February 17, 2014
Judge gives attorneys clearance to reorganize CSN Houston
A federal bankruptcy judge refused Tuesday to delay proceedings in the Comcast SportsNet Houston case, clearing the way for attorneys to proceed with efforts to reorganize the bankrupt regional sports network while the Astros try to get the Chapter 11 order overturned.
U.S. Bankruptcy Judge Marvin Isgur said he did not believe the Astros would succeed in their appeal and that it is in the public interest for CSN Houston, which airs Rockets and Astros games, to have a chance at reorganization.
“These teams are important to our community,” Isgur said. “Putting a stay in place means that we are going to keep these programs off TV longer, and I think the community that I live in wants to have to have them on TV faster. That’s what everybody has told me.”
Isgur earlier this month approved Chapter 11 status, which allows the network to stay in business while it reorganizes, over the objections of the Astros, which own 46.5 percent of the company to 31 percent for the Rockets and 22.5 percent for Comcast/NBC Universal.
Comcast has been unable to arrange carriage deals for the network, resulting in limited viewership and limited revenue and the network’s inability to pay tens of millions in rights fees owed the Astros and Rockets.
The Astros have appealed Isgur’s order granting Chapter 11 status to U.S. District Judge Lynn Hughes, who could require several weeks to rule. In the meantime, the Astros asked Isgur to delay implementation of any effort to reorganize the network.
“I think there is no shot of this on appeal,” Isgur said. “… The appeal has no merit in its likelihood of success.”
Citing CSN Houston’s inability to pay rights fees, the Astros want to regain their broadcast rights and seek a new television partner. They also claim that by placing the network in bankruptcy, Comcast has triggered a clause in the partnership agreement that will enable them to leave the network, which would signal its demise.
“I’ve been through a divorce myself, and you know when you’ve had enough and know when it’s not working,” said Houston attorney Harry Perrin, who represents Astros owner Jim Crane. “I think Mr. Crane has had enough, and he wants to enforce his prenuptial agreement.”
Comcast attorney Craig Goldblatt, however, argued that the network can be reorganized successfully and said federal law requires board members to act in the best interests of the bankrupt network, not in the best interest of the team, if there is a conflict.
“It is by no means futile to allow this case to proceed,” he said. “They (CSN Houston directors) have an obligation under federal law to do what is best for the bankruptcy estate.”
The CSN Houston board is made up of four members – two representing Comcast and one representing each team. Rockets CEO Tad Brown represents the Rockets, and Perrin said Tuesday that Giles Kibbe, the Astros’ general counsel, will replace Crane as the Astros representative.
Crane has complained that the only carriage proposal presented to the board by Comcast/NBC would result in the loss of up to $200 million for the network over a decade, potentially wiping out the Astros’ and Rockets’ equity.
Isgur said those proposals were “appropriately rejected” by the Astros but noted Crane’s testimony during a hearing last fall that the network could succeed with the right business plan.
The Rockets agree with Comcast that the network should stay under Chapter 11 supervision. Attorney Alan Gover, who represents the team, said delays in resolving the case so the Rockets can receive their broadcast rights fees “is an enormous burden” on the team and that the reorganization effort should proceed.
“The network has been selling its (the Rockets’) product without having to pay the content provider,” he said. “The continuation of that state is highly burdensome to the Rockets.”