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CSN Houston and Chapter 11 Bankruptcy, what it means for fans

For those outside of the Houston regional viewing area, this whole situation holds about as much interest as paint drying. There are broader issues at play besides the ability for fans to view the programming offered by CSN Houston, but that is still the primary one.

If CSN Houston folds, where would Sebastien Salazar go?
If CSN Houston folds, where would Sebastien Salazar go?

At odds are the Houston Astros of Major League Baseball and Comcast in conjunction with the Houston Rockets. The Astros argument boils down to an intent to terminate their media rights agreement with CSN Houston, and in turn license those rights to a different entity (most likely Fox Sports Southwest). The Comcast argument centers around the link between the Houston Rockets and Houston Astros media rights, and how the loss of one (the Houston Astros) would also mean a loss of the other (Houston Rockets).

Now for a little back story.

In 2010, Comcast paid for 22.5% of the Houston Regional Sports Network, which was created in 2003 for management and distribution of the Houston Rockets and Houston Astros in an effort to break away from Fox Sports Southwest.

Comcast paid into the new network a line of credit equivalent to $100 million to help the network get up and running. At that point Comcast had paid over a quarter of a billion dollars before CSN Houston was even first aired on television, which helps explain why they have such a vested interest in seeing the network succeed.

The Astros' media rights in 2013 were valued at roughly $55 million and the Rockets at $44 million, with both entities' rights increasing each year. David Barron, who has been the Houston Chronicle's point man on the CSN Houston bankruptcy and other various hearings, has figured the operating expenses for CSN Houston at around $36 million.

So essentially, the network at a bare minimum needs about $140-150 million to cover expenses, and that is without the network turning any sort of profit to the betterment of the investors.

Last year in August Comcast made an attempt to purchase the Houston Astros 46.5% interest in the network. The network's value according to Comcast (which is based upon numerous pieces such as values of other regional networks, value of the teams, etc) is roughly $500 million. Keeping in mind Comcast would first pay off its $100 million loan, the Astros would only receive $185 million.

For those keeping track, when Astros owner Jim Crane purchased the organization, the ownership group paid $326 million for the Astros stake in CSN Houston. When it is all said and done, Jim Crane and the ownership group of the Astros would have sold their ownership stake in the network at a loss of $141 million. Needless to say, there was no way the Astros were going to take such an offer.

When you factor in the operating expenses of the network, and each team's media rights, without any kind of major carrier opting to carry the network the sustainability is nearly zero. This helps explain why the network entered into Chapter 11 Bankruptcy.

The real problem comes down to initial valuations declining over time due to the lack of production from the teams with significant ownership in the network. The Astros and Rockets both bought into such an arrangement with a pie in the sky attitude based upon valuations of other regional sports networks (Fox Sports Southwest, the Yankees YES network, etc).

The value of the Astros media rights today is significantly less than it was even in 2010, after 3 straight seasons with greater than 100 losses. The value of the Rockets media rights is improving with the team seeing the arrivals of star power names such as James Harden and Dwight Howard.

The CSN Houston bankruptcy case has implications for the 60% of fans in the Houston regional viewing area who remain unable to watch their local sports teams (Astros, Rockets and Dynamo). Thus far, the presiding Judge Isgur has ruled in favor of Comcast and in turn has made it clear his interest is in getting the content onto other carriers and not in finding the most favorable outcome for the teams.

This whole case has been extremely interesting to watch unfold, and if you are interested I highly recommend you follow @dfbarron on Twitter. David has done a tremendous job keeping up with the goings on inside the courtroom via Twitter, and has helped clarify many questions the fans have had throughout the case.

Source: David Barron explains the CSN Houston Chapter 11 Bankruptcy Case's Fine Print