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SPORTS NETS Get Closer to Home

Brushing aside the notion that bigger is better when it comes to regional sports networks, several large cable operators and team owners are betting they can run successful regional sports networks (RSNs) anchored by only one major league team and, in one case, only college and high school sports.

For multiple systems operators, the goals are simple: gain control over sports programming decisions and costs, increase margins and advertising opportunities and, whenever possible, create a reason for subscribers to choose cable over satellite. Along the way, they can earn community kudos and loyalty for paying attention to local sports. They can also tap into the potential for expanded services such as Spanish feeds, HDTV and interactivity.

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"There's no disadvantage to being vertically integrated," says Kagan sports analyst John Mansell. "You eliminate the middleman's profit margin every step of the way. You also eliminate the suspicion each has of the other. Cable ops think they're paying too much to the RSN, which feels it's being raped by the team, and the team thinks it's never getting enough. As a result, the three often don't work well together."

But simple isn't always easy.

"On the other hand," adds Mansell, "if a team is mismanaged and performs poorly long enough, ratings decline and advertising goes away. A cable operator is better off if the risk is spread around."

MSOs with sports regionals rarely succeed alone. They have to sell their network to other operators, who are already balking at the cost for sports programming and may not be eager to open up expanded basic slots for yet another channel with a narrow audience.

They also have to contend with increased scrutiny by the Federal Communications Commission, which has already expressed concern about MSOs that can refuse to sell their terrestrially delivered networks to DBS, most notably Comcast and Comcast SportsNet Philadelphia. This is where smaller size can work to their advantage - in most cases, DBS generally isn't interested in one-team networks even if games are delivered by satellite.

Team owners going it alone still have to gain distribution by working with MSOs but can increase their own margins, offer more games and push their own agenda. They can make deals to their advantage instead of standing behind the RSN in line.

Some owners have tested the mini-regional concept, only to then turn to the sure money from Fox Sports Net, the clear leader in local sports in most markets. Paul Allen tried and failed when his Action Sports Network featuring his Portland Trail Blazers couldn't get on AT&T Broadband systems. The billionaire cut his losses last fall and abruptly shut down the ambitious network with its hi-def programming, and thus the Blazers are back on Fox Sports.

Allen might have succeeded if his network were in a market covered by Charter Communications, the MSO in which he is a majority shareholder. On the other hand, Cox Sports Television signed a ten-year deal with the New Orleans Hornets knowing it had nearly 600,000 Cox Communications subs in the market and out-state Louisiana locked in at launch.

Another startup at which there was enough heft at launch was the YES Network in New York, where George Steinbrenner has Leo Hindery, and Hindery managed to cut deals covering half of the network's footprint. This has made it possible to stay in business without carriage into 3 million homes served by Cablevision, whose controlling shareholders, the Dolan family, have refused to pay the $2 per subscriber per month that YES is charging other operators. YES has two major league teams - the Yankees and the New Jersey Nets - with a possible third on the way in the New Jersey Devils. That's as close as it gets to critical mass, although, without access to those Cablevision subscribers, YES may never be able to turn a profit, let alone offer its investors a payout of any sort.

YES is both an exception in that it is launched and running and the rule in the sense that greed and hubris among team owners are sometimes driving forces in the creation of mini-regionals. Team owners who opt for owning their own networks think they can make more money, but, as Allen proved, things don't always pan out. "It's very much a market-by-market issue," says sports consultant Neal Pilson. "There's no model that guarantees success."

On the flip side of the issue, there are MSOs that dream of launching networks even though they don't own any teams. They figure there are benefits that go beyond direct financial gain, most notably the opportunity to further differentiate cable from DBS. But that means ignoring their own long-standing complaints about the unreasonable cost of regional sports networks and the lack of space on expanded basic. It also means fashioning a network that other operators are willing to take - and at a price that makes sense. After all, just as regionals sharing ownership with teams have to pay market value for rights fees, MSOs owning regionals have to pay to carry the network.

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SPORTS NETS Get Closer to Home

Cable World, Jan 6, 2003

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