MSG-Yanks Settlement May Batter Ops

BY WILL LEE

There are no guarantees [the Yankees] will succeed in running a cable network.

ESPN Rate Hike Arrives, page 47

Defending three-time champion New York Yankees have a lineup few teams could afford, and soon cable operators also may have to step up to the plate to pay more for Derek Jeter, Roger Clemens and company.

The last thing most operators need is another expensive sports network. MSOs complain that rising programming costs force them into unpopular rate increases, and sports channels, both national and regional, carry the industry's heaviest fees, costing anywhere from $1.25 to more than $2 a subscriber.

But Yankee owner George Steinbrenner last week freed himself to put Bomber games on a new channel he could own, and operators in New York, New Jersey and Connecticut can't afford not to carve out scarce channel capacity to keep the Yankees in their batting order.

?They're not going to want to do it at all,? says Bob Gutkowski, CEO of Magnum Sports and Entertainment, referring to the operators. As MSG Network president in 1988, Gutkowski negotiated the blockbuster 12-year, $486 million rights deal with the Yankees that shook the sporting and cable world. ?But they will. Let's face it: The Yankees have the most powerful piece of local sports in, if not the world, then certainly the United States.?

Operators in the New York area already shell out more than $2 per subscriber for rights to MSG Network and Fox Sports New York. John Mansell, analyst at Paul Kagan Associates (like Cable World, owned by Media Central), the Yankees could charge $1.50 to $2 per subscriber.

?This is going to bring yet another incremental cost for the operators and another channel they'll have to clear,? says Fox Sports Networks president Bob Thompson, who has significant experience in rights negotiations.

Some cable executives suggested that if MSG did lose the Yankees, local operators might put pressure on the network to lower its fees by whatever the Yankees' new network charged. That will be a hard sell. Cable networks almost never lower their rates.

There is a precedent of sorts: During the 1998-99 National Basketball Association lockout, TNT received a rebate from the league from its rights fee, which it did not pass onto operators.

There are no assurances that the Yankees will be as successful in lining up affiliates as they have been on the field in recent years.

?Getting carriage, despite their cache, will, to mix sports metaphors, be far from a lay-up,? says Thompson.

It will be especially tough because the Yankees will be looking for carriage from MSG Network owner Cablevision Systems, whose chairman, Charles Dolan, won a battle to keep MSG off of an expanded basic tier in 1989-90 before buying it, and Time Warner Cable, also known as a tough negotiator.

Six local operators declined to speculate for the record how a Yankee network might affect fees.

Last week, the first obstacle to creating what would, no doubt, be the financial centerpiece of the entire YankeeNets organization (which, in addition to controlling the Yankees and the NBA's New Jersey Nets, also includes the National Hockey League's New Jersey Devils) was cleared.

On Wednesday, the Yankees and MSG said they settled the highly acrimonious litigation over cable rights. The key issue in the breach of contract suit that MSG filed in New York Supreme Court last July was whether the Yankees had violated MSG's right to match any bid by imposing draconian conditions on the renewal. The conditions included dropping coverage of New York Knicks basketball and New York Rangers hockey games. (Cablevision owns both teams.) In November, the two sides signed a stopgap, one-year, $52 million rights contract.

As a result of the settlement, MSG gets to air 85 Yankee games for free, which would allow the Yankees to sell the remaining 65 to Fox's New York TV station. (The 12 or so other contests would be broadcast nationally). But that deal would be rendered void if the Yankees make one of two decisions in the next 60 days.

On one hand, they can sell the remaining 65 games to MSG for $37.5 million, which would mean a significant discount to the network's payout heretofore. On the other hand, the Yankees can elect to buy those 85 games from the network for $30 million, giving them control over nearly all their games ? and allowing them to go ahead with their own channel.

If the fervid proclamations of YankeeNets president Harvey Schiller and Steinbrenner are to be believed, most observers are convinced that the latter will win the day.

Dave Checketts, CEO of Madison Square Garden, is simply relieved.

?MSG Network has enjoyed a long and successful relationship with the New York Yankees,? he said in a statement, ?and this settlement allows us to consider the future of our relationship unencumbered by litigation.?

But just as the Yankees have stumbled so far this year on the field, there are no guarantees they will succeed in running a cable network.

If the Yankees' suits have been doing some scouting, they know that other sports franchises have attempted to go it alone on cable ? and failed.

In the highest-profile such debacle, the Disney-owned Anaheim Angels and Anaheim Mighty Ducks were poised to be the programming anchor for a regional version of Disney-owned ESPN, dubbed ESPN West. But with local operators ? even those in Orange County, the teams' home ? refusing to carry the new network, the venture collapsed, and both teams continued their agreement with Fox Sports West. Similarly, basketball and baseball teams in Milwaukee and Texas have made noise about television possibilities, only to see their dreams scuttled by lack of carriage.

Teams have used the threat of starting a network to extract a premium long-term rights fee deal from incumbent networks, says Mansell of Kagan.

But there have been successes. Ironically, MSG Network itself emerged as the exclusive cable home for the Knicks and the Rangers, and Comcast, which owns the Philadelphia 76ers and Flyers, started a network dedicated to both teams, an arrangement that has succeeded for all involved.

Perhaps the most hopeful analogy comes from San Diego, where Major League Baseball's Padres created a dedicated basic cable channel with Cox Communications in 1996. Earlier this month, the two sides renewed their agreement for 10 more years, and Cox announced it is creating a new digital channel that will carry 24/7 coverage of the baseball team.

The success the Padres have had with Cox naturally raises the possibility that the Yankees could find an MSO partner to help bolster their enterprise.

Time Warner Cable and Comcast would be logical partners. Time Warner Cable's Lynn Yeager said she had ?no knowledge? of any such negotiations, and Comcast officials had no comment.

Whatever the case, provided that the Yankees got their own network and procured carriage, what exactly would they be able to program besides Yankee games? In fact, as Fox Sports' Thompson points out, if the Yankees continue to sell over-the-air rights to 80 or so games to the New York Fox-owned station WNYW-TV, that leaves at most another 60-plus games for Yankee TV to show.

?That leaves 290 days where operators are saying, ?What else have you got??? he says. ?They're just as interested in what's around the games.?

On that score, possibilities include getting CNN/SI or ESPNews to fill part of the time, and, more importantly, for the late fall-winter space, games of the Nets and the Devils, both of whose rights deals expire in the next few years. Otherwise, Boss Steinbrenner may be left watching repeats of the less-than-classic teams of the 1980s and early ?90s, newsreels of the Babe and old baseball movies such as Pride of the Yankees.