Monday, November 21, 2005

Houston Sports Media Market

11. Houston

2.0 million TV households

The original RSN in Houston was Home Sports Entertainment (HSE), launched in 1983 to carry Rockets and Astros games. I believe HSE was eventually acquired by Liberty, then rolled up into FSN Southwest in 1999.

As mentioned in my post on the Dallas market, the entire Texas, Oklahoma, and Louisiana MLB territory is shared by both the Astros and the Rangers. Viewers outside of the immediate vicinity of either city are able to get both teams games.

The same market area is also covered by the Stars, the only NHL team in the region. Houston has long been thought of as a potential NHL city, however, so time will tell if one of the smaller market teams eventually migrates there.

Reading from the Tom Hicks playbook on rights negotiations, the owners of the Rockets and Astros banded together in 2002 in the hopes of using their combined leverage to break from FSN to launch a new network. This was prompted by the Rockets being lowballed for their rights by Fox.

After making this announcement with several years left on the Astros contract with FSN, lawsuits ensued. In November, 2004, the teams finally agreed to settle with FSN and offer their combined rights for in an estimated $600 million deal over 12-15 years. A sideline to this deal was FSN's decision to carve out the Houston territory into FSN Houston with its own programming. This was not a major operational change for Fox, since they would split the Southwest feed on nights when both baseball teams were playing anyway.

Houston is also a stronghold of Big 12 sports, and FSN has plenty of local programming for college fans.

Saturday, April 02, 2005

Detroit Sports Media Market

10. Detroit

1.95MM TV households

The original RSN in Detroit was Pro-Am Sports System (PASS). In 1997, Fox Sports Net was rolling up its regional sports business and was faced with a decision of what to do in the Detroit market. The logical option was to acquire PASS, but the proposed purchase price was so high that Fox simply decided to take over the business by acquiring the local sports rights itself, thus putting PASS out of business. Not a very good negotiating strategy on the part of PASS...

Fox eventually acquired the rights to all 3 professional sports teams in the market, and now has a long-term lock on the rights in a market dominated by Comcast. A couple of years back Fox gained an even stronger foothold by acquiring the rights to nearly all of the local Red Wings games, which had been on local broadcast station WKBD. In non-lockout years, the Red Wings are the pre-eminent ratings draw in the Detroit Metro area (and basically all of Michigan). Fox's acquisition of these games has effectively kept Comcast from launching a sports channel in Detroit.

Friday, April 01, 2005

Atlanta Sports Media Market

9. Atlanta

2.1 MM TV Households.

The original RSN in Atlanta was SportsSouth, originally launched by Ted Turner and sold to Fox/Liberty in 1996. Scripps Networks continues to own an 11% interest in FSN South. In 1999, Ted Turner re-entered the regional sports market by announcing the launch of Turner South to carry Braves, Hawks, and Thrashers games in addition to "Southern Programming" which was basically filler for the games. Fox sued Turner, arguing that the new launch breached the original sale contract for SportsSouth which stipulated that Turner could not launch a competing network for five years. The two parties eventually settled out of court in an agreement that gave FSN South an extension to their rights to 27 Braves games through 2012 in exchange for releasing any claims against Turner South. Turner South now has approximately 6 million subscribers.

FSN South is the most lucrative FSN regional due to the fact that it carries very little professional programming and the games it does have are relatively inexpensive. It also benefits from the fact that the Braves regional broadcast territory is so large. FSN South covers North/South Carolina, Mississippi, Tennessee, Alabama and Georgia.

FSN South carries the Hawks but not the Thrashers. It also carries Carolina Hurricanes and Nashville Predators games. The Memphis Grizzlies were on FSN for 3 years, but this past season they launched their own network: GRSN (Grizzlies Regional Sports Network).

FSN South is also SEC and ACC territory, these games often produce higher ratings than the local pro teams.

As discussed in the Chicago post, Turner took advantage of having one of the first cable "superstations" in TBS by distributing Braves games nationally and continues to do so. However, I believe part of the impetus for creating Turner South was an impending end to the "grandfather clause" that allows the TBS and WGN to carry national games. My recollection is that the league is ending this in 2007. If so, the TBS games will likely end up on Turner South.

Monday, March 07, 2005

Washington DC/Baltimore Sports Media Market

8. Washington DC

2.2 million Television Households

23. Baltimore

1.2 million Television Households

I am going to combine these two markets into one post, since prior to the Washington Nationals the Orioles claimed DC as their exclusive territory.

