The failed partnership between the Houston Rockets, Houston Astros, and Comcast that ended in the Fall of 2014 with a sale of CSN Houston to AT&T and DirecTV for pennies on the dollar is the subject of a lawsuit filed this morning in Houston’s federal bankruptcy court.
The lawsuit contends that during the network’s existence, Comcast willfully engaged in behavior to devalue CSN Houston over time with the ultimate goal of purchasing the network lock, stock, and barrel from the Rockets and Astros for pennies on the dollar, and in turn, secure the media rights of those teams (the key asset of each of those franchises in this partnership) for well below market value.
CSN Houston was a joint venture between the Rockets (which owned approximately 31 percent), Astros (46 percent), and Comcast (22 percent). The business plan for the network was simple — the Rockets and Astros were the primary content providers for over 250 nights a year, while Comcast would deploy its notable clout in the cable community to secure carriage deals with other cable and satellite providers.
At least, that’s how it was drawn up on paper, but reality played out very differently, with the network never landing on a major carrier in Houston other than Comcast themselves. As a result, only about 40 percent of Houston was able to see Rockets and Astros games in their homes, and the whole thing became a public relations and financial debacle.
Among the contentions in the lawsuit are the following:
* HRSN (the combined broadcasting partnership of the Rockets and Astros, referred to as “Debtor” throughout the lawsuit) believes that Comcast was essentially sabotaging the network since at least 2013, and maybe as far back as inception in 2010.
* The key reason why HRSN believes that Comcast was doing this is because, unlike other CSN affiliates around the country that are 100 percent Comcast-owned, CSN Houston was only 22 percent Comcast-owned. Comcast’s deliberate plan to devalue the network and send it into bankruptcy would allow them to purchase the entire network on a “lowball” offer and secure the media rights of the two teams for well below market value.
* Comcast undermined the network through a pattern of behavior that began with their apathy in securing necessary carriage deals to get revenue flowing and eventually degenerated into lies, misrepresentations, and periods of uncommunicativeness with the two teams.
* Initial offers from Comcast to buy the Rockets’ and Astros’ shares of the network alluded to not just paying off creditors, but providing value for shareholders. Over time, though, largely through Comcast’s intentional dragging out of the process, the offers became lower and lower, and eventually would not have even paid off creditors.
* The lawsuit contends that Comcast even announced publicly in March 2014 that they were withdrawing their offers on the network, not because that was their intent, but to again drive the value down even more and keep the network swimming in a sea of sale-price-killing red ink.
Eventually, we all know the story ended with AT&T and DirecTV acquiring the assets of CSN Houston and converting it ROOT Sports Southwest. By the time the deal was done, not only were the network’s original shareholders not replenished, but there wasn’t enough to pay creditors under the terms of the acquisition.
The lawsuit alleges Comcast’s engagement in multiple counts of fraud in its actions over the course of the last few years, and seeks multiple varieties of damages and litigation costs, including actual, nominal, and exemplary damages.
It’s unclear in the suit just how much the plaintiff seeks or could receive with a favorable judgment, but it is believed they are seeking in the hundreds of millions of dollars. Perhaps more importantly to sports fans, it doesn’t outline how any damages from a favorable verdict would flow to the teams, if they would at all. This is likely a bigger issue for the Astros than it is the Rockets, as the network was never a “lifeblood” proposition for Les Alexander’s team.
Far more, the network was viewed as essential to the financial health of the Astros, in large part because of how baseball’s financial pie is allocated. In the NBA, TV revenues are proportionally much higher on the national level (ESPN, ABC, TNT) than the local level. Baseball is the reverse, with local broadcast rights being a vital revenue stream. It’s believed this is one reason why Jim Crane always seemed more adamant about needing a favorable per subscriber price from the various MVPD’s than the Rockets were.
We will continue with updates as this story evolves. Also, Gene Egdorf of the Lanier Law Firm, attorney for the plaintiff, will appear on “The Triple Threat” this afternoon at 2:15 p.m.
You can find the entire lawsuit along with highlighted excerpts here.
Listen to Sean Pendergast on “The Triple Threat” from 2:00 p.m. to 7:00 p.m. weekdays and follow him on Twitter @SeanTPendergast.