Friday, February 18, 2005

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.

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