After Rogers’ MLSE deal, Leafs-Raptors-Jays IPO close to a slam dunk, say analysts

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The acquisition of BCE Inc.‘s stake in Maple Leaf Sports & Entertainment for $4.7 billion this week could put Rogers Communications Inc. in position to create a standalone sports powerhouse including the Toronto Maple Leafs, Toronto Raptors and Toronto Blue Jays, which could eventually be spun out in an IPO, a move that analysts say might finally allow the company to get value recognition for the baseball franchise it has owned for nearly 25 years.

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“We expect that RCI (Rogers) will incorporate the Blue Jays into a sports and media structure, creating a three-franchise entity featuring teams from major sports leagues within one of the largest sports markets in North America,” said Desjardins analyst Jerome Dubreuil, one of several who see a sports IPO as close to a slam dunk.

Such a spin-off, Dubreuil said in a note, would “maximize the odds” that the value of the sports assets — in particular the Blue Jays, which some in the financial industry view as a stranded asset —  are reflected in Rogers’ share price.

It is understood that the Toronto-based telco has been mulling ways to have the value of the sports teams recognized beyond the lucrative broadcasting rights to games. That applies to the Blue Jays, in particular, which have reportedly been losing money for several years. Mark Shapiro, chief executive of the Jays, told the Globe and Mail in April that the team had been losing “a lot of money” due in large part to hefty player salaries. And, last year, he told the Toronto Sun that it had been “a pretty tough four or five years” for revenue and the Jays had “lost quite a bit” of money.

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With this week’s transaction, Rogers will become the controlling partner of MLSE, with a 75 per cent stake in the company that also owns Toronto FC and the Toronto Marlies, a minor league hockey club. Perhaps even more significantly, under terms of a shareholder agreement negotiated in 2012, Rogers will have the right in July 2026 to purchase the remaining MLSE shares owned by Larry Tanenbaum’s Kilmer Group, giving the telco full control.

Maher Yaghi, an analyst at Bank of Nova Scotia, said rolling the trio of leading Toronto sports franchises together could be a case of the whole being worth more than the sum of the parts.

“Down the road, we don’t see why the Jays couldn’t be integrated within the MLSE roster and the organization could then be IPOed at an even higher valuation than today’s valuation metrics,” he wrote in a Wednesday note.

MLSE alone has an enterprise value of $12.5 billion, based on the price paid for BCE’s 37 per cent stake, according to Dubreuil. While the Rogers’ purchase would bring its stake to 75 per cent, the company has indicated it will bring in private financing to keep debt ratios intact and Bay Street analysts anticipate that Rogers will land on a 50.1 stake when the deal closes next year.

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Dubreuil said the implied valuation of MLSE may not tell the whole story, since sports assets aren’t typically valued according to traditional metrics. Instead, he told clients, they tend to be sold based on “what a market participant is willing to pay, influenced by factors such as momentum, franchise success and market size, rather than solely on financial metrics.”

Factors such as prestige and the additional opportunities the attention on teams brings, tend to play into the mix too.

Both NFL and NBA teams set new price records based on sales last year, with the Washington Commanders franchise selling for US$6.05 billion in June, according to ESPN. The US$4-billion purchase price of the NBA’s Phoenix Suns and Mercury, meanwhile, was US$1.5 billion more than what the Brooklyn Nets fetched in 2019.

Even the Ottawa Senators, perennial NHL underdogs, managed to pull in a valuation of nearly US$1 billion in a sale last year, thanks in part to the promise of a sparkling new stadium.

For BCE, the decision to exit MLSE now, at a time when franchise prices are soaring, ties in with its general strategy of jettisoning non-core assets. The telco’s debt rating was downgraded to one notch above junk in August by Moody’s Investors Service.

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The blockbuster transaction will also reshape one of the more unusual boardrooms in corporate Canada. Bell has three directors at MLSE — including BCE chief executive Mirko Bibic — who are expected to step down if the deal with Rogers passes regulatory scrutiny. To help that along, the transaction included an agreement that gives BCE access to content rights for the Toronto Maple Leafs and Toronto Raptors on TSN, the sports television network it owns, for the next 20 years, allowing them to continue to broadcast games.

Industry sources who did not want to be identified because of sensitivities around the deal, which hasn’t yet closed, suggested Edward Rogers — who recently added executive to his title of chairman at Rogers Communications, the company his father founded — could seek the chairman’s seat at MLSE in 2026, or earlier. The company declined to comment on that or board composition in general.

“We’re focused on today’s announcement, getting the right financing, and closing the deal,” a Rogers spokesperson said in an emailed statement.

In the meantime, Larry Tanenbaum, who owns the other 25 per cent of MLSE through Kilmer, remains chair of the MLSE board, which has a second representative for Kilmer Group, Dale Lastman, a partner at law firm Goodmans LLP.

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Lastman also declined to comment on the deal and what it might mean to Tanenbaum or the Kilmer Group.

Richard Peddie, who was CEO of MLSE until late 2011, said the boardroom dynamics could shift without BCE. However, he said Rogers and BCE had structured their shareholder agreement in 2012 in a way that meant the two telcos had to agree for anything to move forward.

“They didn’t want Larry’s 25 per cent cozying up against either Bell or Rogers,” he said, noting that Tanenbaum went out on his own to bring a WNBA women’s professional basketball team to Canada through Kilmer, not MLSE. “I don’t know what it’ll be like for Larry (now),” Peddie said.

For Rogers, having a nearly two-year window before there is a natural opportunity to acquire 100 per cent of MLSE gives the company time to pay down debt acquired through the multi-billion-dollar purchase of cable rival Shaw Communications Inc. last year. Moreover, Canada’s lacklustre IPO market may have picked up by then.

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And the fortunes of the Blue Jays, purchased by Rogers in 2000, could improve. A former investor in professional sports who requested anonymity due to potential business repercussions, referred to the Jays — currently sitting at the bottom of the American League East standings — as “a stranded money-losing team” whose value isn’t fully reflected within the telecom company.

“(The) only way to salvage that investment is to fold (it) into MLSE,” they said.

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