A federal appeals court has sent back a five-year-old bankruptcy case involving the Comcast Sports Network Houston regional sports network for re-evaluation, noting in a ruling March 29 that the former partners in the channel may owe Comcast more than $54 million.
CSN Houston was formed in 2012 by Major League Baseball’s Houston Astros, the National Basketball Association’s Houston Rockets and Comcast to air contests from the two teams to customers in the Houston region. But the channel, which reportedly was seeking carriage fees of $3.40 per customer per month – had been unable to secure distribution from other providers outside of Comcast and a few small cable operators. It filed for Chapter 11 bankruptcy protection in 2013.
News of the ruling was first reported by the Houston Chronicle. The network was sold to AT&T-DirecTV in 2014 and now operates under the AT&T SportsNet Southwest banner. AT&T and DirecTV are not part of the bankruptcy and the most recent ruling has no impact on the network, which continues to carry Astros and Rockets games.
The win, in the U.S. Court of Appeals for the Fifth Circuit, means that the case will be sent back to U.S. Bankruptcy Court Judge Marvin Isgur, who will hold another hearing to determine whether Comcast is owed the balance of its loan or if the teams can successfully persuade the court that the cable operator is owed nothing. No date has been set for the hearing as yet.
Since the bankruptcy in 2013, the Astros have gone on to win the World Series in 2017. Leslie Alexander, who owned the Rockets at the time, sold the basketball team in 2017 to billionaire restaurant, hotel and casino owner Tilman Fertitta for $2.2 billion. Alexander remains a party to the bankruptcy case.
Comcast did not respond to a request for comment, but the Astros, in a statement to the Houston Chronicle, said they were disappointed with the appellate court ruling.
“We will address this valuation issue with the Court at the appropriate time and we will continue to pursue all of our claims against Comcast," the Astros told the Chronicle.
The Astros filed a separate suit against Comcast claiming the cable operator breached its contract for the network by making false statements that resulted in the bankruptcy and the loss of the teams’ rights fees.
The bankruptcy of CSN Houston was big news in 2013 because it was one of the few documented failures of a large cable regional sports network, which up until that time had been perennial cash cows for operators and teams alike. Comcast, which had put up a $100 million secured loan to help launch the network in 2012, had tried to get most of that investment back.
The Astros owned the biggest chunk of the network (46.5%), followed by the Rockets (31.5%) and Comcast (22%). The teams lost their equity when the network filed for bankruptcy, and Comcast received what was then determined to be the value of the channel’s tangible assets, about $26.2 million.
Isgur had valued the Comcast agreement at $54.3 million and then subtracted from that the value of the unpaid rights fees, which was determined to be about $107 million and also used as collateral for the $100 million loan. That rendered the value of the deal at less than zero.
That’s where the appellate court ruled Isgur went wrong.
“…we remand for a re-valuation of the Agreement because the bankruptcy court failed to value the collateral in light of its proposed use when it deducted all unpaid media fees from the value of the Agreement,” Circuit Judge Priscilla Owen wrote in the March 29 ruling. “The bankruptcy court erred in deducting the Teams’ unpaid, waived media fees from the value of Comcast’s collateral.”