When Dallas Stars National Hockey League team owner Tom
Hicks bought Major League Baseball's Texas Rangers in early 1998, he made it clear
that one of his goals was a regional sports network with the two teams as winter-summer
anchors.
As recently as last month, a Hicks partnership in a new
regional sports network with ESPN or CNN/SI seemed a distinct possibility.
Then Fox Sports Net Southwest upped the ante, once again
staving off competition in regional sports by paying heavily for direct rights and signing
the teams to a long-term contract.
The 15-year contract -- which covers 80 MLB games and 40
NHL games per year -- also includes 24 one-hour programs featuring the Hicks-owned
Mesquite Championship Rodeo.
The cost to Fox, according to sources close to the deal:
$300 million, including a substantial upfront payment totaling tens of millions of
dollars, although not the $100 million reported in some publications.
Neither side will verify the amount of the upfront payment,
which, Hicks said, will go toward paying off the bank debt still owed on the teams and
converting to an equity structure.
For its part, FSN Southwest retains two major draws, while
gaining the security of a long-term deal and more than 5,000 hours of programming,
excluding rebroadcasts.
Meanwhile, Hicks gets the upfront money, guaranteed
escalating income and the added leverage that comes with equity, while avoiding the risks
and income deferral involved in starting a new network.
But what some involved in the deal called a win-win
situation was anything but likely when negotiations began 18 months ago.
"It was like a couple of sumo wrestlers out
there," Hicks' Southwest Sports Group chief operating officer Mike Cramer said,
comparing Southwest to the FSN regional operation. "We had to bump off of each other
a few times before we were able to put something together."
At one point, Southwest Sports executives thought they had
reached an agreement with FSN Southwest to partner in a second regional sports channel.
"We had actually made an oral deal with Fox a number
of months ago where we were going to be partners in a network," Southwest Sports
chairman and CEO Hicks said. "As part of that, we were going to open a second
channel, but they received pressure back from [AT&T Broadband & Internet
Services]," the dominant operator in the Dallas area.
The MSO's disinterest wasn't the only negative,
according to Hicks. "I'd heard rumors that [News Corp. chairman] Rupert
[Murdoch] personally didn't like it." News Corp. controls the FSN regional
networks after buying out AT&T Corp. subsidiary Liberty Media Group's interest in
Fox/Liberty Sports over the summer.
AT&T Broadband Dallas-region spokeswoman Angel Biasatti
confirmed that the cable operator said no when approached about the possibility. "We
told them we were not interested in a second channel, and the reason was cost," she
said.
Despite that, Southwest Sports and others involved in the
exploration of a new channel believe the MSO would have eventually accepted another
regional sports channel.
"There was no lack of people out there available for
us to work with as a strong regional sports partner," Cramer said, citing ESPN and
CNN/SI as serious contenders.
"It would have been very comfortable to make a
long-term commitment to be partners with [ESPN], but ultimately, through no fault of
theirs, they could not help us to get beyond a certain value," Cramer said.
"Once we got to that value, if we could do it more or less on a no-risk, guaranteed
basis, there was no reason to go out and work with ESPN."
An ESPN executive familiar with the talks between Southwest
Sports and ESPN said, "We spent a lot of time with them. They looked at it a lot of
different ways. Had they gone with us, they would now be taking on more risk, as opposed
to receiving a check."
During the course of negotiations with FSN Southwest and
rivals, Hicks' bargaining power increased as the Stars won the 1999 Stanley Cup and
the Rangers made it to the 1999 postseason. Part of the money coming from Fox includes a
$10 million payment that Hicks called his "Stanley Cup bonus."
Cramer and others cautioned that this deal should be viewed
independently, and not as a sign that regional partnerships aren't possible.
For its part, ESPN said through a spokesman,
"We're open for business, and we're looking and talking to people about
these kinds of opportunities wherever they exist. There are lots of opportunities."
The best known example of an attempt to break away came
when The Walt Disney Co. tried to take its Anaheim Mighty Ducks NHL team and Anaheim
Angels MLB team and create its own Southern California regional network in 1998. That
effort failed.
But Cramer said team-owned or partnered regional channels
can work, pointing to Comcast SportsNet, which Comcast Corp. built around the Philadelphia
76ers of the National Basketball Association and the NHL's Philadelphia Flyers.
"I think what happened on the West Coast was an
aberration. There were a lot of factors in place because it was ESPN. ESPN, I believe,
walked into a situation where they had just forced a fairly large increase down
operators' throats because of [its National Football League contract]. It was easier
to back off and not push the cable operators, plus they had teams that weren't No. 1
in their market."
He added, "There are some that will work, some that
won't. Some of it is the product, some of it's the competition. Would I write
off the prospect of entities like ours starting regionals? We weren't concerned about
it. Ultimately, it's a question of value that you're looking for. The easy way
to explain this is there's a certain amount of cash that will pay for
anything."
To Hicks, it was the knowledge that they could start their
own channel that made this deal possible. "You can get your dollars as a partner in a
network," he said. "It's really six of one or a half-dozen of another. If
we hadn't had the two teams and the ability to start our own network, we'd have
never gotten that amount of dollars."
