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DirecTV Bets on a Knockout From Boxing

NEW YORK (TheStreet) -- DirecTV (DTV) has seen its shares rise from market chatter about a potential merger with Dish Network (DISH). While this deal would give investors a strong return, I think DirecTV should be an investment for other reasons. DirecTV is venturing into the world of boxing with a brand-new sport and continues to hold ownership stakes in key channels and content.

Apart from the merger talks, the big news for DirecTV was the state of Nevada sanctioning Big Knockout Boxing. Big Knockout Boxing is the newest combat sport, which serves as an entry into a competitive field that includes boxing, World Wrestling Entertainment (WWE) and UFC. Big Knockout Boxing is 100% owned by DirecTV and could be a nice growth strategy, if the sport gains traction.

The new combat sport will take place in an area known as "The Pit." The big differences for the sport are shorter rounds, which last two minutes, and a more intense offensive style of fighting that rewards aggressive boxers. The sport reminds me of the Arena Football League's fierce take on that sport, in contrast to the more popular National Football League's.

DirecTV has announced plans for Big Knockout Boxing events in 2014 and 2015. The company is also looking at building its own venue in Las Vegas, which would generate an even bigger revenue share of the sports success.

Currently, boxing is a revenue driver for both CBS (CBS) and Time Warner (TWX) through their respective Showtime and HBO channels. Showtime sees revenue from both its Showtime Championship Boxing series and its pay-per-view boxing events. Showtime has an exclusive six-fight deal with Floyd Mayweather Jr. that will continue on May 3 with a fight against Marcos Maidana. Back in September, a Mayweather vs. Saul Alvarez fight saw pay-per-view revenue of $150 million from more than 2 million purchases. HBO airs the Boxing After Dark series that scored higher ratings in January against its Showtime rival by a margin of 777,000 to 390,000.

Currently, boxing, UFC and World Wrestling Entertainment events make up the bulk of pay-per-view revenue. Big Knockout Boxing may find a home on a different sports network, in order to gain popularity before it starts testing pay-per-view events.

The sport could garner a large audience, as DirecTV is currently available to 20 million U.S. customers. The large cable provider is also home to the NFL Sunday Ticket, which gives investors a big reason to sign up for a plan from the company. It is unclear whether DirecTV will keep the sport exclusive to its customers or also sell it to other cable providers, which could generate nice subscription fees.

Ownership of Big Knockout Boxing makes DirecTV a bigger player in the sports market, where it currently has several key assets. DirecTV owns Root Sports, a cable provider in three U.S. regions. Root Sports Rocky Mountain provides coverage of the Colorado Rockies, Utah Jazz and University of Denver to customers in Colorado and several other states. Root Sports Northwest covers the Seattle Mariners, two Major League Soccer teams and several college sports teams across parts of five states. Root Sports Pittsburgh covers the Pittsburgh Pirates, Penguins and Steelers. The channel is a staple for customers in Pennsylvania and four other states.

Root Sports reaches 8.7 million customers in a total of 18 states. The company has an exclusive partnership with 25 teams and college conferences to air sporting events. Along with its sports coverage, DirecTV also owns a 42% stake in the Game Show Network, which reaches more than 68% of U.S. households.

DirecTV also offers investors a chance to capitalize on a growing cable market in Latin America. The company has 17 million subscribers from countries like Brazil, Mexico, Argentina, Venezuela and Colombia. DirecTV is the largest pay television provider in Latin America.

Shares of DirecTV were up Thursday and Friday on rumors of the merger with Dish Network. Though the shares are close to 52 week-highs, I think DirecTV stock has more growth ahead, with its content and widening subscriber bases in Latin America. Consider buying if a merger falls through and shares come down.

At the time of publication, the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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