Our long regional nightmare is (nearly) over. Bankruptcy Judge Marvin Isgur has confirmed the reorganization plan proposed by the Rockets and Astros to sell CSN Houston and all of its assets to DirecTV and AT&T, who will dismantle the network and create Root Sports in its ashes. Exactly when Root Sports will first air is still unsettled, but CSN Houston's broadcast calendar extends until November 9, making that a possible date for the switch (though the Houston Chronicle's David Barron tweeted that he expects it to happen in mid-November). As previously planned, 96 of CSN's 141 employees will not make the transition.
For a detailed explanation of all the twists and turns of the case before today, see our article from a week ago here. There were two main sticking points that caused the delay of Bankruptcy Judge Marvin Isgur's decision - components of the original proposal that Isgur demanded be changed to compromise with Comcast. Let's break each of them down.
Fixtures, Furniture & Equipment (FF&E)
While this may seem like a small issue - it did to me a week ago - it bears mentioning that CSN's FF&E has been valued at $26 million in the form of a stalking horse bid (h/t David Barron, who has been the man in the courtroom). That means that the court will auction off the equipment publicly, starting with the teams' bid of $26.2 million to set the market. Bidding could drive the price higher, or it could not.
In the original proposal, the Rockets and Astros would have paid just $9.3 million in cash, $9.4 in accounts receivable (essentially I.O.U.'s), and $7.5 million once the equipment made it to Root Sports. That still amounts to $26.2 million, but now it's all in one cash lump sum and the number could go higher at auction.
So, what if someone else decides they want all this TV equipment and chairs? I'll turn it over to Barron to explain:
"[The FF&E] will be offered at auction within seven days. If the Astros are the winning bidder, the equipment immediately will be turned over to the new network. If any other party, including Comcast, wins the bid, the new network still will have use of the equipment for 120 days and the Astros and Rockets will provide $12 million for replacement equipment."
The most likely outcome of this process will be that the teams win the auction, and the physical assets of the network will transfer seamlessly from the bones of CSN Houston to Root Sports. If that doesn't happen, there are fail-safes in place to make sure that Root Sports will have the ability to broadcast until the mess gets sorted out.
If you want a full(ish) breakdown of what exculpation is, refer to our history piece linked above. The original proposal exculpated the Rockets and Astros from future lawsuits pertaining to the dissolution of CSN Houston, but not Comcast. Judge Isgur agreed with Comcast that this was unfair, since all three entities were partners in the creation and management of the network. The final proposal now includes Comcast and the two Comcast-appointed directors of CSN Houston as beneficiaries of exculpation.
The key caveat here is that exculpation refers only to lawsuits that list the mere action of declaring bankruptcy as a grievance. Any party involved in this deal can still be sued for negligence, breach of fiduciary duty or willful misconduct. The Astros' owner, Jim Crane, has already filed suit against Comcast and former owner Drayton McLane to this effect. One might expect more lawsuits to come down the pipe despite the exculpation clause in the reorganization plan. David Barron cites the $100-plus million dollars in rights fees the Rockets claimed they were owed in this case as a possible cause for future lawsuits.
The Ruling and Beyond
Barron tweeted this from the courtroom today:
Judge Isgur says he believe the Astros and Rockets acted in good faith on the reorganization plan.— David Barron (@dfbarron) October 30, 2014
Also proving good faith, Isgur says, is Comcast exec Jon Litner’s testimony that the plan is in the network’s best interests.— David Barron (@dfbarron) October 30, 2014
Judge Isgur says Comcast as a creditor, if not a competitor, is better off with the plan that without it.— David Barron (@dfbarron) October 30, 2014
This really makes you shake your head at Comcast. Isgur is implying here that Comcast attempted to block CSN's reorganization not out of concern for the fans (obviously), not out of concern for their own business interests (I guess they already are a massive behemoth, what difference does a few million make?), but simply to dick over everyone else and try to take the ball and go home. This stops short of being surprising for anyone who's dealt with Comcast, but still - breathtaking douchebaggery on display here.
Comcast can, and probably will, appeal this decision, but Judge Isgur said in court that the transition from CSN to Root Sports could proceed as long as it didn't interfere with the appeals process. That's incredibly confusing - on the one hand, how could it not interfere? On the other hand, the judge could have ruled that Tuesday is now Sardine Day and chocolate is illegal, and as long as he also ruled that the Rockets could get on more TVs, I would have supported his decision.
So, if we leave aside Comcast's appeal, this is a wonderful day for Rockets (and Astros) fans. Sometime soon, Rockets games will be broadcast on Root Sports, which will be carried by Comcast, DirecTV and AT&T U-Verse. (Sorry, Dish Network subscribers.) Rockets CEO Tad Brown released a statement courtesy of David Barron, if you're into that sort of thing:
On behalf of Leslie Alexander and our organization and, more than anything, our fans, we are very appreciative of Judge Isgur's ruling and look forward to getting our games on as quickly as possible. We want to stay focused to make sure that we get the network on the air to the entire market as quickly as possible."
And there was much rejoicing.