This ought to be fun.
Jim Crane’s Astros ownership group filed a state court lawsuit Thursday against former Astros owner Drayton McLane, Comcast and NBC Universal, accusing them of fraud and civil conspiracy and accusing McLane’s corporation that owned the Astros of breach of contract in conjunction with Crane’s 2011 purchase of a 46 percent interest in the parent company of Comcast SportsNet Houston.
The suit accuses McLane, who sold the Astros and his CSN Houston share to Crane in 2011 for $615 million, of selling “an asset (the network) they knew at the time to be overpriced and broken.” It also says Crane was “duped” when he bought McLane’s network interest based on what have been proved to be “knowing misrepresentations” and “falsely inflated subscription rates.”
“Ultimately, fans of the Houston Astros have been injured because defendants’ misrepresentations leave (Crane) with an impossible choice: accept the broken network as is and deprive thousands of fans the ability to watch Houston Astros games on their televisions, or distribute the game at market rates and take massive losses out of the Houston Astros player payroll – thereby dooming the franchise for years to come,” the suit adds.
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Crane’s suit alleges McLane and Rockets owner Leslie Alexander demanded in 2010 that Comcast charge a base subscriber rate for CSN Houston in Zone 1 – the area around Houston where Astros and Rockets games can be seen – that Comcast said was too high. In fact, the suit said, the rate was so high Comcast feared it could not convince other distributors to carry the network.
Comcast eventually agreed to the inflated base rate, the suit said, in return for a most favored nation clause, which ensured Comcast it would always pay the lowest base rate of any distributor.
Faulty business plan
Crane, according to the suit, was not aware of these facts when he was negotiating to buy the team in 2011 and that Comcast, NBC Universal and McLane agreed to “conceal material information” about the network’s business plan.
The suit also accuses Jon Litner, group president of the NBC Sports Group, of making false and misleading claims the CSN Houston business plan was achievable, even though they were based on what the company knew were inflated subscriber rates.
Crane became aware of the 2010 demands by Alexander and McLane, according to the suit, during a December 2012 meeting in New York City, about a year after he bought the team and three months after the network launched.
The suit asks that McLane’s McLane Champions corporation be ordered to repay Crane’s group for losses that have resulted from alleged breaches of the group’s purchase agreement – including, presumably, more than $30 million in rights fees the Astros failed to receive in 2013 and what Crane says is the “artificially inflated price” he paid for McLane’s network share. Court testimony indicated CSN Houston was valued in 2010 at $700 million, with McLane’s share valued at $326 million.
I haven’t followed it here on the blog, but CSN Houston has been plagued with problems, mostly stemming from the fact that nobody other than Comcast carries it. That limits its reach to about 40% of Houston-area viewers, which also limits ratings and ad revenues. Mayor Parker has tried to facilitate talks between Comcast and other carriers to resolve this, but has had no luck. The infamous game nobody watched probably didn’t improve Crane’s mood about the station. The Astros have been trying to get out of this deal but aren’t on the same page as the Rockets, who are also stakeholders in CSN Houston. Four Comcast affiliates have filed for bankruptcy stemming from that action. It’s all a big mess, is what I’m saying. I have no idea what happens from here, but I’ll be watching. Sports Update and Hair Balls have more.