Crane elaborates on suit against former Astros owner
HOUSTON -- Saying his party was a victim of misrepresentation and was "stunned and extremely disappointed by our partners during this process," Astros owner Jim Crane on Friday explained his stance on a lawsuit filed by the team's ownership group against former owner Drayton McLane, Comcast and NBCUniversal.
Crane, appearing alongside Astros general counsel Giles Kibbe during a news conference at Minute Maid Park, says the team has lost tens of millions of dollars or more because of what the plaintiffs contend to be an inflated television deal that was negotiated by McLane, Comcast and the owner of the NBA's Houston Rockets.
The lawsuit, filed in state district court Thursday, is the latest salvo on the ongoing stalemate between the Astros and their partnership with regional sports network Comcast SportsNet Houston, of which Crane purchased a 46-percent share when he bought the team from McLane for $615 million two years ago -- $326 million of which was the Astros' share in the network.
Rockets owner Leslie Alexander was not named as a defendant, though Kibbe said the lawsuit could be amended.
In the suit, the Astros claim McLane, Comcast and NBCUniversal committed fraud and civil conspiracy. The suit contends McLane sold an asset they knew at the time was overpriced and "broken" and that Crane was "duped" when he bought the interest in the network based on "falsely inflated subscription rates."
The inflated rates set the value for the network and increased the purchase price of the team, the lawsuit said. The suit asks McLane Champions corporation to repay Crane's groups for losses that Crane says could be in the hundreds of millions, as well as other damages.
"This is something we didn't do lightly," Crane said. "I recognize the magnitude of the lawsuit. Misrepresentations were made about the RSN that may damage the Astros' organization for the next 20 years. We will not allow this to happen for the franchise."
McLane released a statement in response: "I haven't seen the lawsuit yet, but Jim Crane is highly experienced and has been in business over 30 years. He is surrounded by top-tier accountants, attorneys, operators and marketers, and he has participated in transactions even larger than this one. His experts meticulously examined the Houston Astros financial position. My team was absolutely transparent and produced thousands of pages of documents; we provided answers and explanations to all of their questions. Any suggestion otherwise is absolutely false. As an example, today, Jim Crane reportedly stated that he did not receive the business plan for CSN Houston prior to the purchase. That is not true.
"This was one of the most complex and scrutinized transactions of my business career. Jim's group had all the facts. In fact, he told the Chronicle this September that the regional sports network had 'good long-term value.' The accusations that have been reported are hollow and appear to be an attempt to recreate the facts. We will respond in a vigorous and persuasive manner to the lawsuit."
Comcast/NBCUniversal also released a statement:
"Comcast/NBCUniversal vehemently rejects any claim of wrongdoing asserted by the Astros. This litigation outside the bankruptcy proceedings is a desperate act, committed during a period in which Mr. Crane and his team of sophisticated advisors have been granted by the Bankruptcy Court an opportunity to explore and effectuate solutions to the Network's serious business problems. Instead, it appears that Mr. Crane is suffering from an extreme case of buyer's remorse, and aiming to blame the Network's challenges on anything but his own actions. Comcast/NBCUniversal looks forward to vindicating itself in this litigation and also remains committed to a reorganization of the Network in Bankruptcy Court."
The suit was filed the same day Crane and his lawyers provided an update in bankruptcy court about their effort to negotiate a TV deal with other providers. They face a Dec. 12 deadline to come up with a new business plan, which could include selling their stake in the network.
CSN Houston, which launched last October and carries Astros and Rockets games, is only available to about 40 percent of the Houston television market, leaving many Astros fans frustrated at the inability to see the team play on a nightly basis.
The Astros contend they purchased equity in the network based on being able to swing a deal to get subscription rates that were competitive with other markets based on written projections or oral assurances by the defendants. The Astros claim the subscription rates were falsely inflated and broke contractual conditions.
"We have been stunned and extremely disappointed by our partners during this process," Crane said in a prepared statement.
One offer made to the Astros over the last two years would have resulted in the network losing $200 million in 10 years. Crane said if it were approved, the team's interest in the network would have gone from 46 percent to zero and a below-market payroll.
"We want a deal that is in line with teams we are competing with," Crane said. "Without a competitive deal, we will not be able to compete year in and year out at the levels of our competitors from a salary standpoint. We did not buy this team to field a low payroll; we bought this team to consistently compete for championships, and you cannot do that unless you have a good TV deal."
Crane said his representatives interviewed reps from each group prior to purchasing the team and were told the numbers in the business plan were Comcast numbers based on its expertise in the markets and that the rates were achievable. When the network launched, Comcast was unable to get carriage because the offers from Time Warner Cable, DirecTV and AT&T were way under the business model, Crane said.
"They didn't miss a little bit. ... They weren't even close," he said.
Crane said McLane and Comcast prevented his group from reviewing their files related to the RSN. Crane demanded a meeting and was told later during a conference call the business model was based on the numbers Comcast said were achievable.
"What they didn't tell us was in 2010, Leslie and Drayton cut a deal with Comcast where Comcast included inflated numbers in the business model in exchange for Comcast purchasing the network and Comcast getting a most favored nations clause," he said. "Comcast agreed to it, but told Drayton and Leslie the carriers would never pay those rates. But they didn't tell us."
The discrepancy in the rates, Crane said, were discovered during a meeting in New York last December with the Rockets and Comcast. He said senior vice president of corporate development for Comcast corporation Bob Pick turned to Alexander and said, "I told you those numbers wouldn't fly."
"I was sitting in the meeting and I couldn't believe it," Crane said. "They knew at that point the numbers were inflated. These misrepresentations have caused an enormous loss and hurt our fans and hurt our city of Houston. Because of these misrepresentations, we're stuck in a network deal that cannot get off the ground."
Crane says the Astros have to either accept millions of dollars of losses each year or fight back.
Despite the TV stalemate, Crane said the plan for the team is coming together as scheduled. He lauded the improvements of the Minor League system, which is among the best in baseball, and said the team has some financial flexibility to add some free agents this offseason. That hasn't changed.
"We're getting closer on the field," he said. "This offseason, we'll enhance our young players by signing some talented free agents that will improve our team. Things are definitely moving in the right direction within the team. Even though our baseball plan is headed in the right direction, we understand we have some work to do."
Houston Regional Sports Network, the parent company of Comcast SportsNet Houston, failed to pay the Astros' media rights fees in July, August and September while the sides negotiated to get the games carried on outlets beyond Comcast. The Astros last month filed a motion to dismiss an involuntary Chapter 11 filing made by four Comcast affiliates against HRSN.
The saga got a little deeper Friday.
"We do not have buyer's remorse," Crane said. "We're very happy we own the team and will continue to be happy."