SBJ/February 28 - March 6, 2005/Media

Cablevision, Fox swap assets

Last week’s announcement that Cablevision and Fox Entertainment Group will swap sports assets could be a precursor to Cablevision CEO James Dolan taking full ownership of Madison Square Garden, several Wall Street analysts said.

It also spelled the effective end of the joint venture in regional sports television between the two companies.

Cablevision Systems Corp. and Fox are joint owners of an entity called “Regional Programming Partners,” which owns Madison Square Garden and seven regional sports networks, most of which are affiliated with Fox Sports Net. They also each have a 50 percent interest in Fox Sports Net’s national programming and advertising arm.

Division of power
How the joint assets of Cablevision and News Corp. will be divided
Madison Square Garden
New York Knicks, Rangers and Liberty
Radio City Entertainment
MSG Network
FSN New York and FSN Chicago
50 percent of FSN New England*
News Corp.:
Fox Sports Net (national advertising and programming)
FSN Ohio and FSN Florida
* Comcast owns the other 50 percent of FSN New England.
Note: Fox Sports Net was 50/50 joint venture between News Corp. and Cablevision. FSN Ohio and FSN Florida were 60 percent owned by Cablevision and 40 percent owned by Fox. FSN Bay Area will remain a 60/40 joint venture between Cablevision and Fox.
The transaction, which will be a cashless, tax-free swap of assets, will leave Cablevision with full ownership of Madison Square Garden and related New York-based sports franchises and regional sports networks. Fox will become full owner of Fox Sports Net’s affiliates in Florida and Ohio. All of those assets had been 60 percent owned by Cablevision. Fox also will become the 100 percent owner of Fox Sports Net’s national programming and advertising arm, which had been a 50/50 joint venture with Cablevision. The total value of the assets was about $2.4 billion, according to a report issued by Merrill Lynch.

Several analysts said that having full ownership of Madison Square Garden could free up Dolan to sell Cablevision’s cable business and take private ownership of all of the company’s New York sports properties. That includes the arena, the New York Knicks, Rangers and Liberty, MSG Network, Fox Sports Net New York, and the operating rights to Radio City Music Hall.

“Having full control of the New York sports assets gives Jim Dolan something to do after he creates value for shareholders by selling off the cable assets,” said Richard Greenfield, a media analyst with Fulcrum Global Partners.

The company recently sold off its struggling Voom satellite business.

Dolan’s stewardship of Madison Square Garden, which began when Cablevision bought a 50 percent interest in the arena and its teams in 1994, has been controversial. The Knicks and Rangers have both struggled despite having large payrolls, and the regional sports networks lost rights to the New York Yankees and Mets, touching off legal action against both clubs.

Madison Square Garden, under Dolan, has led attempts to block the New York Jets from building a stadium near the Garden, and offered to buy the land envisioned for the stadium for $600 million as a pre-emptive strike. Several analysts speculated that this was one reason Fox wanted to exit its partnership with Cablevision, as it would have been financially responsible for 40 percent of that purchase.

Fox and Cablevision officials declined to comment.

Madison Square Garden and its related assets had revenue of $778 million last year and earnings of $41 million, according to Cablevision’s annual earnings report released last week.

The regional sports networks that were jointly owned by the company and Fox, which also include Fox Sports Net Bay Area, Chicago and New England, had revenue of $387 million and earnings of $35 million, Cablevision’s annual report said. Fox’s ownership stake in FSN Chicago and New England will be assumed by Cablevision as part of the transaction, while Bay Area will remain a partnership, with Cablevision having a 60 percent stake and Fox owning 40 percent. However, Fox will have more operational control of FSN Bay Area than it had previously.

FSN New England is half-owned by Comcast Corp., leading to analyst speculation that Comcast will buy Cablevision’s stake and make it part of Comcast’s growing stable of regional sports networks.

Fox Sports Net’s national programming and advertising, which had been a 50/50 joint venture between the two companies, lost $50 million in Fox’s most recent fiscal year.

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