage of the stock price. And people don't buy Roger's stock to get the dividend. It's sort of secondary. Rogers has never sold their stock based on this idea that every year we're going to keep raising the dividend. We're going to keep giving you more income. So in stock market terms, we talk about Rogers as a growth play, whereas Bell is a dividend play.

As a result, Rodgers just doesn't have this dividend issue. It is more important to Rodgers in their view to own the sports content than to have all this extra cash on the balance sheet. We'll be right back. All right. So we've established how this deal came together and the reasons why Bell is selling. Let's look at the reasons why Rogers is buying now, Andrew. I guess if we focus on the business strategy here, can you just list the ways? How is Rogers going to make money off of this? Yeah, Rogers really believes in the future that they need content to help sell their devices. And they're being sensible of this. They're not buying this as fans.

Rogers, for example, has had the NHL contract for a number of years. They paid a lot of money for it. They paid over $5 billion for this long-term contract to show NHL games, but they sold part of that contract to Amazon, who's going to stream Monday Night Hockey starting next season. So this is a broadcasting contract you're talking about. Broadcasting contract. But what Rogers believes is that by owning this massive sports platform, they're going to be better able to sell more cell phones, to sell more internet services, because they're going to be able to offer sports as a key part of that.

And it's also important to keep in mind, Rogers is a major broadcaster in this country. They own a sports network, Sportsnet, and they need to feed that content into it. And the Toronto Blue Jays games, for example, are 160 nights a year of guaranteed content that you can't get anywhere else. So the secondary story here, and this will all play out probably over the next three to five years, is that over time, Rogers believes they can take all their sports assets, the Jays, the Raptors, the Leafs, plus the venues, plus Sportsnet, plus their network, and create one massive company that they will then sell to investors. So that's called a spin out. They're talking openly about it today, but it'll probably take a couple of years for

Rogers to get 100% control of Maple Leaf Sports and Entertainment, meld it with the Jays. But at some point, I think we're going to see a new public company in Canada owned either by public investors who would be invited to buy in through an initial public offering or with the pension plans and the other wealthy individuals who will buy portions of Rogers sports assets, create this new company and justify Rogers spending with Bell. Can I just, can I make sure I understand this here, Andrew? Okay. So this, cause this is an important point. You mentioned earlier that Rogers has the potential to actually buy out Larry Tannenbaum for the other partial owner of MLSC right now. He owns 25%.

So once Rogers owns 100%, you know, in a few years, this could happen of MLSC. What is the possible business play there? So Rogers really believes there's enormous value to a unique set of Toronto-based sports teams. It's the content, it's the entertainment venues, it's the concerts that take place in the Rogers Center or over in Scotiabank Arena. There's this massive company would, first of all, generate an enormous amount of cash in a good year, especially when the teams go to the playoffs. So that's a good business to own. You would be able to take advantage of this rising valuations on sports teams. So that's a great gain in terms of Rogers growth strategy. Um, and then you've got this ability to

use the content to help sell your other telecom services. So Rogers here is, is betting that sports can be a key part of a telecom and communications company going forward. The jury's still out as to whether that's going to work, but it's a logical assumption. And if they are able to sell a portion, a minority portion of Maple Leaf Sports and Entertainment and their other sports assets down the road, it'll totally justify the 4.7 billion they're spending right now. So it's a bit of a bet then for the future. It is a bet. And look, all businesses are a bet. You're trying to guess at the future. And Roger's vision of the future is one where we're still signing up to watch sports.

We still show up to watch the Leafs games, to watch the Raptors games. They can sell advertising around that. They can charge for those services and they'll be able to sell it to streaming services plus to conventional broadcasters. It's not the worst bet in the world. I anticipate still watching Leafs games in 10, 20 years times, and hopefully not being as heartbroken as I am by the current version of the Leafs who can't seem to win a Stanley Cup. You're not alone with that, I think. Yeah. Okay. So to sum up, basically, the idea is that there would be kind of a separate company, right? Like if they owned all of MLSC, Rogers could turn that into a public company with an IPO, an initial public offering. Is that right? Yeah. Rogers has consistently said, over time, we will take all our sports assets, all our broadcasting assets, and create this

super company, this super sports company. And yeah, either the public will be able to buy that or pension plans and wealthy individuals will be buying that. But that's the payback for this massive investment they're making in sports. Okay. All right. So let's actually talk about the effect of this on the sports teams, because we've talked about the business side of it, but let's focus on the sports for a bit, because this will mean that Rodgers will gain majority control of the Maple Leafs, right? The Raptors, the Argos, Toronto FC, which is the soccer team. What will this mean for sports fans? Brandon Shanahan, who actually runs the Toronto Maple Leafs, his line was, look, the only reason that Rogers is doing this is because they believe in a winning team. And so

