CSN Houston bankruptcy: Judge rules network will enter Chapter 11 protection

Representatives from the Astros, MLB, Rockets, and Comcast were back in court yesterday. They heard updates from the Rockets attempt to formulate a plan for restructuring, and make final arguments to the validity of Chapter 11 protection with respect to the regional sports network. This was another mile marker in the rolling disaster that has been CSN Houston.

Recapping the previous events, Comcast filed for Chapter 11 protection in September of last year. Comcast made a statement in conjunction with the filing, stating that:

This action is necessary to preserve CSN Houston's ability to provide its valuable programming and reaffirms Comcast/NBC Universal's commitment to serving the region and its fans

In intimal hearings, Judge Marvin Isgur appeared to side with the Astros in October. Judge Isgur ordered that the Astros had the right to:

investigate and negotiate the terms of carriage agreements, broadcast agreements, management agreements, lease agreements, equipment agreements, purchase and sale agreements and debt and equity investments and other matters pertaining to the formulation of a business plan.

The Astros were put in charge of finding this deal, but they later handed that responsibility off to the Rockets after failing to make any headway on a resolution.

Rockets CEO Tad Brown, opened yesterday's hearing with an update on said search for better plan/deal.

Brown indicated that as of Monday, his "preferred option" was still an option and that his report was shorter than he would have hoped.

— David Barron (@dfbarron) February 4, 2014

Brown says long-term plan was "carriage solution w/primary carriage partners w/long-term incentives to support the success of the network."

— David Barron (@dfbarron) February 4, 2014

At the moment, both the Astros and Rockets have failed to find a business plan that all parties could agree upon. The hearing moved forward with final arguments for the Chapter 11 bankruptcy case.

The Houston sports news cycle has stopped each time Dan Barron's twitter feed fills with courtroom updates. Yesterday was no different. The Astros final arguments:

Conclusion by Astros attorney Paul Basta: "The Astros' position here is not nefarious. It is not in bad faith. It's not wrong. ...

— David Barron (@dfbarron) February 4, 2014

"...It's what any fan of the Houston Astros would hope the Astros would do, which is to enforce the bargain they reached ...

— David Barron (@dfbarron) February 4, 2014

"...and enforce the structures they put in place so that the long-term value of their media rights were within their control. ...

— David Barron (@dfbarron) February 4, 2014

Comcast's final arguments:

Goldblatt: "The alternative is for the Astros to force the network into liquidation."

— David Barron (@dfbarron) February 4, 2014

Goldblatt: "We believe the record supports the proposition that this (CSNH) is a debtor with a realistic proposition of reorganization."

— David Barron (@dfbarron) February 4, 2014

Then the bombshell:

Judge Isgur says he will order that CSN Houston enter into Chapter 11 bankruptcy protection.

— David Barron (@dfbarron) February 4, 2014

(Blink, Blink) Okay, what now?

Like most people, I was a bit lost in my understand of what this meant in respect to getting the games on television outside of Comcast. The one thing I did understand was this was a victory for Comcast and a major letdown for the Astros.

Judge Isgur has found that the best solution for this problem is Chapter 11 bankruptcy rather than dissolving the contract. Instead striking out on their own for a deal, the Astros and it's partners must find a solution to a problem that hasn't been solved in almost two years. If there was a win for the Astros in this, it's that Judge Isgur did not name a third-party trustee to oversee the restructuring efforts. That means the partners will try themselves to restructure the network to make it profitable.

This was one step toward a solution but a solution that may take longer to manifest itself. Now, let's try to answer a few questions.

Why is this a loss for the Astros?

The Astros position is that they wanted their media rights back. Since they were not paid for those rights during the season, they have the ability to take them back and shop them to another network. That could get Houston on TV very quickly, but it's not happening.

By entering the network into Chapter 11, the Astros media rights are still locked up in CSN Houston. Thus, they can't pull their rights and offer them to Fox Sports for a hefty fee. Instead, they have to pursue distribution deals with other outlets for CSN Houston, along with the other partners.

What does Comcast want?

They want what everyone else does. They want control. When this venture was started, the Astros were owned by Drayton McLane, who had a great working relationship with Rockets owner Les Alexander. It's obvious that they thought this relationship would translate to the network itself, so they structured the ownership group to that end, with equal votes on both sides. However, when Jim Crane was inserted into the mix, things went south.

The deadlock caused by Crane and the Astros insistence on more profitable carriage packages has led Comcast and the Rockets to seek complete ownership of the network. With that, either entity could make decisions without getting consensus from the other two sides.

What next?

As David Barron reported, the four members of the CSN Houston board will meet on Friday to continue the task of finding a restructuring plan.

Do we have any idea when the Astros, Rockets, and Dynamo will be on non-Comcast television screen?

At the moment, we are in the same boat as before. They only difference this time, the Court has ordered the parties involved to play nice and work out the problems of the deal. Which means, no, the teams will NOT be on TV any time soon.