Developments in CSN-Houston and MLB Blackout Lawsuits

Major League Baseball has seen its fair share of television-related litigation over the last few years. On Thursday, there were significant developments in two of these lawsuits.

First, the legal proceedings surrounding the failed CSN-Houston regional sports network took a new turn when the bankrupt station filed suit against Comcast, accusing the cable provider of a variety of misdeeds. If successful, the case could potentially allow the Houston Astros and the National Basketball Association’s Houston Rockets – the two primary owners of the defunct station – to recover hundreds of millions of dollars in damages.

Meanwhile, the long-running Garber lawsuit challenging MLB’s television blackout and pay-per-view package policies took an interesting turn as well, when the parties in a companion case challenging the National Hockey League’s analogous TV policies reached a tentative settlement. Although this settlement does not directly affect the suit against MLB, the deal nevertheless has potential implications for the Garber case.

Let’s begin with the CSN-Houston suit. Wendy Thurm previously covered the failed network’s many issues back in 2013, but by way of a brief refresher, the station launched in late-2012 as a partnership between the Astros, Rockets, and Comcast. The network quickly began to struggle financially, however,  when cable providers refused to pay the roughly $3.50 per subscriber fee the network was demanding.

Eventually, the station was unable to pay the Astros and Rockets their contractually guaranteed broadcast rights fees, and as a result, Comcast sent the network into bankruptcy in September 2013 after the Astros had threatened to reclaim the team’s broadcast rights. The bankruptcy court ultimately approved the sale of the network to DirecTV and AT&T last October.

On Thursday, the trustee administering CSN-Houston’s bankruptcy – a person who is generally responsible for recovering as many of the failed network’s assets as possible – filed a lawsuit against Comcast contending that the cable provider “did everything in its power to financially impair” the station so that it could acquire the Astros’ and Rockets’ broadcast rights for itself at a reduced rate. Unlike most of the other regional Comcast Sports Networks, which are majority-owned by Comcast, the cable provider only owned a 22.5% share of CSN-Houston. Thursday’s suit argues that Comcast intentionally undermined CSN-Houston so that it could acquire a majority share of the network for itself.

In particular, the suit alleges that Comcast repeatedly ignored requests by the Astros asking the station to formulate a new business plan after it became apparent that the network would not be able to generate sufficient revenues at its initial per-subscriber fee. Moreover, the suit contends that Comcast – which also owns the NBCUniversal media conglomerate – intentionally refused to leverage its existing business relationships with fellow cable providers like DirecTV and AT&T to secure carriage of CSN-Houston. The suit asserts, for example, that Comcast specifically excluded CSN-Houston from deals it struck with fellow cable providers covering a host of other Comcast-owned networks (including its other regional sports networks).

Ultimately, the suit contends, Comcast plunged the network into bankruptcy against the Astros’ wishes in the hopes of purchasing the Astros’ and Rockets’ broadcast rights in bankruptcy at a substantially reduced price. After Comcast allegedly attempted to low-ball the two teams during the bankruptcy process, however, they eventually reached an agreement to sell the network to DirecTV and AT&T instead (who rebranded it Root Sports Houston in November 2014). Thursday’s lawsuit essentially claims that Comcast’s alleged misconduct resulted in the network selling for a substantially lower price than it would have otherwise.

By suing Comcast for breach of contract and fraud (among other legal claims), CSN-Houston’s trustee hopes to force the cable company to reimburse the station for the financial damage that it allegedly incurred. Although the complaint did not request a specific sum of money, damages in the case could ultimately run into the hundreds of millions of dollars if the plaintiff were to prevail. Indeed, the Astros and Rockets are estimated to have lost upwards of $700 million as a result of the bankruptcy, including more than $130 million in unpaid broadcast fees. The suit does not seek to undo the network’s sale to DirecTV and AT&T, however, so it will not directly affect the Root Sports Houston station.

While Comcast will undoubtedly dispute the allegations in the case, it nevertheless would not be surprising if the parties eventually agree to settle the suit. A settlement would allow Comcast to avoid incurring a potential nine-figure judgment, while at the same time ensuring that the Astros and Rockets are able to recoup at least a portion of their losses.

Turning to the Garber lawsuit, although not directly impacting MLB, Thursday’s news that the NHL has tentatively agreed to settle its television antitrust lawsuit carries potential implications for the case against MLB as well. Not only does the Laumann suit assert substantially the same legal allegations against the NHL that the Garber case makes against MLB – with both suits contending that the leagues’ respective television blackout and pay-per-view subscription package polices violate the Sherman Act – but both cases also feature the same attorneys representing the two sets of plaintiffs. And because the two cases were both filed in the same court back in 2012, they were quickly consolidated and have been proceeding in tandem ever since.

As a result, the NHL’s recent agreement may foreshadow the terms of a potential settlement by MLB in the Garber case as well. In particular, rather than continue to only offer a single league-wide pay-per-view package, the NHL has agreed to allow out-of-market fans to purchase a smaller package featuring only their favorite team’s games for 20% less than the cost of the league-wide service.

These single-team packages will continue to be subject to the NHL’s existing blackout restrictions, however. This means that a fan still will not be able to watch any game involving his or her local team(s) via the pay-per-view service. Moreover, the NHL only agreed to offer these single-team packages for five years, meaning that the league is free to revert to exclusively selling a league-wide pay-per-view package in 2020 (although if it did, it could then face a new lawsuit asserting similar legal claims).

The fact that the NHL’s settlement does not force the league to alter its blackout policy is significant. As in the Garber case against MLB, the NHL’s blackout rules had been a major part of the Laumann case. This may suggest that the plaintiffs’ attorneys are ready to resolve both cases, and thus would be willing to reach a similar deal with MLB in the Garber case.

Indeed, because the court in the Laumann and Garber suits ruled last month that the plaintiffs could not pursue monetary damages in the two cases – but instead could only seek injunctive relief forcing the leagues to change their policies – the two suits suddenly appear much less lucrative. As a result, the plaintiff’s lawyers may have decided that the time had come to secure the most favorable deal possible. Notably, the NHL’s settlement includes a provision in which the league agrees to pay the plaintiff’s attorneys $6.5 million in legal fees, ensuring that the lawyers will at least recover their investment in the suit.

Assuming that the plaintiffs’ attorneys are willing to agree to a such deal in the Garber suit as well, it wouldn’t be surprising if MLB eventually enters a similar settlement agreement in the case. While offering a single-team pay-per-view package would certainly be a concession on MLB’s part, such a deal would allow MLB to maintain its controversial blackout policy, a vital issue for the league.

As unpopular as the blackout rules may be with fans, they are critical to MLB’s current business model. Indeed, MLB teams are able to generate tens to hundreds of millions of dollars in local television revenue by offering regional sports networks the exclusive rights to telecast their games in their local market. If the blackout policy were struck down in court, all thirty MLB teams would have to renegotiate their local television contracts, inevitably costing the league millions of dollars in broadcast fees.

So from MLB’s perspective, any deal that would allow it to maintain its current blackout rules would undoubtedly be quite attractive. But from a fan’s perspective, although the ability to purchase a single-team pay-per-view package would certainly benefit those that only wish to watch a single out-of-market team’s games, any settlement that doesn’t resolve the blackout issue would have to be seen as a relatively disappointing outcome.

Notably, the judge in the Laumann and Garber cases must still approve the NHL’s proposed settlement in order to make sure it is fair to everyone represented by the plaintiffs in the class action. And while judges are usually fairly receptive to agreements like this, it is by no means unheard of for a judge to reject a tentative settlement in order to send the parties back to the bargaining table. Considering that the NHL settlement does nothing to address the blackout issue – despite it having been a major part of the Laumann case – it is possible that the judge will reject Thursday’s agreement. If so, it would obviously then be unlikely that the same judge would approve a settlement on roughly the same terms in MLB’s suit.

Nevertheless, Thursday’s news suggests that the plaintiffs’ attorneys in the Garber case may be willing to strike a deal with MLB without requiring the league to modify its television blackout policies. If so, fans hoping that the Garber case would finally bring about an end to MLB blackouts may be left unsatisfied.

We hoped you liked reading Developments in CSN-Houston and MLB Blackout Lawsuits by Nathaniel Grow!

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Nathaniel Grow is an Associate Professor of Business Law and Ethics at Indiana University's Kelley School of Business. He is the author of Baseball on Trial: The Origin of Baseball's Antitrust Exemption, as well as a number of sports-related law review articles. You can follow him on Twitter @NathanielGrow. The views expressed are solely those of the author and do not express the views or opinions of Indiana University.

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Turducken
Guest
Turducken

At least the lawyers got paid in the Laumann settlement. I was losing sleep worrying that some people may have to forgo their caviar breakfasts for a few months.

