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Denver Teams Dump Fox Sports

The owner of Denver's pro hockey and basketball teams spurned an offer from Fox Sports Net. Instead, Kroenke Sports Entertainment will start its own regional sports network.

Fox has seen this movie before.

Last week's move is TV's version of free agency. Fox Sports Net faces similar situations in Houston and Minnesota. In Chicago, a new network co-owned by the four major pro teams and Comcast is slated to launch in October.

In Denver, Kroenke—owner of the NHL's Colorado Avalanche, NBA's Denver Nuggets, the Pepsi Arena they play in, and several entertainment venues—plans to debut its own network next fall. That's when its deals with Fox expire.

The two sides negotiated furiously for weeks, but Kroenke ultimately rejected Fox's offers to renew, although reportedly for a "substantial" increase over the previous $100 million, seven-year deals.

Clearly, this trend poses headaches for Fox. Millions of dollars of revenue is on the line. Its regional sports nets need games to justify their hefty license fees from distributors.

For team owners, striking gold is hardly assured. "You have to program the channel, arrange for distribution, sell the advertising. This is not a slam dunk," says sports marketing consultant Neal Pilson, former president of CBS Sports.

Taking Fox Sports' money would have been "the short-term, easy play," says Jim Martin, a Fox Sports veteran who will become CEO of the yet-unnamed Kroenke channel. Instead, "The right long-term approach is to build and take advantage of equity value of media rights you own as opposed to renting them out for short term payments."

Now Kroenke executives have to persuade cable and satellite operators to give them broad distribution. Like all Fox's channels, Fox Sports Rocky Mountain enjoys wide distribution, not just in Denver but in a multi-state area. Regional sports nets typically get $1 to $2 per subscriber, a healthy payout from basic or expanded-basic carriage. But it's tough to meet financial targets if a network is banished to a sports tier.

One big absence from the Kroenke network is Colorado's Major League Baseball team. Fox has the Rockies locked up through 2007 on Fox Sports Rocky Mountain. It's an example of one Fox strategy for warding off rival sports channels. On Fox's owned-and-operated sports nets, "we have staggered our rights so we don't become at risk of losing everything," explains Bob Thompson, president of Fox Sports Networks.

(The opposite happened in Chicago, where one of Fox Sports regionals is run by Cablevision's Rainbow Media. The Blackhawks, Cubs, White Sox and Bulls deals all came due around the same time, and the teams banded together to start a new channel.)

Although a few teams are defecting, Thompson says, Fox still has rights to 69 of 80 pro hockey, basketball, and baseball teams. It signed or renewed nearly 15 deals in the past 18 months. Fox has taken some teams back into its fold: Paul Allen's Portland Trailblazers had a short-lived network, and the Kansas City Royals have a channel with limited distribution but use Fox's regional sports net for additional coverage.

Still, notes Pilson, "it was certainly not in Fox's business plan to run into this type of competition."