Ops, Leagues Fret Over Cable-Mogul Deals

Author:
Publish date:
Updated on

Cable moguls continue to rock the world of professional
sports.

On the heels of News Corp. chairman Rupert Murdoch's
bid for ownership in the Los Angeles Lakers National Basketball Association and Los
Angeles Kings National Hockey League teams for his Fox Television company, Adelphia
Communications Corp. chairman John Rigas last week entered into an agreement to buy a
majority interest in the NHL's Buffalo Sabres.

While the deals are favorable for media companies that are
trying to secure valuable local-sports programming in an ultra-competitive cable-sports
business, some team executives and industry observers were concerned about the fallout:
They worried that combining team operations and television rights under one roof will
create a legion of powerful sports conglomerates that could radically influence the future
business of sports and sports television.

Pending approval from the NHL, Rigas will obtain nearly
full majority interest in the Sabres, including the team's Marine Midland Arena
playing facilities. Adelphia, which held stock in the team, will convert its stock for new
securities associated with the team, said Jim Brown, vice president of finance for
Adelphia.

Financial terms of the deal were not disclosed.

In addition, Adelphia's owned-and-operated
regional-sports service, Empire Sports Network, extended its programming rights to
telecast Sabres games, Brown said.

The deal not only provides Adelphia -- in which Rigas also
owns a majority interest -- with popular sports inventory for its regional-sports network,
but the arena deal also gives the company a venue to promote its new services. The company
can showcase its high-speed Internet-access service, long-distance telephone service and
other telecommunications services to western New York cable customers who venture into the
arena.

"From a strategic standpoint, Adelphia will be able to
create synergies between the Sabres and its services within the arena, as well as with the
regional-sports network," Brown said.

The Fox Group is seeking similar benefits as part of its
plan to buy 10 percent of the Lakers and 40 percent of the Kings.

Fox will also own 40 percent of the new Staples Arena,
which will house the Kings and Lakers, as well as the NBA's Los Angeles Clippers,
said Jeff Shell, chief financial officer or Fox/Liberty Networks.

While Fox will undoubtedly take advantage of the
cross-promotional opportunities that the arena presents -- in addition to deriving
incremental revenue from concessions, luxury boxes and team rent -- it's the team
ownership and control of cable-television rights that provide the company with the
greatest benefit in the market. Coupled with the purchase of Major League Baseball's
Los Angeles Dodgers last year, Fox will have a financial interest in three of the
market's six major sports teams.

Those rights will serve its two Fox Sports West
regional-sports services well in the marketplace, considering that the company will
receive competition later this year from ESPN's new regional-sports service.
ESPN's parent, The Walt Disney Co., owns the Anaheim Mighty Ducks NHL franchise, and
it is managing general partner of MLB's Anaheim Angels, owning 25 percent of that
team

"The team ownership is an outgrowth of the fact that
in the television world, sports has become so important," Shell said.

And that's what worries some cable operators and
sports executives. Sports programming is a bedrock to operators and a critical source of
revenue to team owners in an era of skyrocketing salaries. Both sides pointed out the
problems of the media moguls controlling so many teams.

For cable operators, that means limiting their ability to
get the best deal for expensive, but valuable, regional and national professional-sports
programming. If one entity controls both the team rights and the distribution network,
operators have no leverage to make the best deals for themselves and for viewers.

"Our concern is always about the cost to us,"
said one top 20 operator. "If there's only one team owner, and it's the
same guy who owns the regional-sports network, there's no way to contain those
[licensing] rights."

Robert Gutkowski, president of the Marquee Group, a
sports-consulting group, warned that the professional leagues should be concerned about
media companies gaining too much concentration in a particular market. He pointed to New
York in particular, where Cablevision Systems Corp. owns both the New York Knicks NBA and
New York Rangers NHL teams, and where it controls the television rights to seven of the
nine area franchises.

"It doesn't benefit the fans when one company
controls the whole market," said Gutkowski, a former competitor to Cablevision who
ran Madison Square Garden for Paramount Communications Inc. before Cablevision bought the
arena.

For team owners, the combination of media companies owning
several teams in the same sport is of major concern. Not only does Fox own its Los Angeles
team properties, but it also owns a one-third interest in Cablevision's Knicks and
Rangers. Such arrangements bring up serious conflict-of-interest questions for teams,
which question whether Fox can be fair in relation to league issues.

"What's to stop Murdoch and Dolan from trading
players to other teams competing against theirs, or trading amongst themselves to create
the best teams that money can buy?" asked an NBA team executive. "All of the
leagues will have to watch the situation very closely."

"[With such deals], each individual club loses some of
the power that it may have had in the past," one NHL executive said. "If one
party can significantly affect one or more teams, it could affect the economic balance of
the whole league."

But Shell downplayed such issues, saying that the leagues
have firm rules that prohibit owners from controlling the day-to-day operations of more
than one team.

"We have an agreement with the leagues that says that
we can't see any payroll information from [the Knicks and Rangers] or have any
influence over it," Shell said. "The leagues have made it so that we're
basically no different than someone who purchases a public share in any professional
team."

Shell also disagreed that such deals will lead to wild
spending for star players, effectively eliminating small-market teams from bidding on
elite talent

"Because [the teams] are part of the company, we have
to answer to our shareholders," Shell said. "We have a lot of incentive to make
fiscally sound decisions."

Representatives from the NBA and the NHL did not return
phone calls. MLB does not allow cross-ownership of teams. Nor does the National Football
League, unless both teams are in the same market.

Related