2:15pm PT by Eriq Gardner
Comcast Accused in Fraud Lawsuit of Scheme to Acquire Discounted Sports Rights
The latest chapter in the involuntary bankruptcy of the Houston Regional Sports Network is a blistering complaint filed Thursday by a litigation trustee accusing Comcast of doing everything in its power to impair the Network so as to acquire rights to broadcast Houston Astros and Houston Rocket games at a significant discount.
Robert Ogle begins by slamming the cable giant's track record for customer service and says that the Houston Regional Sports Network, set up in 2003, "has experienced Comcast's dishonesty firsthand."
In 2010, Comcast became a partner in the network with a 22.5 percent equity interest. The teams owned the rest. The complaint says that at the time, Comcast represented it would use its market power to achieve carriage at promised rates, and among other things, advanced a loan for $100 million. That same year, the Astros and Rockets granted the Network exclusive rights to games through 2032 for hundreds of millions of dollars.
By 2013, though, the complaint asserts, "Comcast decided that, instead of working to make the Debtor successful, it would do everything in its power to acquire for itself the Debtor’s primary and most valuable assets: the right to telecast programming related to the Houston Astros and Houston Rockets, and the right to receive revenue from affiliation agreements with MVPDs that carry CSN Houston."
Houston Regional Sports Network wasn't able to reach agreements with a major MPVD (cable or satellite company) besides Comcast, and the lawsuit alleges this was an intentional decision on Comcast's part. The litigation trustee points to the fact that other regional sports networks owned by Comcast were able to make deals, with the alleged difference being that "Comcast owned most, if not all, of the equity in those other" RSNs.
Without big distribution deals, the Houston Regional Sports Network experienced "liquidity constraints," which allegedly led the Astros and Rockets to propose selling their own equity interest to Comcast's NBCUniversal.
Comcast didn't bite, the Houston RSN's financial situation got worse and following a lesser buyout offer from Comcast, which Ogle basically frames as a sham, the joint venture was taken into bankruptcy.
The lawsuit says it was all part of Comcast's plan.
"Comcast would put the Debtor into bankruptcy, which would cause its value to immediately
decrease," says the complaint. "Comcast would then publicly announce its intention to bid a substantial amount of money to acquire the Debtor, or substantially all of its assets, in bankruptcy, which would scare away other potential purchasers. Finally, once Comcast was the only viable purchaser, it could purchase the Debtor, or substantially all of its assets, at a steep discount from what it publicly promised."
The lawsuit continues by describing how Comcast ran the involuntary bankruptcy petition through affiliates and the ensuing objections from the sports teams.
Eventually, the Rockets and Astros made a deal with AT&T and DirecTV to sell the Houston Regional Sports Network for a mere $5,000 (plus investments for a rebranded "Root Sports"), which Comcast opposed and appealed before dropping objections. Last autumn, the teams agreed to pay $26 million to Comcast.
But the dispute isn't over.
"While Comcast may have failed in its ultimate plan to acquire the Assets for itself, it certainly succeeded in severely damaging the Debtor and its Estate along the way," states the complaint. "Comcast’s wrongful conduct put the Debtor in a far worse position than it would have been in otherwise.... In fact, the DTV/AT&T Deal provided less value to the Debtor’s Estate than the Debtor would have received
if it had just liquidated (or sold all of its assets) in September 2013."
The litigation trustee, through attorney Mark Lanier, seeks actual, nominal and exemplary damages. Here's the full complaint.
In a statement, a Comcast spokesperson responds, "Comcast and its affiliated entities and individuals vigorously deny the claims and allegations asserted by the HRSN Litigation Trustee and look forward to demonstrating in court that the lawsuit is entirely without merit."