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Paramount wants Warner Bros. Discovery and isn’t going away without a fight.
But WBD says Paramount’s recent splurge on sports rights undercuts its efforts to buy the TNT Sports parent and makes Netflix the more attractive suitor.
In August, Paramount agreed to pay $7.7 billion for UFC’s U.S. media rights, a deal viewed by analysts as a deliberate overpay designed to give Paramount a foothold in the world of live sports. The seven-year pact is worth far more than UFC’s previous five-year, $1.5 billion deal with ESPN.
But as Paramount has continued to pursue WBD, recent sports deals like the UFC agreement, and the specter of NFL rights becoming more expensive, have been cited as factors in why the agreement with Netflix should stand.
“Despite limited visibility into their long-term performance, [Paramount] will begin to bear significant fixed financial costs related to these agreements going forward,” Warner Bros. said in a Dec. 17 regulatory filing that outlined why it rejected Paramount’s offer. “This, together with potentially higher costs associated with NFL rights given the league’s right to renegotiate early, could create further headwinds to [Paramount’s] financial profile.”
Mixed martial arts business analyst Robert Joyner tells Front Office Sports that while the overpay for UFC’s media rights was potentially needed for Paramount to “make a splash in the sports rights market,” it has made the company look “ill-disciplined with the purse strings, something that WBD is using now to hoist them on their own petard.”
Roughly one month ago, WBD agreed to be purchased by Netflix in a deal that carries an enterprise value of $82.7 billion and does not include sports assets like TNT, TBS, or Bleacher Report. Paramount had previously submitted six proposals for WBD in a matter of months—unsolicited overtures that helped to put WBD formally on the market in October. It responded to the Netflix deal with a hostile takeover attempt carrying an enterprise value of $108.4 billion.
WBD has stood strong on its preference to see the Netflix deal through, despite Paramount’s $30-per-share offer exceeding Netflix’s $27.75 bid and an updated proposal that reportedly includes a pledge from billionaire Larry Ellison to “personally guarantee $40.4 billion in equity financing and other commitments” (Larry Ellison is the father of Paramount chairman and CEO David Ellison.)
Morningstar analyst Matthew Dolgin tells FOS the idea that Paramount’s sports spending is a significant factor in why WBD has continued to reject its advances is misleading. He points to the fact that WBD has cited “several reasons” it feels the Paramount offer is inferior; in the Dec. 17 filing, WBD listed multiple factors, including that Netflix has less debt on its balance sheet and Paramount still relies on “declining linear television businesses.”
According to Dolgin, WBD “seemed to just be developing a list of things that all could support the decision that it wanted to make anyway.”
Bobby Hacker, longtime VP of business and legal affairs for Fox Sports, agrees that WBD citing Paramount’s sports spending as a reason to reject its offer is a smokescreen.
“It’s such a red herring,” he tells FOS.
Hacker says the larger issue isn’t the UFC deal itself, but the broader consolidation Paramount appears to be pursuing—particularly in the wake of its politically sensitive merger with Skydance, which closed just days before the UFC agreement was announced.
Neither outcome—Netflix buying WBD or Paramount usurping Netflix—would ultimately benefit consumers, according to Hacker, although he says the Netflix deal would likely cause less harm. In his view, Netflix’s expansion—while still concerning—has been more incremental and organic, while Paramount’s approach is a more aggressive effort to buy scale quickly.
“Paramount is getting voracious,” Hacker says. “This kind of consolidation isn’t good for the market. It starts to look like the Gilded Age, where a few companies control everything. That may be politically acceptable right now, but it’s bad for consumers in the long run.”
