With a Little Patience, Maybe the Astros Can Make Out Like Bandits on CSN Houston
It's easy to say that Jim Crane and the Houston Astros should just agree to any deal that Comcast or the Rockets put in front of them regarding CSN Houston carriage. The only concern of most fans is that the games get on television. Nothing else matters. And the truth of the matter is, making sure that good carriage fee deals get worked out for CSN Houston really should be the most important thing in the world to the Astros.
That's probably not how the Astros see it. If the team could get its media rights back from CSN Houston, it would quickly do so and sell those rights to the highest bidder who would guarantee payment -- probably Fox Sports Net. And that infusion of quick cash would be important to the Astros and would make the fans happy because the games would be on television. But as Jonah Keri's story in Grantland on the Baltimore Orioles shows, it's not all about the media rights fees.
The Major League Baseball revenue sharing program mandates that 34-percent of every team's media right fees be paid into a central fund to be evenly distributed to all other MLB teams. But there is no rule that says network subscription fees or network advertising revenue has to be shared. That's pure profit that any team gets to keep. And right now the Orioles are using its 87-percent ownership stake of the MASN regional sports network to screw around the Washington Nationals and MLB, and if the Astros can figure out a way to make CSN Houston work, then it can make a lot more money through its ownership stake in the network than it can through media rights fees from the network.
The Orioles are one of five MLB teams to own the majority of a RSN -- the others are Seattle, New York Mets, Boston, and Los Angeles Dodgers. And due to MLB stupidity behind the relocation of the Expos to Washingon, the Orioles worked out a deal where the Nationals games have to not only air on MASN, but the rights fees paid to Washington are tied to the rights fees the network pays to Baltimore.
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The Orioles have kept the rights fees low, around $25 million, which means that the Nationals only receive $25 million. And since the Orioles own 87-percent of a profitable network, it's also raking in most of the cash from network carriage fees and advertising. MASN's total revenues for 2012 were $167.8 million, of which Baltimore got the huge majority and which it didn't have to share with the rest of MLB. (So disadvantaged are the Nationals by this arrangement that MLB, according to Keri's story, is subsidizing the Nationals to make up for the discrepancy.)
The Astros aren't the majority owner of CSN Houston, but the team does own the largest percentage. It's not unreasonable to believe that the Astros could get with the Rockets to buy out more of the network from Comcast so as to own even more of the network, guaranteeing more money that it doesn't have to share with MLB. In the long run, that could mean some major money rolling into the Astros, and that's probably one of the reasons Drayton McLane got with the Rockets to create the network.
But first there's this whole short-term bankrupt network thing with which to deal. And that is troublesome. The Astros are not receiving its media rights fees (the team is still receiving its share of the other teams media rights revenue as well as its share of the revenue from the national TV contracts from Fox, ESPN, and TBS). But while the Astros want the media rights back, the quickest way to restarting the flow of money is to get CSN Houston reorganized and out of bankruptcy.
There are three ways the reorganization can go: Comcast buys out the Astros and Rockets at a really distressed amount and takes full control, then works out the carriage deals for really low amounts; the Rockets buy out the Astros and/or Comcast and take over majority control of the network, working out carriage deals for the Houston area while hurting the Astros footprint in the five-state Fox Sports Southwest footprint; the Astros buy out enough of Comcast to take over majority control of the network, change the consent to majority ownership control, and take some short-term financial hits so as to make the big bucks in the longterm and gets carriage deals. But the network can't be successful until the carriage deals are worked out, and the carriage deals can't be worked out until the network is reorganized.
If the Orioles and MASN are an example, then CSN Houston can be a huge cash cow for the Houston Astros. It's going to take a little patience for the Astros (and some short term money losses), but the promise is there. It's probably not fair to ask Jim Crane to keep exercising patience, but hey, maybe he can do like the Nationals and scam some subsidies out of MLB. That is the American way, after all.
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