Endeavor is a switch hitter in baseball deal

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Baseballs sit in a bin before Game 1 of the MLB American League Division Series baseball playoffs between the New York Yankees and Detroit Tigers at Yankee Stadium in New York, October 1, 2011. REUTERS/Mike Segar (UNITED STATES - Tags: SPORT BASEBALL)

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NEW YORK, Aug 11 (Reuters Breakingviews) - There is a saying in Tinseltown: no conflict, no interest. It may apply to the wide world of sports too based on a recent kerfuffle in the baseball business. The $11 billion entertainment company led by super-agent Ari Emanuel, Endeavor (EDR.N), had to offload a group of teams because players thought it was conflicted. The brouhaha at the mound probably won’t end there.

Endeavor on Tuesday announced that it had agreed to sell its newly formed baseball subsidiary, Diamond Baseball Holdings, to private equity firm Silver Lake for $280 million. DBH scooped up 10 minor league baseball teams affiliated with the majors including the New York Yankees, Atlanta Braves and Chicago Cubs. The price is a bit more than what Endeavor paid, according to a source familiar with the matter.

Endeavor has been making a play with sports ownership so its interest in baseball is not out of left field. It used the proceeds from its initial public offering last year to buy the rest of mixed martial arts franchise Ultimate Fighting Championship. It owns Professional Bull Riders. And the agency represents stars like Serena Williams. There is a strategic logic to wanting to own minor league baseball teams to not only help goose concessions and ticket sales but also to scout for upcoming talent because it is a pipeline for the major teams.

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The only trouble is that Endeavor ran afoul of the Major League Baseball Players Association, the union that backs members of the 40-man rosters of 30 Major League Baseball teams. Even though the minor league players are paid by their major affiliates, not the club, the big-league team associated with its farm team decides the minor league’s lineup. Endeavor doesn’t control the players. But agents that represent top baseball talent have enough of an interest in how the decks are stacked that the players didn’t like it. The union’s rules forbid player agents from having an ownership stake in teams.

The association’s concerns were not without precedent. Endeavor has skirmished with other unions including the Writers Guild of America. The group represents Hollywood scribes, which sued Endeavor and three rival talent agencies claiming unfair competition because the companies were both representing writers and producing content. The settlement resulted in Endeavor selling an 80% stake in its content studio behind the show “Killing Eve” for $785 million to Korean entertainment company CJ ENM. It still owns the other 20%.

In the latest case, Endeavor felt it wasn’t worth jeopardizing its relationship with Major League Baseball and the Players Association. Last year the division that includes fees for talent representation accounted for nearly 40% of Endeavor’s $5 billion in revenue and more than 40% of adjusted EBITDA of some $880 million.

Meanwhile, Silver Lake swooped in for the baseball group. That too isn’t out of whack with the private equity firm’s strategic priorities. It holds interests in trading card company Fanatics, City Football, the owner of English Premier League club Manchester City, as well as firms focused on stadium construction and ticketing. Silver Lake could add some much-needed elbow grease to the minor league baseball experience.

Still, Silver Lake’s ownership comes with baggage. It has more than 30% of Endeavor’s Class A common stock and controls its vote. Silver Lake’s co-Chief Executive Egon Durban is the chairman of Endeavor.

He and Silver Lake probably don’t care much about how the roster is formed at the Iowa Cubs or the Memphis Redbirds. But clearly Endeavor wants the blessing of the Players Association. It may only be a matter of time before the baseball players realize that Endeavor has just switched its stance from one side of the plate to the other.

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CONTEXT NEWS

Global entertainment and sports company Endeavor said on Aug. 9 it agreed to sell Diamond Baseball Holdings to Silver Lake for $280 million. DBH acquired 10 minor league baseball clubs affiliated with major league teams including the New York Yankees, Atlanta Braves and Chicago Cubs.

“Ultimately our relationship with Major League Baseball and the Major League Baseball Players Association took priority given the importance of our overall agency business and our continued investment in our baseball representation practice within WME Sports,” Mark Shapiro, president of Endeavor, said in a statement.

Silver Lake is also an owner of Endeavor and holds nearly 70% of the vote.

Endeavor will report second-quarter earnings on Aug. 11.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

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Editing by Lauren Silva Laughlin and Amanda Gomez

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