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Crane: Astros Have Lost Millions on CSN Houston

Team Owner Says 'Comcast Could Sort This Out Quickly' 11/22/2013 5:34 PM Eastern

 

Two years to the day after he bought the team, Houston Astros owner Jim Crane presided over a press conference at Minute Maid Park in which he discussed litigation he has taken against the club’s former owner and Comcast/NBCUniversal over the struggling Comcast SportsNet Houston.

With CSN Houston available only to 40% of the Houston DMA within the RSN’s five-state TV territory, Crane called “the TV deal a bust to date.” The Astros own 46% of CSN Houston, which streamed the press conference live this afternoon, with the NBA Houston Rockets controlling 32% and Comcast/NBCU the balance.

Crane said that former Astros Drayton McClane, Rockets owner Leslie Alexander and ComcastNBCU had constructed a fraudulent business plan for CSN based on inflated monthly subscriber fee rates. As a result, the Astros have “lost tens of millions of dollars, perhaps hundreds of millions.”

Crane filed a lawsuit on Nov. 21 versus McLane, and Comcast/ NBCUniversal alleging McLane of breach of contract in the $615 million sale of the team in November 2011 and all three parties of fraud, negligent misrepresentation or omission and civil conspiracy. Crane said $326 million of the purchase price was apportioned to CSN Houston.

Meanwhile, four Comcast entities on Sept. 27 filed a petition for involuntary Chapter 11 bankruptcy protection. U.S. Bankruptcy Judge Marvin Isgur has delayed ruling on the Astros’ motion to dismiss the case and Comcast’s motion to name an interim trustee for the network while giving Crane until Dec. 12 to build a new business plan that can make the network profitable. Houston SportsNet Finance, which loaned CSN Houston $100 million to build a studio and for start-up costs, has indicated that it would be willing to buy the RSN. Rockets owner Alexander yesterday expressed a similar sentiment during a bankruptcy status meeting among the parties.

During the press conference, Crane said the Astros weren’t allowed to look at the numbers for subscription fees. Instead a phone call arrangement was finally made and it was understood the estimates were made based on Comcast’s experience in the marketplace and they were achievable. What Crane wasn’t told and he didn’t find out until December 2012, he said, was that in 2010 McClane, Alexander and Comcast/NBCU developed a business plan built on inflated numbers and that Comcast would receive a most-favored nation clause. Crane also said he found out that the other distributors would never pay that rate.

Comcast has been “unable to negotiate affiliate deals to make the network financially viable,” and that over the last two years has only been able to recommend one deal (DirecTV was mentioned in bankruptcy filings) would have lost the network $200 million over 10 years and reduced the Rockets equity from 46% to zero and resulted in a below market payroll for the Astros.

In addition to Comcast, CSN Houston has only been able to reach affiliate deals with a handful of smaller providers. DirecTV, Dish, Time Warner Cable, AT&T U-verse, Verizon FiOS and Suddenlink all remain on the distribution sidelines. CSN Houston reportedly been seeking monthly subscriber fees of $3.40.

Astros’ general counsel Giles Kebbe said at the press conference that the lawsuit was filed on Nov. 21  to meet a provision in the contract between Crane’s Houston Baseball Partners and McLane’s McLane Champions Co. mandating that any claims be filed within two years of the deal closing.

Kibbe did not rule out expanding the lawsuit to include other defendants such as the Rockets and Alexander:“If there is a claim that is going to be filed against the Rockets, there is additional time to do that. We did not feel that now was the time we had to make that decision.

McLane released the following statement in response to the legal action: “I haven’t seen the lawsuit yet, but Jim Crane is highly experienced and has been in business over 30 years. He is surrounded by top tier accounts, attorneys, operators and marketers and he has participated in transactions even larger than this one. His experts meticulously examined the Houston Astros financial position. My team was absolutely transparent and produced thousands of pages of documents; we provide answers to explanations to all of their questions. Any suggestion otherwise is absolutely false. As an example, today, Jim Crane reportedly stated that he did not receive the business plan for CSN Houston prior to the purchase. That is not true.

“This was one of the most complex and scrutinized transactions of my business career, McClane continued. "Jim’s group had all the facts. In fact, he told the [Houston] Chronicle this September that the regional sports network had ‘good long-term value.’ The accusations that have been reported are hollow and appear to be an attempt to recreate the facts. We will respond in a vigorous and persuasive manner to the lawsuit.”

For its part, Comcast/NBCUniversal responded to Crane's lawsuit thusly: "Comcast/NBCUniversal vehemently rejects any claim of wrongdoing asserted by the Astros. This litigation outside the bankruptcy proceedings is a desperate act, committed during a period in which Mr. Crane and his team of sophisticated advisors have been granted by the Bankruptcy Court an opportunity to explore and effectuate solutions to the Network’s serious business problems.  

"Instead, it appears that Mr. Crane is suffering from an extreme case of buyer's remorse, and aiming to blame the Network's challenges on anything but his own actions," the statement continued.  "Comcast/NBCUniversal looks forward to vindicating itself in this litigation and also remains committed to a reorganization of the Network in Bankruptcy Court."

Crane, during the press conference, reiterated what he said in the Nov. 21 bankruptcy status meeting that there was “some traction” in terms of developing a viable business plan and that he is “working through some offers. Hopefully, there is something significant there that can be presented to the judge in December.”

He called the RSN business a simple one with three basis areas of expenses: production and studio costs for the games and other programming, plus the rights fees being paid (or more pointedly not being paid) to the Astros and Rockets.

“This is a $150 million business. We didn’t see that amount coming in,” he said.

As such, he said expenses needed to be reduced and a new business model enacted. Instead, he said Comcast/NBCU wanted to “lend the business a lot of money and own all of the equity. That’s something we refuse to do.”  

Crane noted that he’d “like to get a deal done,” that he wants to present something to the judge on December 12. Nevertheless, he said the proceedings could result in a bankruptcy and that the Astros would get “our rights back. That could be an option for us.”

He said he has no buyer’s remorse, and that “we’ll sort this out in court” or something will get settled with Comcast. “Comcast is a $60 billion company. This is a $150 million business. They could sort this out pretty quickly if they wanted to.”

September