ANALYSIS: MLSE deal all about eyeballs

It's not uncommon to see two CEOs be all smiles at a podium, gripping hands and grinning in unison at a press conference announcing that one company has just struck a major deal with the other.

Butwhen the chief executives in question are BCEhead George Cope and Rogers Communications president Nadir Mohamed? The mind boggles.

Conviviality is not exactly the name of the game in Canada's telecommunications industry. And yet, there they were at the Air Canada Centre in Toronto on Friday morning, passing a microphone back and forth, each more eager than the last to express their excitement over a $1.3-billion deal to buy majority control of Maple Leafs Sports Entertainment Inc. from the Ontario Teachers Pension Plan.

The complex deal sees MLSE chairman Larry Tanenbaum increase his minority interest to 25 per cent, while the two telecom giants will split the remainder evenly each owning 37.5 per cent.

Landmark deal

In a bricks and mortar sense, thepact is easily the largest sports deal in Canadian history. Teachers turned a small investment in a faded hockey team with a 60-year-old building in 1994 into a multibillion-dollar sports monolith encompassing the Toronto Maple Leafs of the NHL, the Toronto Raptors of the NBA, the Toronto FC MLS franchise,the Air Canada Centre in Toronto, a luxury condominium development and stakes in numerous specialty channels including Leafs TV and Raptors TV.

But there are factors at play that make this deal even bigger still. That's because Canadian media companies have stepped up their efforts of late in trying to bring together the media content Canadians want to consume(likelive sports events)and the devices they want to consume them on conventional cable networks and increasingly, mobile phones.

The buzzword for it is "convergence," and Friday'sblockbuster deal has it in spades.

'It was too valuable to lose so they got together and made it happen' Sports marketing professor Richard Powers

Among many properties, BCE owns the all-sports network TSN. TSN is the highest-earning specialty channel in Canada, raking in $267 million in revenue last year 21 per cent increase from the previous year's level. The second most lucrative? None other than Rogers' sports specialty channelSportsnet.

That's no surprise to some. "The entire television business right now is driven by sports," former CHUM media president Jay Switzer said. "Consumers have more choice than they've ever had before and the numbers show that live sports is what people want to see."

But beyond buying a very profitable business in and of itself, what two of Canada's largest media companies reallybought are building blocks they're hoping to tack on to their existing businesses. "That's the big jewel here," Switzer said.

The obvious connection here is that the the ability to broadcast franchises they own across cable and wireless networks they also own. The CRTC and Competition Bureau are likely to keep a keen eye on the particulars of the deal, but assuming those hurdles can be dealt with, it's not hard to imagine a world where Canadian media consumers have access to a lot more sports content than they already do in the near future.

"It comes down to content," hockey columnist Andrew Rodger told CBC News Friday. "They obviously have many franchises on television and the radio [and] this allows them to get control of the games and schedules.

"They'll have complete control."

Both channels already have access to regional broadcasts, but the CBC owns the national broadcast rights to NHL games through the 2013-2014 season. Much was made Friday of the notion that the two networks would now move to build firewalls around their new properties, cutting off access to the lucrative content to all other media companies.

It might be a cash cow, but it's not necessarily the plan.Both men sidestepped the question of whether they want to bid for the NHL rights when they come up, but it some ways,it's an academic argument.

Though they compete furiously for viewers, broadcasters have shown an ability to get along when it's in their interest. Rogers owns the Toronto Blue Jays baseball team, for example, but that hasn't stopped their games from airing on TSN, CBC or other networks in the past. Indeed, if the plan is to hoard all the live sports content for TSN and Sportsnet, what will become of MLSE's television assets?

They may be equal partners in the deal, but that doesn't mean they're not looking to compete. As BCE president George Cope said Friday, "We will be racing each other to get this content on our devices faster than the other guy."

While seeing Canadian sports content fall into fewer and fewer hands is certainly an option on the table, if this deal proves anything it's that if thedeal makes sense, old rivals can get along.

Old rivalries

BCEbid for the rights to the 2010 Olympic Games and worked with Rogers to broadcast every minute of the Vancouver Games, for example.But after Rogers opted out of a similar arrangement for 2014 and 2016, the wheels are in motion for a joint Bell/CBCproductionof those games. And CBC is working with Rogers to broadcast the 2014 World Cup, Kirstine Stewart, executive vice-president CBC English Services noted in a release Friday.

"Increasingly, sports rights deals are dependent on strong partnerships,"Stewart said. "I would like to congratulate Bell, Rogers and Larry Tanenbaum on their deal announced today."

Indeed, despite themseeming likestrange bedfellows, it's just as likely that Bell and Rogers realized they had a lot more to gain from getting along than trying to go it alone. Neither could have been very eager to see the other come out with exclusive control, so a joint bid allows them both access to what they want while avoiding a bidding war that ends in a zero-sum game.

"It's a pretty big nut to swallow but between the two you spread the risk," University of Toronto sports marketing professor Richard Powers said. "When teachers took it off the block I bet they both saw the prize slipping away, but it was too valuable to lose so they got together and made it happen."

Switzer agrees. "I think they realized if they bid against each other for it they would just drive the price up. I'm sure they each coveted MLSE for themselves but they realizedit was a smarter, mutually beneficial thing to team up to protect your supply and your costs."

Considering the stakes, it's not surprising to see giant media companies taking an industry that's traditionally been about putting bums in seats, and tacking it on to one that's always been about the eyeballs

As Switzer puts it, "If I was a shareholder in Rogers or BCE today, I'd be very happy."

"I can't speak for the sports fans though."