Home Team Sports was the original regional sports network in the DC area, launched in 1982. Viacom originally held 67% while Fox held 33%. In 2000, Viacom traded its share in HTS to Comcast for certain carriage rights of its cable networks on Comcast systems. Fox claimed it was supposed to have "tag-along" rights to participate in any sale, but because there was no dollar value assigned to the trade it claimed it did not have the ability to exercise this right. Fox had previously offered $250 million for Viacom's share but was rebuffed.

At the same time, Comcast also bought Midwest Sports Channel from Viacom and soon thereafter traded it for Fox's stake in HTS.

At that point Comcast had all three pro teams in the area locked up for some time. It has been rumored that Comcast might have interest in acquiring a baseball team (still a possibility) with the Orioles at the top of the list due to their strategic importance to the DC RSN business.

The Orioles have been in front of the ball with their television rights. They publicly announced creation of the Orioles network in early 2002 though their deal with Comcast doesn't expire until after the 2005 season. Until then, they plan on syndicating 70 or so games to area broadcast stations while keeping 90 games on SportsNet.

Now that the Washington Nationals are up and running in DC, Orioles owner Peter Angelos is seeking an MLB payout for the significant reduction in what used to be his teams' exclusive TV territory. He better get some cash out now, because his next round of negotiations with Comcast is likely to be sticky.

Kaiser Prediction: Both the Orioles and Nationals will end up with a significant number of games on Comcast (70-75). The remaining games of each team will end up on local broadcast stations.

Thursday, March 03, 2005

Why the Bain Deal Makes Sense for NHL Owners

Bain Capital and Game Plan, LLC made news today by presenting a buyout offer of $3.5 billion to owners of all 30 NHL teams.

Bain appears to be striking at a time of potential weakness in the league by capitalizing on the NHL labor dispute which has undoubtedly put a major dent in the finances and subsequent value of the individual league teams.

While bringing all of the teams under one ownership and management structure would seem to make sense, I would guess that many team owners would be loathe to part with these ego-boosting assets.

However, another scenario might be more acceptable to owners: sell a controlling stake in each of the teams to an uber-owner while current ownership maintains a minority stake in each one of the clubs. The required investment from Bain under this scenario would be significantly less. In some cases, current owners may elect to sell the entire franchise rather than have a minority stake.

The benefits that could be gained from the leverage of a single controlling entity are fairly obvious: increasing national sponsorship revenue, negotiating power for television rights or a possible formation of an NHL network, and perhaps an easier resolution to the league's labor problems. It is also conceivable that this type of deal would enable Bain to shut down some of the teams for financial reasons to optimize the financial performance of the portfolio. The league would have difficulty pulling this off right now because it would need to buy back each team and does not have the funds required.

The complexities of any potential deal include the fact that many of the teams also own their local arena and/or sports network. I would venture to guess that these are businesses that Bain would rather not deal with, but I suppose each team's situation would need to be reviewed on a financial basis to see if alternative arrangements could be made.

Regardless, the offer from Bain represents and interesting turn of events that could potentially lead to other private equity firms competing for the big prize. If it is ever successful, look for the acquiring company to spend a few years optimizing the cash flow of the entire league then either selling it through an IPO or to a major investor like Comcast, Anschutz, or Fox as an exit strategy.

Tuesday, March 01, 2005

Dallas Sports Media Market

7. Dallas- Ft Worth

2.3 million Television Households

While there is currently only one major Regional Sports Network in Texas, FSN Southwest, there have been two seperate occassions in the past decade when it appears that local team owners would take matters into their own hands.

The Rangers shocked the world in 2000 when they announced their $252 million, 10 year deal with A-Rod. While announcing this landmark deal, Rangers owner Tom Hicks publicly thanked Fox Sports Net for providing him with the funding to get the deal done.

That funding came in the form of a $550 million deal between Fox and Hicks for the rights to essentially all of the Rangers and Stars games for 15 years. You see, Tom Hicks could probably be classified as one of the world's savvyest negotiators. After all, he negotiates major deals for a living in his "real" job as partner of buyout firm Hicks, Muse, & Tate. He knew that by owning an MLB team and a winter sports team in the same market, he had a very credible threat to start his own regional sports network and basically run FSN out of town. So he used this position of leverage to strike a deal so rich that Fox is still scratching its head in disbelief. Part of the reason Fox was able to get the deal was because the rights costs were to be shared between Fox Sports Net and Fox's local O&O broadcast station, KDFW. But since cable is where the bigger money is due to affiliate fees, the broadcast portion of this deal is under water.

Hicks has been threatening for several years to sell the Stars and his 50% stake in American Airlines Arena, though recently he said he would simply hang on to the teams until the value improves.

