Failed Sports Network Cost Comcast $100M

HOUSTON (CN) - Comcast cannot recover a $100 million loan it gave to a now-bankrupt Houston pro sports cable network, a federal judge ruled.

Comcast/NBC Universal, the Houston Rockets and the Houston Astros formed the Houston Regional Sports Network LP and launched Comcast SportsNet Houston in October 2012 to air Rockets and Astros games.

The Astros owned a 46 percent stake, the Rockets 31 percent and NBC Universal 23 percent.

Comcast provided a $100 million secured loan at the outset for the network's operating costs.

After Comcast struck out trying to negotiate deals with DirecTV, Dish Network and AT&T to carry the network, it couldn't afford to pay the Astros and Rockets fees for game-broadcast rights, and several Comcast affiliates filed to put the network into involuntary Chapter 11 bankruptcy in September 2013, the Houston Chronicle reported.

Chapter 11 bankruptcies allow a debtor, typically a corporation or partnership, to submit a reorganization plan to keep the business alive.

U.S. Bankruptcy Judge Marvin Isgur approved the network's plan in October 2014, under which AT&T and DirecTV bought the network for $5,000 and agreed to invest $50 million in it.

Under the reorganization plan, Comcast is a carrier of Root Sports Southwest, a rebranded network DirecTV Sports Networks took live in November 2014.

Comcast challenged the reorganization plan, arguing that Isgur erred in his valuation of the carriage agreement that secures its $100 million loan.

Isgur determined that since the network operated at a loss from Sept. 27, 2013, when the bankruptcy petition was filed, to Oct. 30, 2014, when he approved the bankruptcy plan, Comcast's carriage agreement was worthless, meaning Comcast cannot recover the $100 million it loaned the network.

Comcast appealed Isgur's decision to U.S. District Judge Lynn Hughes, who upheld it on Aug. 20.

"As a matter of common sense, the bankruptcy court reasoned that the value of Comcast's collateral must account for the costs incurred to realize its value," Hughes wrote. "Put differently, without the reorganization, Comcast's collateral would be worthless. Unless the court accounted for the cost of the reorganization, the collateral's appreciation would be a windfall to Comcast."

The Houston Chronicle calls the bankruptcy the "largest regional sports network collapse in history" and litigation surrounding it is expected to persist for years.

Follow @cam_langford

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit