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CSN Houston, Bankruptcy and Why the Rockets Aren't Just Innocent Victims

Don't expect the Rockets or Astros on your TV anytime soon
Don't expect the Rockets or Astros on your TV anytime soon

Odds are that if you've flown an airline in the past decade, you've flown on an airline going through Chapter 11 bankruptcy. This is the popular bankruptcy, the one that lets the airline stay in business and keep flying while attempting to come up with a profitable business plan. You're also probably well aware of the awful customer service from the employees who are worried about layoffs, furloughs, pay cuts and loss of pension benefits while the execs who caused the bankruptcy get golden parachutes.

The result is a generally crappy airline that you keep flying because you have no choice while hoping that the company that emerges from bankruptcy has better management, a better plan and happier employees. And that's where CSN Houston is right now. The employees are worried about jobs, original programming might get cut and the executives who made this all happen are figuring out how they can profit.

Looking back, it was easy to tell that the network was doomed. Comcast wasn't exactly popular in Houston. The partner with the biggest ownership interest (Astros) was fielding an awful product that had destroyed fan interest throughout the viewing region. The required viewing footprint for the Astros and Rockets was different (the Astros wanting five states, the Rockets stuck in a sliver of Texas). And the operating structure was set up so that all parties had to agree to any contract, meaning that the Rockets could work out a deal to get the network carried on Direct TV only to have the Astros kill the deal if they didn't think the terms were good enough.

Then Drayton McLane and Comcast allegedly oversold the value of the network to Jim Crane (thus resulting in the fraud suit filed against them by Crane), which was a big deal since the network accounted for a large part of Crane's cost to buy the Astros. At the same time the non-Comcast satellite and cable providers seemed intent on gutting the network as part of some stand against rising RSN carriage fees.

With no other carriage deals than the one with Comcast worked out, the network could not make money. With the Astros threatening to reclaim their media rights from the network due to the network's inability to pay the media rights fees, the network was pushed into bankruptcy court, where for several months the parties have been fighting with each other over whether the network would actually be declared bankrupt.

Throughout this process the Houston Rockets have generally been seen as the innocent party, working hard to make deals happen only to have them vetoed by the greedy Astros (for what it's worth, the Astros told the court that only one carriage deal had been presented for approval, and that was in April of 2013). And it's the Rockets who have taken the lead since November, doing everything possible to work out some kind of deal to get the Astros and Rockets on TV. But briefs filed late last week by the Astros and Comcast make the Rockets out to be anything but innocent victims.

 

Why are the Rockets seen as the only innocent party?
Why are the Rockets seen as the only innocent party?

Comcast's brief to the court in favor of the bankruptcy stated that the Astros' media rights fees were to be paid in six equal installments from April through September. CSN Houston was able to make the first two payments thanks to a loan that Comcast made to the network. In late May, knowing it would not be able to make the June payment, all three partners agreed to provide $30 million, in three installments. (Comcast Petitioning Creditor's Trial Brief, page 9.) The partners made those payments in June and July, allowing the Astros to get its media rights fees for June and July. But when CSN Houston requested the August installment in late July, the Rockets refused to pay, instead demanding an appraisal of the network. As a result, the network was unable to pay the Astros the amount due for its media rights. (Comcast Petitioning Creditor's Trial Brief, page 10.)

In its brief to the court requesting the bankruptcy be dismissed, the Astros state that Comcast offered to buy the Astros shares for an implied enterprise business value of at least $500 million. But due to the operating agreement, the Rockets would have to sign off on the deal. The Rockets instead demanded that Comcast also pay them at least $500 million for its share of the network. Comcast declined the Rockets offer, with the implication being that this torpedoed a possible deal for the Astros. (Houston Astros Closing Brief in Support of its Own Motion to Dismiss, pages 11-12.) The Astros also stated that when Comcast began considering the bankruptcy, it asked the Rockets to be the lead creditor. The Rockets would do so only if paid $500 million by Comcast, which Comcast would not do. (Houston Astros Closing Brief in Support of its Own Motion to Dismiss, page 12.)

So instead of being the innocent party trying to get CSN Houston on TVs for all Houston, the Rockets instead appeared to be attempting to extort money out of Comcast while reneging on an agreed-to cash call, which prevented the Astros from getting money owed. The Rockets have been pretty quiet during this whole endeavor, and neither the Astros nor Comcast attempt to explain the Rockets' actions. But those actions are perhaps among the biggest reasons why the network's currently in bankruptcy and why the Astros were not paid its media rights fees.

The parties return to court today in the first step toward reorganizing the network, finding a way to make it earn a profit, and getting in on the other carriers. The court didn't appoint a trustee, so it'll be up to the partners to make what hasn't yet been able to work now somehow work (though as Crane stated in court in October, the network can succeed with the right plan), with Judge Marvin Isgur being the party who will ultimately sign off on any plan that takes CSN Houston out of bankruptcy.

It can be a bumpy trip, as anyone who's ever flown on a bankrupt airline can attest. Sometimes it works out, sometimes it doesn't. But the only thing for sure now is Rockets and no Astros on your non-Comcast cable TV.


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