YES Network obtained rights to air New York Yankees games for five additional years, clearing the way for News Corp. to buy a 49% stake in the regional sports channel, said two people with knowledge of the pact.
YES will have rights to the Yankees through 2042, said the people, who requested anonymity because the transaction hasn't been announced. By the end of the contract, YES will pay the Major League Baseball team about $350 million a year for TV rights, they said.
The extension secures three decades of Yankees games for the channel, eliminating a key hurdle as News Corp. negotiates to buy a minority stake in YES Network at about a $3 billion valuation. The rights contract provides for about a 5% increase each year from the current $85 million YES pays for the games, the people said.
"This kind of deal is not for the faint-hearted," Marc Ganis, president of Chicago-based consultant Sportscorp, said in a phone interview. "It's something that only a very confident, well-capitalized management and ownership can do."
News Corp., controlled by Rupert Murdoch, plans a national sports channel next year to compete with Walt Disney Co.'s ESPN and NBC Universal's NBC Sports. Live sports are commanding premiums on TV at a time when DVRs and streaming video are making it harder for marketers to connect with viewers through commercials. News Corp.'s Fox in September extended its contract to carry Major League Baseball -- including a League Championship Series, the All-Star Game and the World Series -- through 2021. (Turner Sports and ESPN extended their MLB contracts as well.)
The YES deal is part of that landscape. "For Fox, this is a necessary asset in their long-term strategy to create a competitor to ESPN," Mr. Ganis said.
News Corp. will be able to raise its stake in YES to 80% in three years, based on a $3.8 billion valuation for the channel, the people with knowledge of the pact said. Acquiring YES strengthens News Corp.'s regional sports business by adding a channel with the Yankees, a marquee MLB team, and the National Basketball Association's Brooklyn Nets.
News Corp. is also vying with Time Warner Cable for pay TV rights to the Los Angeles Dodgers on a regional sports network in Southern California. The Dodgers sold at auction earlier this year for a record $2.15 billion, fueled by the expiration of the team's broadcast contract with Fox Sports.
The YES deal's increased revenue for the Yankees gives the family of George Steinbrenner, who died in July 2010, resources to hold onto the team, said Mr. Ganis, who advised the Yankees previously.
YES Network generates more than $200 million in annual earnings before interest, taxes, depreciation and amortization, making it worth more than $3 billion, Forbes reported in April.
Goldman Sachs Group and Providence Equity Partners, which provided capital to start the YES Network in 2001, are selling their stakes to News Corp., the people said.
News Corp. has been trying to move out from under the phone-hacking scandal that originated at its now-shuttered News of the World tabloid in the U.K. It is putting the finishing touches on a plan to split into two companies, one for entertainment assets and another for newspapers. U.K. prosecutors said on Tuesday, however, that they plan to charge two former employees of News Corp.'s U.K. newspapers division with bribing public officials.