Buying a Winning Team

NEW YORK ( TheStreet) -- Investors should exercise caution when pop culture or sports intersects with the stock market. Plenty of people learned this the hard way when they dove rear-end backwards into the Facebook ( FB) IPO.

Facebook hurt more than a few people. That, however, does not mean it's a bad investment. The timing just was not right fresh off of a public offering few investors understood. With some context and a little patience, Facebook presents a compelling long-term story because it is more than a worldwide societal phenomenon.

Along similar lines, it's probably not a good idea to buy stock in a company simply because it owns or is associated with a sports franchise. Going long requires some context. If a beefy story surrounds the sports connection, buying the stock could make sense.

For the last year or so, I have beaten the bullish drum for two Canadian media and telecom stocks -- Rogers Communications ( RCI) and BCE ( BCE). Several sides of beef envelop the near- and long-term narratives of both companies.

For summaries of the bull case on these stocks, see my recent coverage on TheStreet: Two Stocks to Buy Before They Take Over Canada and Why I am Long Rogers and Bell.

In a nutshell, the Canadian government allows Rogers and Bell to dominate the nation's telecommunications industry. It also permits joint and/or cross-ownership, by Rogers and Bell, of the country's most valuable sports, entertainment and media franchises.

Of all of the assets under the Rogers or Bell purview, the biggest are, without question, their media properties (in sports, Rogers owns regional sports networks across Canada, while Bell owns a majority of The Sports Network); their respective cable, satellite, fiber-optic and IP content delivery systems and platforms; and their joint-ownership/majority stake in the National Hockey League's most valuable franchise, the Toronto Maple Leafs.

It's the Leafs that could be the prime catalyst for Rogers and Bell, helping them tie all of their other synergistic parts together. In fact, Rogers and Bell might as well just combine as a single entity because, in many ways, what's good for one is good for the other.

As it stands, the two companies will continue to split Leafs telecasts between their networks and the recently acquired Leafs TV. The big prize, however, is the Canadian institution, Hockey Night in Canada, which has always belonged to the Canadian Broadcasting Corporation. If HNIC becomes part of the Rogers/Bell stable, it could turn two strong buys into screaming buys.

I had a chat with former hockey columnist, HNIC panelist and Hockey Hall of Fame writer Al Strachan on Tuesday. I asked Strachan if Rogers and Bell will take HNIC away from the CBC when the network's current deal runs out in 2014:
The combine that's how Strachan refers to Rogers and Bell is almost certain to get HNiC. After all, they own the team. They own the building in which it plays. They own national sports networks in a hockey-mad country. Why would they give the single most valuable TV sports property to another network?

Strachan points out that the cost of the HNIC rights means little to "the combine." He calls it "a bookkeeping entry" that goes "from one pocket into another."

From a political standpoint, he believes CBC faces an uphill battle. Strachan thinks the government-funded CBC would have a difficult time with the Canadian public, particularly "the left wing" if the HNIC talks turn into a bidding war. They would argue that money spent on a hockey broadcast should pay for social programs not subsidies for "millionaires."

While Strachan expects an initial nationwide uproar if the CBC loses "part of the country's heritage," he argues it would peter out once "it becomes apparent that the combine presents a better broadcast than CBC."

And, of course, by adding more Leafs games, particularly on Saturday nights, Rogers and Bell could use the Leafs to leverage other media properties. Strachan sees a scenario unfolding where the two companies "link packages" and turn the screws on consumers:
Right now, for instance, if you want TSN HD, you must also buy the NBA's Toronto Raptors-TV which has infinitesimal ratings outside of southern Ontario. So your choice is to watch the Leafs on a fuzzy picture or watch them in HD and pay for Raptors TV which no one watches. However, because it has lots of subscribers, Raptors-TV can charge high ad rates. It's all a very complex scenario but the bottom line is that it's a gold mine.

And that's the key for investors: "it's a gold mine."

Without HNIC, Rogers and Bell are buys. Both companies continue to increase their dividends and buy back stock. They're cash cows that dominate practically everything that matters in a nation -- wireless, Internet, television, radio, sports, you name it.

If "the combine" takes HNIC away from the CBC, it becomes nothing short of complete and total domination. Don't expect the Canadian government to squash the move. In a supposed "socialist country" (according to Fox News), Rogers and Bell have enjoyed the closest thing to laissez faire government North America has to offer. Canada's dealings, at least with respect to Rogers and Bell, make the U.S. look like Cuba.

If you're going to invest in the media space, take a long hard look at the companies that control the most premium content, the most important sports and entertainment franchises and the key modes of delivery in a region (e.g., Madison Square Garden ( MSG)) or a nation. Very few strong choices exist in America. That's not the case in Canada where RCI and BCE should be nothing short of no-brainers to American investors.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
At the time of publication, the author was long BCE, FB and RCI. He is also long MSG in a custodial account he manages for his minor child.