Global entertainment giant, Walt Disney Company, is being sued by Mexican soccer club, Santos Laguna, for damages due to alleged contract violations, according to Reuters.
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Santos Laguna claims that they signed a five-year broadcasting deal worth $106 million with Fox Sports LA Holdings (FSLA) in 2017, to broadcast their games beginning in the 2019/2020 season. FSLA was a unit of 21st Century Fox at the time.
Disney (DIS) bought Fox last year for $71 billion and divested itself from FSLA, now known as TFCF Holdings.
The lawsuit alleges that Disney agreed to not sell any of its assets in Mexico, and that ESPN, which is majority owned by Disney, would not try to buy up its competitor. The club says that this type of divestment was specifically prohibited in its original contract with FSLA.
“There are no other major international sports networks in Mexico beyond ESPN and FSLA, therefore there would be no equivalent third parties that could take over the FSLA agreements,” Santos said in its complaint.
A Disney spokesperson commented, “We believe the claims are utterly without merit and will defend against them vigorously.”
Santos says they are now at risk of being denied broadcast rights and other promotional benefits that they believe they are entitled to under the original contract. (See DIS stock analysis on TipRanks)
Rosenblatt Securities analyst Bernie McTernan reiterated his Buy rating on Disney last week and set a price target of $210. This implies upside potential of around 16%.
McTernan is one of Disney’s biggest fans on Wall Street and said the biggest pushback he receives on his Buy rating for Disney is that based on near-term earnings multiples, the stock looks relatively expensive. However, McTernan believes that valuing Disney based on earnings multiples understates the value of the company’s direct-to-consumer business, and that the company’s projections for Disney+ could in fact be conservative.
Consensus among analysts is a Strong Buy based on 17 Buys and 4 Hold ratings. The average price target of $180.44 suggests the stock is fully priced at current levels.
Disney shares have gained around 25% year-to-date.
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