CSN Houston, We Have a Problem - Multichannel

CSN Houston, We Have a Problem

Comcast-Astros Impasse Puts Sports Network in Chapter 11
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A little more than a year after its launch, the future of Comcast SportsNet Houston is in question.

The regional sports network — co-owned by Major League Baseball’s Houston Astros (46%), the National Basketball Association’s Houston Rockets (32%) and Comcast/NBCUniversal (22%) — is carried in just 40% of the Houston DMA, mostly via Comcast. The network has struggled financially and operationally, hamstrung by management loggerheads between the Astros, which may look to peddle the team’s TV rights elsewhere, and Comcast/ NBCU. The dispute is set for an Oct. 28 bankruptcy hearing.

On Sept. 27, four creditors with ties to Comcast — National Digital Television Center, CSN California, Comcast Sports Management Services and Houston SportsNet Finance — petitioned for involuntary chapter 11 protection in the U.S. Bankruptcy Court in the Southern District of Texas.

‘TOTAL GRIDLOCK’

CSN Houston has exhausted the $100 million loan from Houston SportsNet Finance that was used for start-up costs for the RSN, which can’t meet its financial obligations because of “total gridlock” among the partners when it comes to key operational decisions, notably affiliate contracts. On Sept. 28, the creditors also asked U.S. Bankruptcy Judge Marvin Isgur to appoint an interim trustee to oversee operations as the bankruptcy petition proceeds.

On Sept. 30, after two years spent launching the RSN, CSN Houston president and general manager Matt Hutchings returned to Kroenke Sports & Entertainment to the new post of executive vice president and chief operating officer.

The petitioners also said Houston SportsNet Finance “would be prepared to make a bid to acquire the network under a reorganized plan or substantially all of its assets.”

The Astros on Oct. 7 filed a motion to dismiss on various legal grounds, while also maintaining that the media-rights deal is a personal services/trademark agreement and therefore cannot be assigned to another party through bankruptcy or without its consent.

The Astros said CSN Houston failed to make rights-fee payments due on July 31 and Aug. 30, and it informed the network that by contract it would terminate the agreement and reclaim its broadcast rights as of Sept. 30 if the rights payment was not made by Sept. 29. Comcast cut that off at the pass, according to the club, by filing for the bankruptcy proceeding two days before.

In an Oct. 8 interview with the Houston Chronicle, Astros owner Jim Crane said several parties are interested in the TV rights. At the crux of the contretemps are affiliate agreements, from which RSNs typically derive 80% of their revenue.

Comcast aside, CSN Houston has only been able to secure carriage with a handful of smaller distributors in the 2.2 million-home Houston DMA. The network, which has reportedly been seeking a monthly subscriber fee of $3.40, has not reached terms with DirecTV, Dish Network, AT&T U-verse, Suddenlink Communications or Time Warner Cable in Texas and the other four states in its territory.

Moreover, with a corporate governance structure requiring unanimity among the four voting members — one vote each for the Astros and Rockets and a pair for Comcast — the bankruptcy petitioners claim “the impasse has prevented [it] from entering into certain additional agreements for distribution … As a result, the network is unable to generate the revenues necessary to meet its obligations and sustain its business” or “borrow additional money.”

CRANE: BIDDERS LINING UP

Crane, who acquired the Astros’ interest in the RSN when he bought the club from Drayton McClane Jr. in November of 2011, said he has heard from “other interested parties” that would be willing to carry Astros games should the CSN Houston partnership collapse.

Fox Sports Houston previously held the rights to Astros and Rockets games.

“Theoretically, if [CSN Houston] were to collapse, the easiest course for the Astros would be a return to Fox,” Lee Berke, principal in consultancy LHB Sports, Entertainment and Media, said. “But Comcast isn’t going away in the Houston market. Whatever happens, the Astros and Comcast will have to come to some kind of accommodation.”

Fox didn’t return calls seeking comment.

The Astros rank among the most anemic teams in baseball history having lost 106, 107 and 111 games during the 2011, 2012 and 2013 campaigns, respectively. Conversely, the Rockets, who have yet to respond publicly about the proceedings, were a surprising NBA playoff entrant last season and have acquired the talented-but- temperamental center Dwight Howard, a move that could vault them toward the top of the league’s Western Conference.

TAKEAWAY

A dispute between the Houston Astros and Comcast could end the team’s relationship with CSN Houston.

A little more than a year after its launch, the future of Comcast SportsNet Houston is in question.

The regional sports network — co-owned by Major League Baseball’s Houston Astros (46%), the National Basketball Association’s Houston Rockets (32%) and Comcast/NBCUniversal (22%) — is carried in just 40% of the Houston DMA, mostly via Comcast. The network has struggled financially and operationally, hamstrung by management loggerheads between the Astros, which may look to peddle the team’s TV rights elsewhere, and Comcast/ NBCU. The dispute is set for an Oct. 28 bankruptcy hearing.

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