Shocking Development re: CSN Houston...

It's because they don't have it.

 

Which contract?


I'd be curious to know what representations/warranties were made by McLane to the new ownership group regarding revenue streams from Comcast. I'd be even more interested in knowing what representations Comcast made to the new ownership group before their purchase of the Astros regarding those same revenue streams. There would be tons of due diligence done by a new ownership group regarding the worth of CSN Houston, as those revenue streams factored heavily into that inflated purchase price.

 

The share in ownership. Comcast may have been looking for someone to join q losing venture. but why would comcast form an entity that projects losses

 

My understanding from the articles is that the biggest creditor who forced this is the Bay Area Comcast entity. That's not true...I just pulled up the bankruptcy filing.

The largest creditor is Houston SportsNet Finance LLC. They're a Delaware company that lists their business address as Comcast's offices in Philadelphia. There are other companies that appear to be Comcast financing entities...one called Comcast Funding, Inc. that are based in the same office.

Houston SportsNet Finance LLC is claiming to be owed $100,000,000 in debt that they claim is secured by all of the assets of the CSN Houston (the corp name for the operating company of CSNHouston is Houston Regional Sports Network, L.P.).

The other creditors are all unsecured:

Comcast Sports Management Services, LLC -- $1,251,573

National Digital Television Center, LLC -- $10,517

Comcast SportsNet California, LLC -- $43,129.02.

The newspaper story I read made it sound like the latter was the real heavy creditor...but that's not the case at all.

So CSN Houston's operating company is a limited partnership. The Astros, Rockets and a company called Houston SportsNet Holdings, LLC, which is the corporate name of the Comcast partner.

Houston Regional Sports Network LLC is the general partner. It has three members: 1. Astros; 2. Rockets; 3. Comcast. It's managed by a board of directors made up of:

1. One Astros rep;

2. One Rockets rep;

3. Two Comcast reps.

This is all spelled out in the affidavit of a guy named Robert Pick, who is the Sr. VP of Houston SportsNet Finance, LLC (the Comcast lender). Most of his affidavit if redacted...blacked out.

It does say that the Comcast Loan was fully drawn on as of May 29, 2013....if you'll remember, that's right about the time that Crane said "tough decisions" were going to need to be made in the press. The principal balance of the money owed on the Comcast Loan is $100,000,000, as I mentioned above.

The affidavit goes on to say that CSN Houston may be unable to pay its quarterly interest payments in 2014.

The affidavit says that Comcast believes that the General Partner (Houston Regional Sports Network, LLC) is "unable to operate the Network's business affairs...and that it would be in the best interest for a Chapter 11 trustee to be appointed to conduct an auction for the Network's business assets.

Comcast goes on to say that it believes the Network's assets have "meaningful value" and that it "would be prepared to make a bid to acquire either Network (under a plan or reorganization) or substantially all of its assets. It says that should happen by the end of 2013.


Some of this was well reported. Others have it are not. I have a difficult time seeing how the Comcast Lender and the Comcast partner in the Houston Regional Sports Network, LLC are not so intertwined as to be insiders. Comcast apparently does this all the time...and the financing arms for these new networks literally are in Comcast's offices around the country. But I do know that Isgur is a really good judge.

Hearing today at 4:15 to consider whether the emergency request for a trustee should be granted. That will be really interesting to see what comes out of that.

 

Wait...you're missing my point. They don't share in ownership of the Astros. I'm talking about the purchase of the Astros. At that time, Crane was just a potential owner....he and his group would be doing due diligence to understand exactly what they're buying so they can agree to a purchase price with all the information. Typically, when that happens, the potential buyer kicks the tires and calls up vendors and other 3rd parties to get a sense of assets and liabilities. They seek representations from those 3rd parties so they can verify what the seller (in this case, McLane) is saying about the value of the entire operation...including the revenue streams to the Astros from Comcast in exchange for media rights.

I'm curious to know what those representations from Comcast looked like. What Crane and his group were told by both McLane and Comcast.

 

Thanks for that Max, repped.