The Rangers and Astros basically share the entire footprint of FSN Southwest, with the exception of the Dallas and Houston inner markets.

Comcast is the major MSO in northern Texas and Oklahoma. It will be interesting to see what becomes of FSN Southwest the next time the Hicks rights come up for bid in 2015. In the meantime, the Dallas Mavericks deal with FSN Southwest will come up in 2008.

Kaiser Prediction: Comcast will strike a deal with Cuban for rights to all of the Mavericks games in order to create a new RSN in Dallas. Mavericks owner Mark Cuban is savvy enough to make an equity ownership stake in a new network a requirement for such a deal.

The second time the region was nearly split apart was the recent push by the Astros and Rockets to form their own RSN. I will get to this later when I address the Houston DMA.

Saturday, February 26, 2005

Bay Area Sports Media Market

6. San Francisco Bay Area

2.4 Million Television Households

The San Francisco Bay Area in cludes Oakland and Sacramento. Currently there are two sports networks in the area, Fox Sports Net Bay Area and Comcast SportsNet West. FSN Bay Area is 60% owned by Cablevision and 40% owned by Fox (even after the recent parting of ways on other networks). FSN Bay Area began life as SportsChannel Pacific in 1990.

FSN carries 75 A's games and 110 Giants games. 111 of the combined total will be broadcast in HD in 2005.

In July, 2002 the Warriors announced a new agreement with FSN to be the team's exclusive television network with 60 games to be distributed. This replaced a long term agreement that had previously been struck in 1999 that only provided for 30-35 games. The renegotiation was a direct result of the Kings moving to Comcast.

In April, 2004, FSN and the A's announced a "long-term" extension to their existing contract, with an expansion in the number of games from 60 to 75. The strategy behind this was questionable in my mind due to the fact that the team probably could have negotiated for a stake in a new channel with Comcast with distribution of even more games. But it remains to be seen how long-term this agreement really is. I would venture to guess that the A's have kept their long-term options to a certain extent based on the fact that Comcast has made mention of their long-term strategy to acquire more team rights.

FSN also renegotiated their contract with FSN to significantly increase their games from 60 to 110 over several years. The Giants are under contract until 2012.

Comcast SportsNet West officially launched November 2, 2004 after Comcast acquired the rights to 50 Kings games in a 10 year deal. The rest of the programming schedule is relatively weak, with games from Fresno State, UC-Davis and Sac State.

Kaiser Prediction: The Sharks will defect from FSN and move to Comcast when their deal expires after the 05-06 season.

The 60/40 ownership split between CVC and Fox in this region should make for an interesting battle over time. CVC's share is essentially a Wild Card, and by holding it they can eventually either sell control of the network to Comcast (which would be a kick in the seat for Fox because Comcast might choose to drop the FSN network programming) or sell it to Fox which would mean a bidding war for each team as their contracts come up. This is bound to be a losing battle for Fox.

Kaiser Prediction: CVC will eventually sell its 60% stake to Comcast, because they are probably willing to pay more to cut out the middleman once again. Fox will retain its minority stake and hope to make more money than it ever has under Cablevision due to the local teams' decreased leverage in negotiating rights fees with the local MSO monopoly.

Wednesday, February 23, 2005

Boston Sports Media Market

5. Boston

2.4 Million Television Households

In 1984, the Red Sox and Bruins launched New England Sports Network (NESN). To this day, the Sox own 80% of the network and the Bruins 20%.

Over time, NESN has grown into a cash machine. The Red Sox 80% share in NESN was thought to be valued at approximately 50% of the $700 million paid by John Henry and Tom Werner for the team in 2001. This means that the total value of the network (including the Bruins' share) was approximately $440 million at that time. However, it is difficult to separate team value from network value since teams will often underpay themselves for rights to avoid league revenue sharing.

The Sox normally air 120+ games on NESN, with Friday night games licensed to local UPN affiliate WSBK. Some Bruins games appear on WBZ (CBS 4). Obviously none of these rights will change any time soon.

A couple of years ago NESN merged its website with the Boston Globe, which is owned by NY Times - a minority partner in the Sox.

The odd man out in this situation is the Celtics. However, this has probably worked in their favor in terms of rights fees. The entire schedule of regional games airs on Fox Sports Net New England, which is now 50% owned by Cablevision and 50% by Comcast. Comcast acquired their ownership stake from AT&T, who in turn acquired it from MediaOne. The Celtics have a long term deal with FSNNE through 2017.

New England is rich with colleges and universities, so there is plenty of additional local programming to support two RSNs, especially hockey and basketball from BU, BC, etc.

