Allegations of fraud, civil conspiracy and breach of contract.
If you think there’s an ugly nature to the A-Rod arbitration hearings, what could transpire in Houston might take on an ugly nature as well.
Yesterday, Houston Astros owner Jim Crane filed suit against former owner Drayton McLane, Comcast and NBC Universal, reports David Barron of The Houston Chronicle. Crane is accusing the parties of fraud and civil conspiracy and accusing McLane’s corporation that owned the Astros of breach of contract. Crane purchased the Astros in 2011 for $615 million, which also included a 46% interest in the parent company of CSN Houston.
What has brought on this suit? Money. Isn’t it always?
Apparently there’s an issue regarding CSN Houston. Crane alleges that McLane sold “an asset (the network) they knew at the time to be overpriced and broken.” Since the RSN’s launch in late 2012, only about 40% of households in the Houston market have access to the network. Crane asserts that finding providers has been difficult due to McLane and Rockets owner Leslie Alexander demanding that Comcast charge a base subscriber rate for CSN Houston in Zone 1. That zone represents the area around Houston where Astros and Rockets games can be seen.
When the demand was made in 2010, Comcast said the rate was too high. Comcast feared that the rate was so high that it could not convince other distributors to carry the network. Comcast would eventually agree to the rate, received a most favored nation clause in return. This insured Comcast would always pay the lowest base rate of any distributor.
The Rockets are not a part of the suit.
Crane states within the suit that he was unaware of this fact while in the process of purchasing the club. Crane also alleges that McLane, Comcast and NBC Universal worked together to “conceal material information” regarding the RSN. Crane also indicates that he was unaware of the 2010 demand made by McLane and Alexander until December 2012 during a meeting in New York City.
As part of the purchase agreement, the Astros were to receive $30MM annually in rights fees from CSN Houston. The club has failed to receive that for 2013.
The only peep about this on CSN Houston’s website is an AP snippet. But there is a button for you to click to demand CSN.
NBC Universal has issued a statement on the suit:
Comcast/NBCUniversal vehemently rejects any claim of wrongdoing asserted by the Astros. This litigation outside the bankruptcy proceedings is a desperate act, committed during a period in which Mr. Crane and his team of sophisticated advisors have been granted by the Bankruptcy Court an opportunity to explore and effectuate solutions to the Network’s serious business problems.
“Instead, it appears that Mr. Crane is suffering from an extreme case of buyer’s remorse, and aiming to blame the Network’s challenges on anything but his own actions. Comcast/NBCUniversal looks forward to vindicating itself in this litigation and also remains committed to a reorganization of the Network in Bankruptcy Court.
I read an interesting take on this by David Coleman over at SB Nation’s Crawfish Boxes:
This is pure speculation on my part…the Astros obtained discovery on Comcast/NBC in the bankruptcy case, which might allow them to see internal Comcast documents as well as correspondence, e-mail between Comcast and the other parties before Crane bought the Astros. I am guessing that the Astros saw something that made them believe that they could sustain evidence of misrepresentation by Comcast, McLane, etc.
Coleman provides an example in which Crane was provided financial projections for the network, but they may have been vastly different from the internal projections.
Then there this by John Royal of The Houston Press:
Jim Crane was suckered by Drayton McLane. That’s why most of the city of Houston can’t see CSN Houston. It’s just that simple. Jim Crane didn’t do his proper due diligence, and he fell hook, line and sinker for everything that McLane told him, including that bit about CSN Houston being set to earn a huge profit.
Sad thing is, and Coleman also notes this, all involved are losers: Crane, McLane, Comcast.
More importantly, Astros fans that are unable to see their team play on TV are the biggest losers.