ATTSW parent company plans to sign off
Astros, Rockets face questions again on broadcast, distribution future
For the second time in a decade, the regional sports network that carries Astros and Rockets games is on the verge of financial collapse.
Warner Bros. Discovery, parent company of AT&T SportsNet Southwest, informed both teams by letter Friday that it plans to exit the RSN business and wants to negotiate with the teams to assume responsibility for broadcasting and distributing their games.
Despite the dire nature of the network’s impending collapse, fans will not lose access to their local teams’ games, since the Astros and Rockets have contracts to have their games telecast on DirecTV, AT&T and Comcast’s Xfinity cable service through 2032.
The main question as the Astros prepare for their season opener and the NBA season wraps up, then, is not whether the games will be available on DirecTV, AT&T and Xfinity but on which channel the games will air and who will pay production costs for telecasting the games.
Spokespeople for the Astros and Rockets declined comment regarding the letters, the receipt of which were first reported by The Wall Street Journal and Sports Business Daily.
According to the Journal, the letter to the teams sent by Patrick Crumb, who oversees the AT&T SportsNet channels, said that they “will not have sufficient cash to pay the upcoming rights fees” and that unless it can transfer ownership of the network by March 31, “the only realistic option is to file for Chapter 7 liquidation.”
Warner Bros. Discovery said in a statement: “AT&T Sportsnet is not immune to the well-known challenges that the entire RSN industry is facing. We will continue to engage in private conversations with our partners as we seek to identify reasonable and constructive solutions.”
Those solutions could include the teams or the league taking over production responsibilities and advertising sales. As for distribution, one longtime TV executive, former Fox Sports Networks president Bob Thompson, suggested on Twitter that games in Comcast markets such as Houston could move to Peacock.
AT&T SportsNet Southwest is one of three RSNs, along with channels in Denver and Pittsburgh, that Warner Bros. Discovery acquired from AT&T. It has been the home network for Astros and Rockets games since 2014, when it was launched following the Chapter 11 bankruptcy collapse of Comcast SportsNet Houston.
The impending collapse of the AT&T channels is not unique in the troubled RSN industry, which for almost 40 years has been essential in the financial well-being of pro sports teams.
Diamond Sports Group, new parent company of Bally Sports Southwest and other RSNs acquired from Disney and formerly branded with the Fox Sports Net label, earlier this year told teams that it was considering bankruptcy and had missed a $140 million interest payment toward its total debt of $8 billion.
However, with soaring rights fees — the combined annual rights fees for Astros and Rockets games are at least in the $121 million range for this year, based on data from the 2013-14 CSN Houston bankruptcy — and millions of customers cutting the cable/satellite cord, the financial model no longer makes sense for the networks.
One reason for the high cost of cable and satellite fees, in fact, is the high cost of pro sports. Comcast customers in Houston, for example, pay $10.49 per month in RSN fees to cover the cost of AT&T SportsNet Southwest, which is believed to be in the $6 range, and Bally Sports Southwest, even if they don’t watch a minute of sports programming.
The unwillingness by cable and satellite carriers to pay high fees for regional sports networks, is what led to the collapse of CSN Houston, which was never available to more than 40 percent of the roughly 2.2 million TV households in the Houston area.
While customers will not lose access to Astros and Rockets games if the AT&T SportsNet system implodes, it will represent a financial hit to the teams.
According to the Journal story, Warner Bros. Discovery is willing to give the network inventory back to the teams for no cost, but the teams also will not be able to recover their promised rights fees from the company.
That was the case in 2013-14, when the Astros and Rockets had to forego payment of more than $200 million in rights fees and other expenses in return for AT&T and DirecTV taking over telecast duties from bankrupt CSN Houston.
And now, less than a decade later, history appears to be repeating itself.
In addition to the Rockets and Astros, the major league teams affected by the Warner/Discovery decision are the Pirates, Rockies, Jazz and Penguins. The Seattle RSN owned by the Mariners, in which Warner Bros. Discovery has a minority interest, is not included.
RSN revenue has been a staple of pro teams’ finances since the early 1980s, when Home Sports Entertainment in 1983 launched as one of the first networks devoted to sports. HSE eventually became Fox Sports Southwest and carried Astros games and, with a few exceptions, Rockets games until CSN Houston launched in the fall of 2012.
Those financial underpinnings that helped pave the way to $200 million team payrolls, however, are about to give way to high costs and declining revenues for the television networks.
Major League Baseball receives hundreds of millions of dollars a year from RSN contracts. While that money could disappear if the RSNs collapse, forcing MLB to develop a new distribution model, commissioner Rob Manfred said recently that games will remain available.
“I think you should assume that if Diamond doesn’t broadcast, we’ll be in a position to step in,” Manfred said. “Our goal would be to make games available not only within the traditional cable bundle but on the digital side, as well.”