In the near future, look for Cablevision to sell its 50% stake in FSN New England to Comcast as part of its yard sale of assets. As the dominant cable MSO in the Boston area, Comcast can wait another 12 years to put the screws to the Celtics while cutting out the middleman in the meantime. Gaining full control will also allow them to amortize the cost of Comcast SportsNet programming over yet another network.

NESN is in the the enviable position of being able to negotiate a hard line with Comcast in all future negotiations because viewers cannot live without the Sox and Bruins. The only possible changes to NESN may eventually be a switch from all hyper-regional shoulder programming to some Fox Sports Net network programming if/when Comcast drops the FSN national feed on its new Comcast SportsNet New England.

Tuesday, February 22, 2005

Philadelphia Sports Media Market

4. Philadelphia

2.9 million Television Households

In 1996, Comcast-Spectacor was formed through a joint venture between Comcast (66%) and Ed Snider (34%). The venture controls the Flyers and 76ers, Comcast SportsNet, Wachovia Center, Philadelphia Spectrum, a variety of smaller pro teams, and several facilities/food services management companies. This became the starting point for Comcast's expansion of its Regional Sports Business. The Phillies are also distributed on Comcast SportsNet, CN8, and the local UPN affiliate.

Comcast SportsNet has been able to evade must-carry rules which would ordinarily dictate that DBS distributors would have access to the channel. As a cable-only channel, it has successfully argued that making itself available via DBS would cause it undue financial harm due to the necessary investment in uplink facilities. Understandably, this has been a thorn in the side to DirecTV and DISH (who once tried to sue).

This region is an example of the local team having a poor leverage position in negotiations for sports rights due to the fact that the RSN is controlled by the local cable monopoly. This is evidenced by the Philies having relatively meager local TV rights revenue in relation to its peers. Only 7 MLB teams have lower revenue per person (local population).

History of The Regional Sports Business Part 2

In a strategic move to bail out of the sinking ship that has become the RPP partnership with Cablevision, Fox announced this morning a breakup of the partnership. (Press Release)

This elegant, tax-free solution gives Cablevision 100% ownership of MSG, FSN Chicago, and a 50% stake in FSN New England. Fox will take control of FSN Florida and FSN Ohio as well as NSP (the Fox Sports Net programming arm) and National Advertising Partners (NAP) which sells advertising on the FSN network.

The parties will continue the current ownership structure of FSN Bay Area (for the time being), which is controlled by CVC with Fox having a 40% stake.

This move enables Fox to escape from the disasters of MSG/FSNNY and FSN Chicago, both facing mass team defections. See my previous posts on these markets (NY & Chicago). It also frees Cablevision to explore options for its 50% ownership in FSN New England.

Fox appears to be getting the better end of the deal. An analyst from UBS Warburg calculates that the assets Fox will take away are worth $700 million, while CVC's are only worth $450 million. The deal will also enable Fox to take greater advantage of team rights in the Florida and Ohio - more on this later.

Kaiser Prediction: Cablevision will eventually sell its 50% stake in FSN New England to Comcast, the dominant MSO in the Boston area.

The change in control of FSN Ohio to Fox is interesting. Larry Dolan, brother of CVC's Charles Dolan, owns the Cleveland Indians and thus it was a family affair with CVC's ownership of FSN Ohio.

It also remains to be seen what will become of FSN Chicago. With Comcast taking over the major local sports rights, it seems that FSN Chicago is doomed to be shut down when the Comcast (AT&T) affiliate agreement ends if not sooner.

Kaiser Prediction: Cablevision will also sell what remains of FSN Chicago to Comcast. Comcast will then implement a two channel strategy, carrying the Cubs and Blackhawks on FSN together with the FSN national programming feed. It will distribute White Sox and Bulls games on Comcast SportsNet Chicago with its own Comcast national and regional programming.

Sunday, February 20, 2005

Chicago Sports Media Market

3. Chicago

3.4 Million Television Households

In 1999, Jerry Reinsdorf and Bill Wirtz negotiated jointly with Liberty-owned Sports Channel Chicago for a blockbuster 20 year cable deal for Bulls, White Sox, and Blackhawks games. The remaining games appear on broadcasters WGN and WCIU. Shortly therafter, the Cubs joined the party by negotiating with SportsChannel for basically the same terms as the White Sox, but only for 72 games. These deals allowed for "openers" every five years, giving the teams the opportunity to seek external bids for their rights.

