Monday, March 07, 2005

Washington DC/Baltimore Sports Media Market

8. Washington DC

2.2 million Television Households

23. Baltimore

1.2 million Television Households

I am going to combine these two markets into one post, since prior to the Washington Nationals the Orioles claimed DC as their exclusive territory.

Home Team Sports was the original regional sports network in the DC area, launched in 1982. Viacom originally held 67% while Fox held 33%. In 2000, Viacom traded its share in HTS to Comcast for certain carriage rights of its cable networks on Comcast systems. Fox claimed it was supposed to have "tag-along" rights to participate in any sale, but because there was no dollar value assigned to the trade it claimed it did not have the ability to exercise this right. Fox had previously offered $250 million for Viacom's share but was rebuffed.

At the same time, Comcast also bought Midwest Sports Channel from Viacom and soon thereafter traded it for Fox's stake in HTS.

At that point Comcast had all three pro teams in the area locked up for some time. It has been rumored that Comcast might have interest in acquiring a baseball team (still a possibility) with the Orioles at the top of the list due to their strategic importance to the DC RSN business.

The Orioles have been in front of the ball with their television rights. They publicly announced creation of the Orioles network in early 2002 though their deal with Comcast doesn't expire until after the 2005 season. Until then, they plan on syndicating 70 or so games to area broadcast stations while keeping 90 games on SportsNet.

Now that the Washington Nationals are up and running in DC, Orioles owner Peter Angelos is seeking an MLB payout for the significant reduction in what used to be his teams' exclusive TV territory. He better get some cash out now, because his next round of negotiations with Comcast is likely to be sticky.

Kaiser Prediction: Both the Orioles and Nationals will end up with a significant number of games on Comcast (70-75). The remaining games of each team will end up on local broadcast stations.

Thursday, March 03, 2005

Why the Bain Deal Makes Sense for NHL Owners

Bain Capital and Game Plan, LLC made news today by presenting a buyout offer of $3.5 billion to owners of all 30 NHL teams.

Bain appears to be striking at a time of potential weakness in the league by capitalizing on the NHL labor dispute which has undoubtedly put a major dent in the finances and subsequent value of the individual league teams.

While bringing all of the teams under one ownership and management structure would seem to make sense, I would guess that many team owners would be loathe to part with these ego-boosting assets.

However, another scenario might be more acceptable to owners: sell a controlling stake in each of the teams to an uber-owner while current ownership maintains a minority stake in each one of the clubs. The required investment from Bain under this scenario would be significantly less. In some cases, current owners may elect to sell the entire franchise rather than have a minority stake.

The benefits that could be gained from the leverage of a single controlling entity are fairly obvious: increasing national sponsorship revenue, negotiating power for television rights or a possible formation of an NHL network, and perhaps an easier resolution to the league's labor problems. It is also conceivable that this type of deal would enable Bain to shut down some of the teams for financial reasons to optimize the financial performance of the portfolio. The league would have difficulty pulling this off right now because it would need to buy back each team and does not have the funds required.

The complexities of any potential deal include the fact that many of the teams also own their local arena and/or sports network. I would venture to guess that these are businesses that Bain would rather not deal with, but I suppose each team's situation would need to be reviewed on a financial basis to see if alternative arrangements could be made.

Regardless, the offer from Bain represents and interesting turn of events that could potentially lead to other private equity firms competing for the big prize. If it is ever successful, look for the acquiring company to spend a few years optimizing the cash flow of the entire league then either selling it through an IPO or to a major investor like Comcast, Anschutz, or Fox as an exit strategy.

Tuesday, March 01, 2005

Dallas Sports Media Market

7. Dallas- Ft Worth

2.3 million Television Households

While there is currently only one major Regional Sports Network in Texas, FSN Southwest, there have been two seperate occassions in the past decade when it appears that local team owners would take matters into their own hands.

The Rangers shocked the world in 2000 when they announced their $252 million, 10 year deal with A-Rod. While announcing this landmark deal, Rangers owner Tom Hicks publicly thanked Fox Sports Net for providing him with the funding to get the deal done.

That funding came in the form of a $550 million deal between Fox and Hicks for the rights to essentially all of the Rangers and Stars games for 15 years. You see, Tom Hicks could probably be classified as one of the world's savvyest negotiators. After all, he negotiates major deals for a living in his "real" job as partner of buyout firm Hicks, Muse, & Tate. He knew that by owning an MLB team and a winter sports team in the same market, he had a very credible threat to start his own regional sports network and basically run FSN out of town. So he used this position of leverage to strike a deal so rich that Fox is still scratching its head in disbelief. Part of the reason Fox was able to get the deal was because the rights costs were to be shared between Fox Sports Net and Fox's local O&O broadcast station, KDFW. But since cable is where the bigger money is due to affiliate fees, the broadcast portion of this deal is under water.

Hicks has been threatening for several years to sell the Stars and his 50% stake in American Airlines Arena, though recently he said he would simply hang on to the teams until the value improves.

The Rangers and Astros basically share the entire footprint of FSN Southwest, with the exception of the Dallas and Houston inner markets.

Comcast is the major MSO in northern Texas and Oklahoma. It will be interesting to see what becomes of FSN Southwest the next time the Hicks rights come up for bid in 2015. In the meantime, the Dallas Mavericks deal with FSN Southwest will come up in 2008.

Kaiser Prediction: Comcast will strike a deal with Cuban for rights to all of the Mavericks games in order to create a new RSN in Dallas. Mavericks owner Mark Cuban is savvy enough to make an equity ownership stake in a new network a requirement for such a deal.

The second time the region was nearly split apart was the recent push by the Astros and Rockets to form their own RSN. I will get to this later when I address the Houston DMA.