 

This is insane. So they formed an organization with less than a year's worth of capital to survive a rough period while simultaneously being hardline negotiators on their per-subscriber goal? That seems like the height of stupidity.

 

Or maybe comcast has a lot more money and a lot smarter people than the astros and rockets.

 

So many things like that with all this. I blame Comcast for all of that. This is their baby. They finance it..they have more people on the board, presumably because creating stations and arguing for carriage is in their wheelhouse...it's what they do all the time. The Astros and Rockets rely on Comcast entirely to provide them with information on the market and what can be expected.

I blame the Astros for signing away media rights to a company without ensuring carriage in any meaningful way.

I blame the Rockets for signing away media rights to a company without ensuring carriage in any meaningful way.

The idea that either of those 2 did that under a deal where their own media rights were completely at the mercy of another sports franchise in a completely different league is just beyond asinine to me. That's just ridiculously dumb. Particularly when you consider how far more important local media rights are to an MLB club than they are to an NBA franchise.

 

They don't look real smart on this one. But they certainly have far more experience regarding starting tv stations and negotiating carriage deals...they've been doing it around the country...it's their very business.

 

Yup - all around, this seems to have been horribly mismanaged. It reminds me of UT giving away all their media rights to ESPN, who has completely different objectives than UT does. But even there, there at least aren't multiple different owners with different goals in mind - ESPN just gets to decide everything and screw over UT if needed. This whole thing is a trainwreck.

I do wonder how similar channels are setup for other organizations (or if there are any that are shared by two franchises).

 

FYI, everything I've been told -- and it has been reported even by the Chron -- is that the Astros are the one causing the issues.

http://blogs.houstonpress.com/hairballs/2013/09/csn_gridlock.php

 

That is what im saying. crane could be trying to force his way out of partnership in the network.

 

That's why I'm interested in what the representations were from McLane and Comcast to the Crane group before they bought the team to begin with. The number they claim to be seeking is in line with everyone else in the AL West. Those media dollars are far more important to an MLB club than an NBA franchise. Far more important.

That the Rockets chose to have their broadcast availability subject to Astros approval is beyond stupid. Two franchises with entirely different economics driving them.

 

One of the articles already alluded to that. That the Astros were trying to find a way out of this for a while now.

 

Well if they end up owning the channel outright, they'll make far more in the long-run by simply having to pay rights fees to the teams, rather than share profits.

Comcast is the one company that can withstand all of this without blinking an eye.

The Astros are apparently leveraged in debt, and there are very real long-term ramifications for them not having bundles of TV money coming in... with regards to future spending on the club (hence the Astros having the most to lose, and likely causing most of the holdups in the negotiations).

The Rockets just need to get themselves on TV in some way/shape/form. They rely more on attendance/merchandise/bandwagoners to get the cash flow up more so than a long-term tv deal. Plus, they don't need a huge profitable revenue to compete in the NBA, with salary caps, rookie contract restrictions, and luxury tax implications.

 

You're assuming that the Rockets and/or Astros would sign with them again. It's entirely possible someone else comes in and makes a sweetheart offer for the Rockets broadcast rights if the bankruptcy court kills their deal with Comcast.

The CSNHouston model is entirely different without either franchise, no matter how bad the Astros are right now. This is a 40 year deal. The Astros provide 162 games...that's a helluva lot of programming.

 

If the channel stays intact, and an independent arbiter is able to negotiate carriage deals for both teams... and the teams are offered their initial investment back in exchange for Comcast owning the channel outright, I could easily see the Rockets deciding to stay put rather than try to form another network (or go crawling back to FSN), simply to get their games on the air ASAP.

The Astros, however, know they can't compete unless they have a similar tv deal that their main competitors have. They also don't have enough pull by themselves to form their own RSN without a partner. They also don't have enough cash to field a legit MLB team. It could all fall apart real soon for them if this deal falls through, and they're left with an offer from another RSN that reflects more the viewership over the last 3 years (ie - bad) rather than what the market was when CSN was formed.

 

to me the asking price per subscriber isn't significant enough to blow up the entire deal. we're talking $5mill a year vs the broadcasting rights per year which are significantly more.

 

Where do you get $5 million per year?