Fox acquired a non-controlling 50% of Sports Channel Chicago through its Liberty partnership, with Cablevision controlling the other 50%. Fox also owned 40% of CVC's stake, so in essence Fox had 70% of the equity in FSN Chicago but not management control. In December 2003, Fox sold its 50% ownership stake to Cablevision to partially resolve this issue. For more history on this, see this post.

In 2004, the Chicago teams took advantage of their "look" period and shopped their rights around. Not surprisingly, they found an eager partner in the form of Comcast, the dominant MSO in the region. Comcast delivered a 15 year deal giving the teams a 70% stake in a new network that Comcast would manage. I am assuming the ownership stake is based on the number of games contributed by each entity (under the old contract, each game was given equal value). Under this deal, each team will have the following number of games: White Sox - 95, Cubs - 72, Bulls - 42 (+ playoffs), Blackhawks - 39 (+ playoffs).

This deal makes all the sense in the world. Comcast gets to cut out the middleman and in doing so can theoretically split what would have been Fox Sports Net's profit margin directly with the teams. An equity stake in the regional network will also mean a higher business valuation on the individual teams when it comes time to sell (ala NESN).

So the Fox/Cablevision partnership is going see the value of this asset dry up to nothing at the same time its New York properties get worked over.

Comcast is very likely to drop FSN Chicago at its first opportunity to do so. I believe this has already happened on the non- AT&T systems, but the AT&T systems may need to wait a couple of years before dropping FSN due to the terms of their affiliate agreement. FSN network content (Big XII football, Pac 10 and ACC basketball) just isn't compelling enough in that area of the country to keep the FSN network distributed. Interestingly, Fox-owned DirecTV dropped FSN Chicago on December 31, 2004 and replaced it with Comcast SportsNet. This indicates that Fox has basically given up on their own network which is now only airing Chicago Rush (AFL) and DePaul basketball games in addition to the network feed.

But having an MSO as your partner could potentially be a double edged sword for local teams. The partner teams will need to ensure that Comcast continues to pay fair affiliate rates to the JV over the long term. Comcast is also likely to resist adding new games to the venture, because it would mean paying increased affiliate fees for games that it is currently getting for "free" from local broadcasters. The only situation where more games would make sense for Comcast is if the JV could surcharge other local operators (like Mediacom) for these incremental games without having to pay itself, if can make a profit on the advertising vs rights fees alone, or the JV simply chooses to not pay any significant rights fees to the teams for the "left over" games (why not keep the ad revenue in house?).

One oddity in the Chicago market is Tribune & the Cubs. Cubs games have been on WGN for decades, and since the late 1970's "Superstation" WGN has been distributing Cubs games nationally. In 2005 WGN will distribute 70 Cubs games and 25 White Sox games (exluding Cubs/Sox matchups) to over 56 million subscribers nationwide.

WGN, TBS (Atlanta), and WWOR (New York) carved out a unique niche as Superstations in the late 1970's as local broadcast channels with national distribution via cable. By distributing professional sports games nationally, they increased the value of their own teams by popularizing them over vast territories. The Braves, for example, were portrayed as "America's Team." Of course, as cable TV became more prevalent some order had to be restored to the system by the league. Otherwise all teams would naturally try to seek national distribution of their own games. This scenario would would have greatly decreased the league's ability to negotiate for national cable rights, and would also create an unfair advantage for teams owned by media companies. TBS and WGN were basically grandfathered in (WWOR eventually stopped national cable distribution) but no other teams were allowed to distribute games outside of their territories under the local rights granted by the league.

When WGN-9 became a WB affiliate in 1999, Tribune decided to cut back the number of Cubs games it would air on WGN due to network rules and programming conflicts. It sublicensed 72 of these games to Fox Sports Net. This decision was always suspect in my mind. As a television station operator with a popular baseball team, Tribune appeared to be the ideal candidate to start its own regional sports network. It could have just moved most Cubs games to a new sports network separate from WGN (leaving a few broadcast games there for those without cable). So why didn't they do this?

I don't know that there is a good answer. Perhaps AT&T had warned them that they would not pick up another sports network so the risks appeared too great. But it seems that AT&T shouldn't really care whether they paid FSN for basically 2 networks (an extra channel was often made available for overlapping games) or FSN for one channel and Tribune for the other. Perhaps the decision came at a time when Tribune was saving its cash for other investments, such as the acquisition of local TV stations, and a new RSN was not a strategic imperative. If anyone has any insight on this perplexing strategy (or lack thereof) by all means let me know.

Friday, February 18, 2005

Los Angeles Sports Media Market

2. Los Angeles

5.4 million Television Households

With 6 pro teams, the LA market easily supports two RSNs: Fox Sports West and West 2. West began its life as Prime Ticket, then was re-branded Prime Sports West under Liberty. West 2 was launched in early 1997 when News acquired the Dodgers.