our job at the Toronto Maple Leafs, the Raptors job, it hasn't changing at all. They're going to be asked to win championships, bring eyeballs to the team, you know, create a buzz around sports in Toronto. So to sort of sum it up, it's still going to be a huge amount of money to get to a Taylor Swift concert or to go see a Leafs game. That's not going to change because that's basic supply and demand. There's these live events are going to get more expensive, but the broadcasting rights are going to get spread more and more widely. I think it's going to get easier and easier to view games wherever you want to on whatever device you want to. I think it's good that you brought up Taylor Swift because that's an important part of it too, right? It's like, yes, sports games, but also

massive concert venues in cities like Toronto. Yeah. With this deal, Rogers will be the owner of all the major venues in Toronto. And that's going to have an impact on ticket prices. I mean, Taylor Swift plays the Rogers Center. Maple Leaf Sports and Entertainment as an independent entity used to be able to kind of work in competition with the Rogers Center to see who got these backs. That's going to be an interesting part of the regulatory process here is how does a regulator make sure that there's still competition on venues? Because Rogers is going to own them all, all the big ones. Yeah. I mean, I think it's also important to bring up that Rogers also recently became the top sponsor of TIFF, right? Toronto International Film Festival.

And that's a title that Bell used to hold. So, like, Andrew, how does that fit into this puzzle as well? I mean, look, that was opportunistic on Rogers' part. The TIFF sponsorship is part of the larger back and forth between Rogers and Bell as they redefine their strategy. And Rogers is obviously making a huge bet on entertainment and sports as a key to how they're going to brand that company. So just in our last few minutes here, let's circle back to the valuation that we talked about off the top. So these teams are now worth a combined $12.5 billion, a lot of money. Is this the peak in terms of valuation of sports teams?

It's a really interesting question around peak sports. I asked Tony Staffieri at Rogers that, and his response was really interesting. He said, you know, we've been talking about peak sports for years. And he said, but there's only 30 NBA teams. It's only 32 NHL teams. There's a long list of people who want these teams. And all I can say is at some point, we're going to look back and say, oh my gosh, yeah, that was where things peaked. I don't think it's today. If you looked at the Toronto Raptors, they came into the league and John Bethoff and Alan Slate, two executives who no longer own the team, they paid $125 million to own the Raptors. This is back in 1994. And we wrote in the global mail and that was crazy. That was way too high. And you know, there's not an audience for basketball in Toronto.

Well, of course, we were wrong in saying that they were overpaying because the Raptors are now worth $4 billion. Wow. So are we at peak sports? We got to be close. I mean, there's a level at which these teams just don't justify $5 and $6 billion valuations. But the new broadcasting contracts are worth billions and billions of dollars. The NBA just signed a $77 billion broadcast deal with three broadcasters. So it's mind boggling to think that the Leafs and the Raptors are worth $12 billion,

but there are numbers to support it in terms of the broadcast revenues and the number of eyeballs that want to see these teams. Before I let you go here, Andrew, I want to talk about strategy on a personal level for the head of Rogers, Edward Rogers. It was his father who bought the Toronto Blue Jays. And now, of course, after a very public fight with other members of his family, which we have talked about on the show with our colleague Alexander Posadzki, now Edward Rogers is essentially buying up the rest of Toronto's sports teams, right? So I guess I just wonder, is there like a potentially a personal dimension to this deal for the head of Rogers? I think Edward Rogers, like a lot of sons of founders, has always tried to deal with his larger than life dad.

And Ted Rogers died back in 2008. I guess the difference here is Ted Rogers was never a big sports fan and was able to buy the Blue Jays at a bargain basement price. Edward Rogers, the son is paying full price to buy the Raptors and the Leafs. He's buying these teams because he sees the ability to create over the longterm to create a really large, really special sports company. So Edward Rogers ambition matches his father who made big, big bets on cell phones and on cable back when a lot of us didn't see the wisdom of it. So, yeah, no, it's interesting to watch the son of a founder kind of find his own feet on this deal. And that's certainly what's happening with Edward Rogers.

Andrew, it's so great to have you here. Thank you for doing this. Thrilled to do it. That's it for today. I'm Mainika Raman-Wilms. Today's episode was edited and mixed by Ali Graham. Our producers are Madeline White, Michal Stein, and Ali Graham. David Crosby edits the show.

Adrienne Chung is our senior producer, and Matt Frainer is our managing editor. Thanks so much for listening, and I'll talk to you tomorrow.