A bat-flipping Toronto Blue Jays outfielder is about to show us where chief executive officer Guy Laurence plans to take Rogers Communications Inc.
Jose Bautista is among the most popular players in franchise history and a key component in the Jays' drive to make the playoffs for a second straight season. By thrilling fans in a Rogers-owned stadium and on Rogers-owned cable TV and radio stations, Mr. Bautista can credibly argue that he and his teammates pad the bottom line and warm consumers to a brand that Canadians love to hate.
When the season ends, Mr. Bautista's contract is up, and the man wants to get paid. So does slugger Edwin Encarnacion, who leads the American League in runs batted in. The company will be faced with a tough call on whether to re-sign one player or both, or let them walk.
That's a $100-million-plus set of decisions. But it's also an invitation for a CEO who has been on the job almost three years to rethink how a baseball team and Rogers's stable of media assets fit the future of a wireless and cable company that has made good strides on customer service, but has struggled with growth.
Since Mr. Laurence took over in late 2013, Rogers shares have underperformed BCE Inc. by a significant margin. Despite a good recent showing in wireless results, total revenue in the first six months this year was up 2 per cent. Adjusted operating profit was flat. Whatever else Mr. Laurence's "Rogers 3.0" plan has done, it hasn't produced strong organic growth.
The most shareholder-friendly move from Mr. Laurence would be for the Jays to sign Joey Bats, the face of the team, then take money off the table by selling or spinning out Rogers's sports and media assets, all of which are held in one division.
The media unit's ho-hum financial performance and unpredictable growth potential mean that it weighs on Rogers's stock price. Yet the businesses are valuable, worth well north of $2-billion. That's largely because of the scarcity value of the Blue Jays, which Ted Rogers bought in 2000, and the company's minority stake in Maple Leaf Sports and Entertainment, a deal engineered by Nadir Mohamed, Mr. Laurence's predecessor.
And where might Rogers find natural buyers for these assets? Sitting at the boardroom table – the billionaire family of founder Ted Rogers.
At a Bank of Montreal investor conference on Tuesday, telecom analyst Tim Casey pushed Mr. Laurence to spell out Rogers's media strategy. The response was telling, as the CEO started out by saying that "media equals sports when it comes to mind share inside the company," a line that should thrill Mr. Bautista (and give pause to Rogers Media employees who don't work in sports).
The Rogers boss then made the convergence pitch. He told the conference that hockey, baseball and other games are proven ways to draw customers. As cellphones and Internet platforms get more sophisticated, fans will have more reasons to choose Rogers over rivals.
Mr. Laurence's final comment on media spoke to the perils of owning a sports broadcaster when the Jays pull a September swoon, or when the World Cup of Hockey is on and you can't predict how Canada will perform (Rogers bought the TV rights), or when all seven Canadian National Hockey League teams manage to miss the playoffs. He said: "Sport is a creative-type business, in the sense you have no idea when the guys go out on the field of how well they're going to do."
Unpredictable results on the field translate into unpredictable financial results. The media division's adjusted operating profit of $172-million was lower in 2015 than it was in 2011, before the Jays were a contender and before Rogers paid a king's ransom to the NHL for national broadcast rights. Add in the threat that digital rivals pose to Rogers's magazines and radio stations, and what pick-and-pay cable means for its stable of TV channels, and Mr. Laurence has a media business that faces serious structural challenges.
How much time does a CEO want to spend trying to fix a division that turns in about 3 per cent of its $5-billion in operating profit? This is a company whose future will be determined by whether it beats Telus and BCE, not whether the Jays beat the Boston Red Sox.
Media assets are chips that Mr. Laurence can cash to pay for technology or one of the few remaining cable takeover targets: Montreal's Cogeco Communications Inc., where Rogers is already a minority shareholder, or the big prize, Calgary-based Shaw Communications Inc. In the absence of a big takeover, the company may not need the capital. But it has shown an interest in whittling down its $15.2-billion debt.
If Rogers were to part with its baseball franchise, the gains would be impressive, as Ted Rogers, never a sports fan, proved an astute sports investor. On the late founder's watch, Rogers acquired the Blue Jays for $165-million. Four years later, it acquired their ball park for just $25-million. Today, Forbes magazine's back-of-the-envelope estimate pegs the Blue Jays' value at $900-million (U.S.).
That may be too low, as Forbes is often too low in its widely quoted sports team valuations. The magazine put the price tag of the Seattle Mariners at $1.2-billion ahead of this season. The team sold two months later for $1.4-billion. It's worth noting that the Mariners were sold by video game maker Nintendo to a local mobile phone mogul. Entertainment company Walt Disney Co. shed its pro baseball and hockey franchises long ago; in both cases, the buyers were individuals who made their fortunes in media. Billionaires, not corporations, are the logical owners of pro sports franchises.
So here's a strategy for Mr. Laurence: Lock up content for Rogers networks by signing long-term broadcast contracts with the Blue Jays, Raptors and Maple Leafs. Then unlock billions in shareholder value by moving the teams, or even Rogers's whole media stable, into the hands of the Rogers family, or spin these assets out as a public company. One of the many advantages of this strategy: He would never again have to worry about making a multimillion-dollar investment in an oft-injured, 35-year-old outfielder.