The most important team in this market, and the one with the highest team value, is arguably the Lakers. The Lakers are currently struggling with a legacy cable rights contract from the Prime days that only pays a small % increase each year on a relatively low base. They recently renewed their deal with KCAL 9 for all road games through the '11-12 season.

MAJOR STRATEGIC BLUNDER FOR THE LAKERS!!

The Lakers' deal with FSN ends after the '04-05 season. Prior to the KCAL deal, they had a credible threat to hold over FSN's head. They could have taken all 80 or so games and launched a new network. In my opinion, this would have been the Lakers best option for long term profits. But some owners prefer to get a fat rights check instead of bothering with management, investment, and potential risk of a TV network. Jerry Buss is one of those people.

The timing is right to launch a network - before the LA cable market gets consolidated under one dominant MSO (Kaiser Prediction: Time Warner). It is theoretically easier to launch an RSN in a fragmented market, because no one operator has enough leverage to stare you down on carriage or rates. That said, the ultimate winner of the Adelphia lotto in LA may take control of the systems before a Lakers network would have launched in September 2005, making this a moot point.

The Fox acquisition of DirecTV may have also helped the Lakers with this decision. In the past, new regionals could get distribution on DBS relatively easily because it was seen as a way for DBS to steal subs from cable systems that weren't carrying the network. But the game has changed now, and DirecTV would likely refuse to carry a new network from any of its current teams until it appeared inevitable that the network would have staying power.

So now the Lakers have lost a great deal of leverage to negotiate with FSN. They don't appear to have any other viable options. Add the fact that Shaq is gone, the team is at .500, and ratings are down and the Lakers are looking down the barrell of a loaded gun.

Kaiser Prediction: Lakers will sign a deal with FSN for all home games through '11-12 season, at lower rights fees than expected.

The Clippers signed a deal with FSN in March '03 after an effective blackout of the games for part of the '02-03 season, and some of their games are also carried on KCAL. Interestingly, this occasionally allows KCAL to air Lakers-Clippers games at a fraction of the cost when the Lakers are the "away" team. But enough about the Clippers.

Fox purchased the Dodgers in 1997 for a record-setting $311 million as a pre-emptive strike to keep Disney/ESPN from gaining access to Dodgers rights and crafting a two channel RSN strategy of their own. While this strategy worked for Fox, the team eventually became a sinkhole for cash with an estimated annual loss of over $60 million in recent years. The Dodgers formed the backbone of FSN West 2, with 80 games. Another 50 games appear on KCOP, a Fox broadcast O&O. These rights will move to KCAL in 2006. Fox finally unloaded the team for $430 million in early 2004, but retained a long-term contract for cable rights. The sale helped fill Fox's coffers for the DirecTV acquisition.

The Angels currently only have 90 games/season distributed locally. 50 games appear on FSN West and 40 broadcast games appear on KCAL ($5 million/year). New owner Arte Moreno has reportedly described these deals as "Little League" because of the low number of games he gets on air (lowest in the league?). But trust me, his total rights fees on this package are not below average.

In 2006, KCAL will dump the Angels in favor of the Dodgers at double the price. Moreno is gaining some attention from his renaming of the team to the Los Angeles Angels of Anaheim in an attempt to broaden the regional appeal (Kaiser Prediction: this name won't last more than 1 season) Arte is also doing some saber rattling about launching a new RSN. Theoretically he could do this in 2006 with the 75+ games left after the Fox games, and add the remaining games in 2009. But if memory serves, FSN has the exclusive rights to cable games meaning the team can't do two seperate cable deals. So the Angels appear to have two choices: find a broadcast partner to replace KCAL (maybe a KCOP switcheroo?) or try to sell more games to FSN (which they don't need so probably won't pay for).

The Kings are under a long term deal on West that lasts through eternity. The Ducks and Angels rights are actually under one contract with FSN (Disney wanted it that way) which is good for the Ducks from a rights value standpoint. This should be helpful to Disney as it tries to deal the Ducks away.

Kaiser Prediction: The Angels and Ducks will join forces for their own network in 2008 in partnership with Time Warner and cut out the middleman.

