Yankees Go Home, Form Own Net

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After 13 years of marriage, Major League Baseball's New York Yankees last week divorced itself from Madison Square Garden Network and will look to enjoy the single life by launching a new regional sports network.

In a major blow to Cablevision Systems Corp.-owned MSGN, YankeeNets LLC, parent of the baseball club, has exercised its $30 million option to acquire the rights to 85 Yankees games next season, according to a YankeeNets statement. The terms stem from the settlement of a lawsuit filed by MSGN last year intended to stop the partnership from launching a sports channel.

With arguably the most prestigious franchise in sports, YankeeNets will debut its service next spring. But it faces several major hurdles prior to launch.

Most pressing is convincing New York City-area MSOs — especially market-dominant Cablevision — to ante up from $1 to $1.50 per subscriber for a programming lineup consisting mostly of Yankees and New Jersey Nets National Basketball Association games. The Nets' agreement with Cablevision-owned Fox Sports Net New York expires after next season.

The network will add New Jersey Devils National Hockey League games after its agreement with Fox Sports New York expires in 2007. YankeeNets also owns the Devils.

Under terms of April's litigation settlement, — MSGN had sued YankeeNets last summer and received an injunction to stop the team from partnering with International Management Group to create a new Yankees network — MSGN was granted the right to televise 85 regular-season games in 2002. The Yankees held the rights to the remaining contests.

But the Yankees controlled an option to either pay MSGN $30 million to buy back the rights to those games, or sell 65 additional regular-season games to MSGN for $37.5 million by June 22.

During the litigation process, MSGN and the Yankees agreed last fall to a one-year, $52 million pact for the 2001 season.

In branching out on its own, YankeeNets has less than eight months to put together a viable regional sports network service and reach distribution agreements with local MSOs.

Time Warner Cable vice president of corporate communications Michael Luftman — whose MSO controls the lion's share of cable subscribers in Manhattan, Brooklyn, Queens and Staten Island — confirmed that the company has talked with YankeeNets about carriage of the new service, although he would not reveal specific negotiating points.

"We want to provide Yankee games because we know our subscribers want to see the games," he said.

Cablevision senior vice president of media and community relations Charles Schueler said the MSO expects to offer Yankees games to its 3 million subscribers.

"Cablevision has always carried the Yankees every year since they've been available to us, and we certainly expect to carry the games in the future," he said. "It's programming our customers want to see and I know the Yankees want to reach our customers."

In 1989, MSGN — then owned by Gulf & Western — pulled Yankee games from Cablevision-owned systems in a dispute over whether to sell the service as a premium or basic channel.

Industry observers believe that the YankeeNets may eventually partner with Time Warner Cable or even Cablevision in an effort to nail down distribution, as well as secure additional financing and possibly entertainment-based programming for the service.

Indeed, TBS Inc. president of domestic distribution Andy Heller said in an prior interview with Multichannel News that the Yankees are an attractive draw in the marketplace because of their success and history. But he would not comment on whether Time Warner has had any formal discussions about partnering with YankeeNets in an new network.

Representatives from YankeeNets would not comment on the matter, but sources close to the situation did not rule out the possibility of teaming with a local MSO prior to the launch.

If Cablevision doesn't partner with the YankeeNets, the Yankees' loss will leave MSGN with a major programming void to fill. The Yankees are arguably MSGN's highest-profile ratings and advertising draw.

In a prepared statement, Madison Square Garden/Radio City Entertainment president Seth Abraham said the network was "pleased" with the $30 million it will receive from YankeeNets as compensation for the loss of Yankee games. He added that both MSGN and FSN will continue to provide "compelling and exciting programming," in the absence of Yankees and Nets games.

Abraham told The New York Times
that MSGN has no plans to replace Yankee games with non-sports programming, or to merge Fox Sports Net New York with MSGN.

"The decision whether to enter into a new or extended agreement was a business decision that had to make financial sense for both parties," he said. MSGN officials declined interview requests.

With the loss of the Yankees, one industry source said that operators may look to pay a reduced licensing fee to the network. "Regardless of what MSG acquires, it can't hold the value of Yankee games," said the source.

Counting Fox Sports Net New York, the move will conceivably give the New York DMA three regional sports networks, with rate cards ranging from at least 85 cents for Fox Sports New York to as much as $1.50 for both MSGN and the new Yankees service.

But Kagan Associates sports analyst John Mansell believes that New York has a rich enough sports tradition and sufficient interest in its teams to support three regional-sports networks, especially if one of them is offered as a digital or premium service.

"If any market can, it's New York, given the number of teams in the market," he said.

Recent attempts by pro teams to create competing regional sports networks in other markets have failed to reach the light of day.

Two years ago, Texas Rangers and Dallas Stars owner Tom Hicks attempted to launch a separate regional sports network after pulling the teams' cable rights from Fox Sports Net Southwest. Eventually, Hicks acquiesced and signed a lucrative multiyear deal with the network.

In 1997, The Walt Disney Co. tried to launch a regional-sports network featuring its pro-sports teams, MLB's California Angels and the NHL's Mighty Ducks of Anaheim. The network, ESPN West, failed to secure adequate distribution. Disney eventually sold those rights to FSN for Fox Sports Net West 2.

The Portland Trail Blazers, backed by team owner and Charter Communications Inc. owner Paul Allen, are planning to launch a regional sports network this year, but the NBA club has yet to reach distribution agreements with the major MSOs in the area outside of Charter.

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