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Fox Sports Net Suing to Block HTS Sell-Off

Fox Sports Net, a minority owner of Home Team Sports, said it planned to sue Viacom Inc. and Comcast Corp. over the proposed sale of the Bethesda, Md.-based regional sports channel to the MSO.

In the latest legal battle among media giants, Fox Sports and Fox Cable Networks expected to file a breach-of-contract lawsuit in Delaware by late Friday afternoon last week, the cable unit's chief executive said.

Fox Cable and its Fox Sports division are asking for an injunction from the Chancery Court to block the sale of Viacom's majority stake in HTS to Comcast. They also want to restructure the deal so that Fox Sports can accurately gauge the value of its one-third share in the regional sports service.

The suit also contended that if a judge determines that Viacom breached its fiduciary duties, Fox Sports then has the right to buy out the programming giant's two-thirds majority stake in HTS.

The litigation involves entities that are part of media behemoths-Rupert Murdoch's News Corp., which owns Fox Cable, and Sumner Redstone's Viacom, in addition to Comcast, the third-largest domestic MSO.

The lawsuit was to be filed by Affiliated Regional Communications, the holding group for Fox's owned regional sports networks.

Earlier this month, Viacom announced that it was divesting the two regional sports networks-HTS and Minneapolis-based Midwest Sports Channel-it inherited from its acquisition of CBS Corp.

Comcast ended up as the buyer in the regional sports deal, which was valued at an estimated $150 million.

Sources then said the HTS-MSC sale involved a combination of cash and commitments by Comcast to increase carriage of basic and digital networks owned by Viacom's MTV Networks unit.

But Fox Sports claimed that the sale of HTS and MSC actually doesn't involve Comcast forking over any cash. According to Fox Sports, Comcast is just giving MTVN increased license fees and increased distribution for Viacom-owned services, including MTV2.

Comcast and Viacom officials could not be reached at presstime.

In legal papers, Fox Sports charged that those deal points breached "tag-along rights" under its HTS contract with Viacom.

Under the contract, if the majority HTS partner-originally Group W, then CBS Cable and now Viacom-wanted to sell its two-thirds majority stake, Fox Sports also had the right to sell its one-third share for the "same consideration," according to Fox Sports.

But because Comcast's "consideration" was just increasing distribution for MTVN services, and not a specific dollar amount, Fox Sports contended that it has no way to gauge how much its minority stake is worth, alleging that this violates its contract.

"As a founding partner of HTS, our minority interest carries certain protective rights," Fox Cable Networks president and CEO Jeff Shell said. "One is the right that should our majority partner decide to sell, we can also sell our interest for the very same consideration."

But according to Shell, "Unfortunately, Viacom chose to ignore its obligations as our majority partner and trade its interest for unique and invaluable assets beneficial to them alone. This is precisely the brazen and improper self-dealing action our rights were designed to protect against."

Fox Sports did bid against Comcast for Viacom's majority stake of HTS. But Fox Sports also claimed that the bidding process was conducted in a bad-faith manner.

The lawsuit also alleged that in its proposed agreement to sell HTS and MSC, Viacom acknowledged that the terms of the sale could be construed as a breach of contract with Fox Sports, and Comcast indemnified Viacom in the cause of any resulting litigation.

While the lawsuit does not involve MSC, that network could become a key player in any settlement.

Fox Sports recently acquired cable rights to the National Hockey League's Minnesota Wild expansion franchise, and it plans to roll out a sports service that would compete with MSC this fall. But if Fox Sports were able to acquire MSC-possibly in a trade for its one-third share of HTS-it would avoid the cost and headache of launching a new regional service.

Or, in another scenario, the lawsuit could prompt Comcast to offer expanded carriage for Fox's cable networks, similar to its agreement with Viacom.

HTS has 4.7 million subscribers, and it is the fifth-largest regional sports network, while MSC has 2.5 million homes.

HTS has the rights to sports franchises such as Major League Baseball's Baltimore Orioles, the National Basketball Association's Washington Wizards and the NHL's Carolina Hurricanes.

Comcast currently owns one regional sports network, Comcast SportsNet.

In March, the MSO also bought a majority stake in The Golf Channel, increasing its equity to 54.7 percent from 40.1 percent by exercising an option to buy stakes from minority holders. Comcast said that it wanted to buy more equity to rise to 60.5 percent.

The largest other investor in Golf is Fox Television, which had 30.9 percent equity in March and did not sell equity to Comcast at that time.