New York Sports Media Market

1. New York/New Jersey

7.4 Million Television Households

For more than a decade, MSG and Fox Sports Net NY had a virtual lock on local sports programming through rights deals with all 6 NBA, NHL, and MLB teams. In 2001, Yankees owner George Steinbrenner rocked the cart by announcing intent to create a new regional network in partnership with IMG after its 12 year, $486 million deal with MSG expired in 2000. Litigation ensued. The critical sticking point was a "right of last refusal" clause in the old contract with MSG. MSG argued that an offer from an entity that would be 95% controlled by the team did not constitute an fair "third party offer". The terms of the new deal were to provide the Yankees with $838 million in rights fees over 10 years and CVC was loathe to match these blockbuster rights fees. Of course, this deal was constructed in part to divert revenue from the team to the Network in order to avoid revenue league sharing (a model that has attracted attention from other MLB teams), see Inside Pitch.

A judge eventually decided that MSG could carry 85 games for free in 2002, but added the stipulation that the Yankees could choose to either pay MSG $30 million to take back these rights, or force MSG to pay $37.5 million for the remaining 65 games. The Yankees bought their way out, but this struggle was far from over. YES still had to convince Cablevision to carry YES on systems serving over 4 million homes.

As an aside, Cablevision reportedly tried to purchase the Yankees in the mid 90's to try to keep this chain of events from occurring, but the two sides could never reach a deal. Imagine what the deal terms would have to be for George to part with his most prized possession. The intrinsic personal value he places on the team is undoubtedly higher than its true business value.

To support a full schedule of programming for the new YES network, Steinbrenner created the YankeesNets holding company with Lewis Katz and Ray Chambers, owners of the New Jersey Nets. Later, the partnership also acquired the New Jersey Devils and created the Puck Holdings division which was controlled by Chambers. This may have been ill-conceived since the TV rights to Devils games were locked up by MSG until 2007. Meanwhile, the partners lobbied jointly to get public funding for a new arena in New Jersey and a new Yankees Stadium. This short-lived partnership was essentially dissolved in late 2003 after the partners had no luck at persuading local officials to construct new facilities. Yankees Global LLC now owns the Yankees and 60% of the YES network. Goldman Sachs got the remaining 40% by investing $340 million. Consequently, the Devils were sold to Vanderbeek (who eventually got his Newark arena) and the Nets to Bruce Ratner (who is working on one in Brooklyn).

By most accounts, YES is generating at least $160 million in annual net profits for Steinbrenner, basically tripling the rights fees paid by CVC in their final year with them.

The second round of lawsuits between the Yankees and Cablevision commenced after Cablevision refused to pay what they deemed to be exorbitant affiliate fees for the network. The standoff lasted the entire 2002 season without carriage for the network. In 2003, an interim solution was reached to place YES on a pay tier with MSG and FSNNY with a $1.95 per month fee for any of the 3 or $4.50 for all 3. Both sides agreed to binding arbitration to resolve the issue over the longer term. The ultimate resolution was for Cablevision to move all three channels to the basic tier and guarantee a 90% penetration rate in exchange for a lower per sub affiliate rate of $1.85 vs the $2.35 YES was asking for. As a result, CVC raised its monthly basic price by 95 cents. Both Comcast and Time Warner offer YES on basic, although Time Warner customers have the option of dropping YES and taking $1 off their bill.

This deal was seen as a win for all RSN's, as it solidified placement of sports networks on basic tiers. Cable MSOs generally prefer placing these popular networks on digital tiers to support penetration of higher margin tier offerings.

With the loss of its flagship programming, CVC decided to move 50 NY Mets games to MSG to support the channel in the summer months. MSG networks are carried by other MSOs, and affiliate agreements usually stipulate that a minimum number of pro games be carried on the network. As such, the loss of 100+ Yankees games most likely resulted in some significant decreases for Cablevision in its affiliate rates. It certainly caused problems with Time Warner when CVC went looking for a rate increase to $4.10/mo for both networks with fewer desirable games. And it doesn't help that the Knicks and Rangers have had several poor seasons at the same time.

There is nothing like being kicked when you are down.

In early 2004, the Mets paid MSG $54 million to "buy out" of their contract after the 2005 season. MSG's hopes of a possible reconciliation were dashed when the Mets announced their creation of a new RSN in partnership with Comcast and Time Warner, with Comcast managing the venture. Now its deja vu all over again, with CVC in court to try and enforce a contract clause giving them exclusive negotiation rights until November. Odds are, the deal will proceed anyway and CVC will have another battle on its hands over affiliate fees for the Mets network.

As a small consolation prize, MSG did manage to sign the Devils to a 20 year deal for 75 games to keep them away from the Mets or YES. The Islanders are also under a long-term contract with the network for all of their games. At least CVC has hockey locked up for the forseeable future, but the scheduling ramifications of having 4 winter sports teams could prove messy. And that won't be a problem if the NHL can't solve their labor dispute.

