SBJ/March 17-23, 2014/In Depth

Breaking down RSNs by the 3s

3 That Flew

New England Sports Network
Late in 1982, the Boston Red Sox, Boston Bruins and rights holder WSBK combined to create NESN, a premium
cable network that would launch in 1984. The Sox held 48 percent, the Bruins 32 percent and the TV station 20 percent. Pairing with the local station got the network a production infrastructure, but it still faced a carriage battle, as Boston provider Cablevision refused to offer the channel for nearly two years, even though it was on a premium tier and brought in subscriber fees of more than $12 a month. NESN was one of the last RSNs to move to basic, but when it did, the network’s value soared. Analysts valued it at as much as half of the $700 million purchase price John Henry’s group paid when it bought the Sox in 2002. Since then, NESN revenue has doubled, and doubled again. Today’s split has the Red Sox with 80 percent ownership and Bruins ownership at 20 percent.

YES Network
When the New York Yankees launched their RSN along with the New Jersey Nets and Devils — their partners in
the entity then known as YankeeNets — it was with a far different model than the Red Sox rolled out 20 years earlier. It also was a different TV environment. YES came to the table with venture capital from Goldman Sachs and others, who paid $340 million for a 40 percent stake. Still, it needed carriage on basic cable tiers to make its economics work. Not surprisingly, it faced a dogfight from Cablevision, which was losing the Yankees as a summer anchor on its MSG Network. Cablevision dug in. The Yankees filed an antitrust suit. The team was off the air on a system with 3 million subscribers for a full season, but the two sides finally reached an agreement. YES emerged as an unquestioned success. In December 2012, Fox purchased 49 percent of YES in a transaction that valued the network at more than $3 billion. In January, it exercised an option to increase that stake to 80 percent.

CSN Chicago
Those who are surprised that CSN Houston has gone badly point to CSN Chicago as evidence that the model itself
is sound and that Comcast can be a valuable partner. But there are some significant differences, including the structure of the network, the rights footprints of the teams involved, the relationship between the teams, and the place they hold in their respective markets. While the Blackhawks, Cubs and Comcast all have stakes in the Chicago network, the channel from its inception was about the Bulls and the White Sox, both owned by Jerry Reinsdorf. That has simplified matters. Reinsdorf had a history of working well with Blackhawks ownership, going back to his purchase of the Bulls from the estate of former owner Arthur Wirtz as well as the development of the United Center along with late Blackhawks owner Bill Wirtz. Comcast is the region’s dominant cable provider, which makes it a valuable partner. But it clearly isn’t the muscle here. That belongs to the Bulls, White Sox, Cubs and Blackhawks, who by parceling their rights together became a must-carry in the market.



3 That Flopped

Royals Sports Television Network (2003-07)
The Kansas City Royals saw the Yankees and Red Sox raking in profits from subscriber fees and thought they
would do the same. They cut out middle-man Fox Sports Net, going directly to distributors with a package of more games than FSN had aired in any of the previous three seasons. The Royals struck an immediate deal with the market’s major cable provider, Time Warner. That got them distribution to three-fourths of the area’s cable homes. What it didn’t get them was the content to build a 24/7 year-round channel that could stand on its own. When the network still wasn’t picked up by Comcast, Cox or the satellite providers 10 weeks into the season, the Royals struck a deal with FSN to pick up the games and redistribute them. They continued that way until the end of 2006, when the club concluded that it was better off with an FSN deal than without one. The Royals returned to FSN Midwest in earnest in 2007, with a more lucrative rights deal than they’d have gotten had they not proved willing to deal directly with TWC.

Victory Sports One (2004)
The Minnesota Twins’ attempt to follow the team-owned RSN trend lasted only six months and less than six weeks
of the baseball season. It was originally planned as a partnership with the NBA’s Timberwolves, but the teams couldn’t agree on the ownership split. The Twins went ahead with University of Minnesota basketball as their winter programming and got nowhere with the channel. They started with a sub fee of $2.20 and came down to $1.80, according to published reports, but that was still more than FSN had charged for the same package of Twins games, plus the local NBA and NHL games. Minnesota legislators got involved, amending a ballpark funding bill to require at least 135 games be available to at least 70 percent of cable and satellite subscribers. Victory never came to terms with the market’s four largest cable providers, which together accounted for about 900,000 subscribers, or with the satellite providers, who added another 300,000. When it folded, it was in about 120,000 homes. While the Twins put about $10 million into the network, they at least came away with a far better FSN deal than they had previously, doubling their annual rights fee to about $12 million in their first year back on Fox.

Carolinas Sports and Entertainment Television (2004-05)
An expansion NBA franchise, returning to a market that had soured on the NBA, launched an RSN without the
benefit of an MLB partner to provide it with year-round programming. As if that weren’t already a doomed combination, the Charlotte Bobcats and partner Time Warner Cable put the channel on a digital tier priced about $15 a month higher than the basic tier. The idea was to attract more people to digital, which made sense to then-owner Robert Johnson, who made his fortune on cable network BET and had deep ties to TWC. It didn’t work. When the team and TWC pulled the plug on the channel after a season, fewer than 40 percent of its customers had migrated to digital. The NBA’s return to Charlotte got off to an abysmal start at least in part because of the botched RSN.



3 To Watch

CSN Houston
A year from now, CSN Houston might top our “Three that flopped” list, but for now, there’s still hope. The network,
which launched in October 2012 as a partnership between the Houston Astros, Houston Rockets and Comcast, is available in only 40 percent of Houston’s 2.2 million TV households, even with the primary local cable provider as a 22.5 percent stakeholder in the operation. Outside of the immediate market, the channel has fared even worse. Last year, the network stopped paying rights fees to the Astros and Rockets, who were due $55 million and $45 million, respectively. The Astros notified the network that it was in default and threatened to take their rights elsewhere, but in September, four Comcast affiliates filed an involuntary bankruptcy petition that blocked them. In February, a judge approved that petition, a decision the Astros have appealed. Comcast and the Rockets have asked the court for reorganization. The Astros want their rights back. The judge has repeatedly urged the three parties to find a compromise that would keep the network in business but, thus far, they haven’t.

TWC SportsNet
One of three RSNs that Time Warner Cable operates in Southern California, TWC SportsNet launched at the start of
the 2012-13 NBA season with the Los Angeles Lakers as the anchor tenant by way of a deal believed to be worth $200 million a year for 25 years. RSNs typically rely on MLB franchises as their anchor, or at least as a second or third play that can provide programming tonnage in the summer. Not surprisingly, the two exceptions air the NBA’s two iconic franchises: the Lakers and the Celtics, who hold a minority stake in CSN New England.

SportsNet LA
It’s tempting to simply say “See above” and move on, since the Dodgers’ recently launched RSN is one of three
sports channels TWC has rolled out in the last 17 months. But SportsNet LA may be a bit different than anything we’ve seen before: A team-owned RSN that faces nowhere near the financial risk assumed by its predecessors. That’s because Time Warner, which will manage the network but not own it, guaranteed the Dodgers about $320 million a year for their rights, a deal that, in essence, will pay the Dodgers as if the network is distributed broadly beyond Time Warner even if it is not. How many RSNs can the nation’s second-largest TV market support? We’re about to find out.


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