Judge Approves Sale of CSN Houston to DirecTV, AT&T

After a federal bankruptcy judge approved a chapter 11 reorganization plan, AT&T and DirecTV have moved closer to purchasing Comcast SportsNet Houston and launching their own version of the service next month.

Root Sports Houston may take root in mid-November following Judge Marvin Isgur’s Oct. 30 decision allowing the DBS operator and the telco to buy the embattled CSN Houston and relaunch it under DirecTV’s regional sports network brand. CSN Houston is owned by MLB’s Houston Astros (46%), the NBA’s Houston Rockets (31%) and Comcast’s NBC Sports Group (23%). Under the restructuring, DirecTV and AT&T will acquire the service for $5,000 and invest some $50 million.

In addition to the new owners, Root Sports Houston will be carried by Comcast in the Houston DMA. Together, the three distributors should give the service around 80% penetration in the nation’s 10th largest DMA.

Comcast, which along with the teams will lose their equity position, said it was disappointed by the judge’s decision and would proceed with the appeal process.

During a Halloween hearing, Isgur denied Comcast’s move to stay the decision pending an appeal, according to the Houston Chronicle.  With that door shut, the appeal will move before U.S. District Judge Lynn Hughes.

Comcast alleges that Isgur erred on six grounds in making his decision, most notably in confirming the reorganization plan; that it did not allow Comcast’s secured claim to be accepted for payment over time; and that while the plan exculpates or provides liability protection for the Astros, Rockets, DirecTV, AT&T, CSN members, but not against Comcast.

Comcast is still seeking some level of compensation for a $100 million loan that was used for start-up costs, the building of the RSN's studio and some initial rights payments, as well as remuneration for an affiliation agreement valued at some $400 million over its term. Isgur, though, deemed that the MSO's distribution accord had no value once the bankruptcy filing occurred in September 2013.

Although DirecTV and AT&T didn’t return phone calls seeking answers about when Roots Sports might launch, David Barron, the Houston Chronicle correspondent who has been covering the chapter 11 proceedings, said the service could bow in the middle of November after the Rockets return from a Nov. 12 game in Mexico City against Minnesota. The Rockets then play Philadelphia and Oklahoma City on Nov. 14 and 16, respectively.

CSN Houston has sent out programming guide information with Rockets games through November 9.

But an NBC Sports Group spokesman said its Rockets’ game schedule has yet to be determined.  The network ceased its news and studio programming on Oct. 23, as 96 of the RSN’s 141 workers are losing their gigs in the reorganization. CSN has been mostly showing “filler” and infomercials since that date. The next telecast is slated for Nov. 1: the Rockets’ home opener versus the Boston Celtics.

Barron said CSN Houston encountered “a perfect storm" that led to the unraveling of the RSN, which launched in October 2012 but only counted Comcast and a handful of smaller distributors.

Among those factors: the other providers drew a line in the sand against a high subscriber fees, some $4 in the Houston DMA and central zone and around 70 cents throughout the rest of a sprawling TV territory stretching through Texas, Oklahoma, Louisiana, Arkansas and parts of New Mexico. He said interest in the Astros, the major content component of the service, has diminished because the club has been “historically bad on the field” in recent seasons, with fandom also waning as the team was shifted into the American League and away from its longstanding rivals in the Naitonal League. Barron also noted that former, longtime Astros owner Drayton McClane constructed the deal, which didn’t fit well with the fiscal needs of Jim Crane, the club's new top man who needed more immediate returns from the RSN to service debt load.

Crane still has litigation pending against Comcast, NBC Universal and McClane.