So poor Cablevision (and Fox for that matter) have lost a significant amount of value in the past couple of years. What lies ahead? One could argue that they should consolidate the networks into one viable offering. But with so many winter games, this might be next to impossible even by placing some games on Metro. They will have to seriously consider sublicensing some games to broadcast, or even sublicensing one of the teams to YES or the Mets network (who may want some winter programming). Regardless, the summer months are sure to be lean for MSG.

Kaiser Predicition: Cablevision sticks with its two channel approach, by mixing games from all four teams on both channels with the occasional overflow to Metro.

A new scenario has been bantered about in the press recently, postulating that YES and NESN would join forces in a joint venture to get better leverage for ad sales and affiliate negotiations. A new Mets network could also join the fray.

Kaiser Prediction: Goldman Sachs sells its 40% stake in YES to Comcast and Time Warner for $400+ million in 2005. Comcast manages YES and the Mets network jointly.

Between the problems in New York and the problems in Chicago, I bet Rupert is rethinking his decision not to sell his stake in RPP when he had the chance.

History of The Regional Sports Business Part 1

I used to work at Fox Sports in Business Development. I gained a great deal of proprietary "insider" knowledge about the sports media business during my tenure. Fortunately, I am not bound by an NDA (they didn't pay me at that level which is why I left) so I basically have free reign to spill the beans on everything from rights fees paid to individual teams and leagues, "secret" business arrangements, cable network affiliate rates, advertising revenues, personal indescretions of big name talent, you name it.

But in the interest of maintaining a possibility of ever working in the incestuous entertainment industry again, I will try to limit my postings to publicly available facts and personal opinion. For the record, I enjoyed my time at Fox for the most part. My short-term goal for this blog is to look at the major media markets in decending DMA order and discuss the landscape with regard to the business of Regional Sports Networks (RSNs).

First I think it is useful to explain the confusing relationship and history between Cablevision and Fox.

Let's start with Fox/Liberty Networks. This entity was created in 1996 as a partnership between Fox and TCI's Liberty Programming Arm with the goal of indirectly competing against ESPN. Liberty contributed the regional sports networks then known as Prime Ticket, while Fox contributed the FX network and cash. The Prime Ticket regionals were rebranded Fox Sports Net. In April, 1999 Fox paid $1.425 billion for total control of this JV. Liberty retained 50% of International Sports Programming LLC (Fox Sports International). This deal was brokered by Jeff Shell, who later became President of Fox Sports Net then President of Fox Cable Networks.

Cablevision owns Rainbow Programming, which in turn has a subsidiary called Regional Programming Partners (RPP). In December, 1997 Fox/Liberty paid $850 for a 40% stake in RPP. Under this partnership, Fox/Liberty and CVC expanded the national scope of Fox Sports Net after rebranding Rainbow's SportsChannel properties. Cablevision retained management control of this joint venture, which has been a sore spot for Fox on occasion due to its inability to influence transaction and investment decisions. For example, CVC has increased its capital investments in The Metro Channels (including News 12) with an arguably low return.

Prior to December 2003, RPP owned the following stakes in various entities: MSG (including Knicks, Rangers, Madison Square Garden, Radio City Music Hall, etc)- 100%; FSN Ohio - 100%; FSN Florida - 100%; FSN New England - 50% (50% owned by Comcast); FSN Chicago - 50%; FSN Bay Area - 50%; Metro Channels - 100%

Fox had previously acquired the other 50% of SportsChannel Chicago and Bay Area through the Liberty transactions. This gave them effective ownership of 70% in each of these networks, but not management control. In December 2003, Fox had the right to exercise a put of its stake in RPP back to CVC at a value reportedly around $1 Billion. This move would have triggered a possible put by CVC of its 50% stakes in NSP/NAP back to Fox.

Instead, Fox exercised a "side-car" put option to sell its 50% stakes in FSN Chicago and FSN Bay Area to RPP for $150 million. This partially resolved the issue of CVC's controlling minority stake while increasing Fox's cash hoard for a potential DirecTV purchase. So for the time being, Fox owns an effective 40% in all of RPP.

CVC and Fox are also 50/50 partners in two separate joint ventures: National Sports Partners (NSP) is the entity that produces network programming for the Fox Sports Net Regionals, MSG, and Comcast. National Advertising Partners (NAP) is the entity that sells national advertising spots on the same network of regionals. Fox has management control of these entities, causing the inverse tension with regard to the level of programming investment for the FSN national feed.

The history of RSN's obviously should include other players such as Comcast and NESN, but I will leave these topics to later posts and discussion of individual media markets.