New York has always been an oversaturated market for regional sports networks—MSG, SNY, YES, etcetera—a consequence of the fact that most of its pro teams are owned individually. The
Tsai family owns the Nets,
Steve Cohen runs the Mets, the
Steinbrenners control the Yankees, and
Jon Ledecky has the Islanders. The one mammoth exception, of course, is
Jim Dolan, who inherited the Knicks and Rangers, whose games populate his own MSG Network. Dolan, who is hardly a stranger to litigation and confrontation, is now leading MSG into an existential battle, all while his Knicks are enjoying their best season in a quarter-century.
Altice, the deeply troubled cable distributor, has dropped MSG Networks from its Optimum-branded New York system—despite (or, cynically,
on account of) the Knicks’ success. Meanwhile, some influential analysts believe that New York, previously the last stable R.S.N. market, is ripe for consolidation.
MSG, after all, relies disproportionately on Altice, which accounts for about 33 percent of MSG Networks’ distribution revenue, per Guggenheim. A lot hangs on whether MSG Networks files for bankruptcy, as predicted by analysts from both Guggenheim and LightShed Partners. MSG Networks’ dispute with Altice is not your run-of-the-mill cable carriage beef. For starters, there’s no end in sight. The pay TV market is radically different than it was 13 years ago, when Time Warner Cable kept MSG Networks off of its systems for a month, only to be pressured to cut a deal after
Jeremy Lin caught fire and led the Knicks on a six-game winning streak.
I called LightShed Partners’
Brandon Ross to get a sense of where things might be headed. He reiterated that Altice and MSG Networks are nowhere near an agreement, and he doubts the two will be able to find a middle ground. Altice’s latest offer, which puts MSG on a tier that carries a $55 surcharge, seems entirely unacceptable to Dolan, especially since it would trigger most-favored-nation clauses that give other distributors rights to the same terms. (MSG Networks’ deal with Charter, for example, is up at the end of this year.) “It would just not be a profitable business,” Ross said. “We’re at the point where something has to change.”
Dolan certainly doesn’t want to take MSG Networks into bankruptcy, Ross told me. But without an Altice deal, Ross doesn’t see a scenario where MSG Networks will be able to make its debt payments. “If you can’t make your interest payments, generally you’re just forced into bankruptcy, which would mean that the banks would take control of the asset,” Ross said. (While Sphere Entertainment owns MSG Networks, it carries its own capital structure and has its own debt consequences, as my partner
Bill Cohan recently noted.)
It’s hard to predict what would happen in a bankruptcy, but Ross suggested that creditors would work with MSG Sports to lower license fee payments, thereby freeing the R.S.N. to merge with YES Network, which holds the rights to the Yankees and crosstown rival Nets. Ross’s rationale is influenced by the fact that a bankruptcy court allowed Diamond Sports Group, after
20 months in Chapter 11, to reject some money-losing contracts while keeping others. “This is an R.S.N. issue,” Ross said. “This is not the first R.S.N. to get into these problems. But some of the market dynamics in New York allowed this to last longer.”
MSG carries one of the highest costs of all R.S.N.s in the country, Ross said, due to the fact that both Cablevision—the former vessel of Jim’s father
Charles Dolan’s generational wealth—and Verizon Fios competed bitterly for video subscribers in New York. “They were battling for broadband subscribers, so they would never drop content, because the value of the subscriber was too high in this broadband battle that they were having,” Ross said. “That competitive dynamic pushed the prices up. Now, the video bundle isn’t dragging along broadband. We’re in a totally different era.”
