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Houston Teams, Comcast Spar Over Deal's Value in Ch. 11

Comcast faced off on Friday with MLB’s Houston Astros and the NBA’s Rockets over the $100 million question of how to revalue a 2010 contract at the heart of a bitter feud over a defunct local sports station, after the Fifth Circuit remanded the issue to Texas bankruptcy court in May.

In dueling reply briefs, the two sides recommended two sharply different valuation methodologies to U.S. Bankruptcy Judge Marvin Isgur, as he mulls how to proceed with the Fifth Circuit’s open-ended mandate.

Depending on how Judge Isgur ultimately decides to value the 2010 contract, the Houston teams could owe Comcast up to $100 million, or nothing at all.

Comcast and the two Houston sports teams partnered to launch the Comcast SportsNet Houston network in 2012, but the relationship quickly soured and Comcast forced the ailing network into bankruptcy in 2014.

CSNH was eventually sold to AT&T and DirecTV, but only after the Houston teams narrowly managed to thwart Comcast’s attempt to secure a lien tied to a $100 million loan it had made to CSNH.

The only thing of value CSNH owned other than its tangible assets during the bankruptcy was the 2010 affiliation agreement in which the Houston teams agreed to give Houston Regional Sports Network LP — which later became CSNH — exclusive rights to air their games.

In his 2014 decision on Comcast’s attempts to secure the $100 million loan, Judge Isgur valued the 2010 agreement at $54 million, but then subtracted $107 million in unpaid fees owed to the teams, to conclude that the 2010 contract had “inconsequential value.”

Comcast appealed and eventually succeeded in overturning that ruling in May, when the Fifth Circuit ruled that the unpaid fees couldn’t be used to value the 2010 contract because the Houston teams had already agreed to waive them as part of CSNH’s Chapter 11 plan.

The Fifth Circuit sent the case back to Judge Isgur “for a revaluation of the collateral in light of the plan.”

Comcast says that means the court should simply use the same valuation methodology it used the first time around, in which it estimated the value of the contract at the time CSNH filed for bankruptcy and then discounted that value back to the present.

“The court need not take additional evidence to make such a finding. It can simply calculate that value using the $54,275,470 effective-date value and the discount rate the court already determined is appropriate,” Comcast said in a brief on the issue.

It’s unclear if that same methodology would produce a larger or smaller figure in light of the four years that have passed since the 2014 decision, but the end result is almost sure to be at least eight figures.

The Houston teams, in contrast, want Judge Isgur to reopen the record and conduct an evidentiary hearing.

The 2014 valuation of the 2010 contract was based on a planned Comcast-Time Warner Cable merger, they say, and the assumption that CSNH would secure additional carriage, or broadcast deals, with other programming distributors like Dish or Suddenlink.

Neither of those ended up panning out, the Houston teams point out, and they’re asking Judge Isgur to factor the rocky endings of those optimistic assumptions into his revaluation.

In support of their argument, the Houston teams say Comcast specifically told the Fifth Circuit that, in the event of a win, the appeals court would not need to remand for revaluation because it already had all the information it needed to value the 2010 contract itself.

Given that, “the panel undoubtedly could have done what Comcast is now suggesting, but it did not. And that says it all,” the teams write in Friday’s brief.

“In remanding this case for a ‘revaluation,’ the panel did exactly as the teams requested: sent the matter back for this court to reassess the value of Comcast’s collateral based on changes in ‘a number of assumptions in the valuations,” the teams added.

CHSN’s trustee is also suing Comcast for fraud, alleging the cable giant intentionally torpedoed the network in an attempt to buy it on the cheap.

It’s unclear if, or how, the valuation dispute will affect that case, which is still pending.

The Houston teams are represented by Joshua A. Sussberg and Judson D. Brown of Kirkland & Ellis LLP, Harry A. Perrin of Vinson & Elkins LLP and Roberto J. Kampfner and Douglas Baumstein of White & Case LLP.

Comcast is represented by Howard M. Shapiro, Craig Goldblatt, Danielle Spinelli, David Gringer and Isley Gostin of WilmerHale, Vincent P. Slusher of Drinker Biddle & Reath LLP, and Arthur J. Burke, Timothy Graulich, Dana M. Seshens and Brian M. Burnovski of Davis Polk & Wardwell LLP.

The case is In Re: Houston Regional Sports Network LP, case number 13-35998, in the U.S. Bankruptcy Court for the Southern District of Texas.