In all seriousness, does somebody at least do a cursory review of the “legal fees” and make sure that all claimed expenses actually were incurred? Paying that amount of legal fees seems like a payout, but not to the plaintiffs…

John Thacker
Guest
John Thacker

The Federal Rules of Procedure and the Class Action Fairness Act are supposed to restrict it, but it’s not always followed since the lawyers on both sides can sometimes come to an agreement that helps the lawyers at the expense of the class. There’s a lawyer named Ted Frank who founded the “Center for Class Action Fairness.” He goes around objecting to cases where he feels like the class attorneys sold out the class members, getting them worthless coupons but the attorneys getting huge legal fees. He’s won a decent amount of cases. A few other gadflys do the same thing.

https://sites.google.com/site/tedfrank/

Sandy Kazmir
Member
Sandy Kazmir

You should have Mr. Frank look into that NFL Concussion settlement.

AvidFan
Guest
AvidFan

The lawyers were retained by the Network to help with their cause of action. The lawyers worked for nearly 3 years on the case and most likely had a large number of attorneys working on the case at all times. Lawyers are compensated at a high hourly rate and the client can view all the time spent by each attorney on their bill. The main problem is that the court only allowed for an injunctive relief instead of monetary damages. That was out of the lawyer’s control, it would have been the lawyer’s and client’s best interest to receive monetary damages from MLB. Just because the court did not allow the plaintiff’s to recover money does not mean lawyers work for free. This isn’t a personal injury contingency case

AvidFan
Guest
AvidFan

By Network I mean the Plaintiffs and by MLB I mean the NHL. All principles still stand

Turducken
Guest
Turducken

If the lawyers took the case on a contingency basis, there is a risk that the lawyers would, in fact, be working for free. That is why they take such a large percentage from the cut.

Unless you are saying that this wasn’t a contingency case, and that the plaintiffs took all of the risk?

Lionel Hutz
Guest
Lionel Hutz

WORKS ON CONTINGENCY NO MONEY DOWN

no wait, that should read:

WORKS ON CONTINGENCY? NO, MONEY DOWN!

Harriet
Guest
Harriet

Not to go too far down this rabbit hole — because lawyers are of course generally well-compensated — but to jump in with what AvidFan is saying: the figures you see aren’t a lawyer’s profits, but rather a lawyer’s revenue. The types of databases lawyers subscribe to are remarkably costly, as just one example of the kinds of costs that attorneys have. It’s not like one lawyer is just depositing 6.5M in his bank account after this — a number of lawyers are splitting that figure after not insubstantial overhead.

Turducken
Guest
Turducken

Databases the lawyers subscribe to, and other operating costs, are figured into the lawyer’s hourly fee, unless the law firm believes in nickel and diming clients on specific costs.

What incentive do the plaintiffs have to review the lawyer’s fees? The NHL doesn’t have an incentive, because fixed fee.

So is the fee cost incurred for the litigation (so one could at a glace add up the hours incurred times the rate on the engagement letter), or is it 40% of a potential settlement to the class (assuming that wasn’t already precluded), or is it a lump sum without any basis to reality?

I’m an auditor, not a lawyer, so I don’t know how these things work, but I see a potential for abuse, as noted by John Thacker, above.

AvidFan
Guest
AvidFan

This was not a contingency case because there were fees even though there were no monetary damages. Plaintiff’s usually have incentive to review their bills but in this case they do not with NHL footing the bill. Most lawyers bill clients on a per hour basis based on the work they do. Lawyers are bound by a strict code of ethics under the ABA and their professional code of conduct. Many lawyers in the past have been disbarred for misrepresenting fees so they are a lot more stringent in enforcement of the rules.

Turducken
Guest
Turducken

Well, I guess I could read the settlement agreement…

Court reviews the actual incurred costs, can make actual fees received lower if not supported. $6.5M an estimate by the plaintiff council, a not-to exceed amount.

I doubt the plaintiffs would be on the hook for these fees if not paid by the NHL, so it still seems to me to be lawyers helping lawyers…

Patrick Ewing
Guest
Patrick Ewing

Right? I mean, we make lots of money, but we spend lots of money!

bc
Guest
bc

The Court (i.e, the judge) does.

And really, the plaintiffs are just a vehicle for the lawyers to bring the suit. Class action lawsuits fill gaps in the regulatory structure, and attorney fees are the incentive for lawyers to prosecute cases to fill those gaps.

Turducken
Guest
Turducken

Not to beat a dead horse, but…

Once the judge ruled out damages, the plaintiff’s lawyers contingency fees went to $0, meaning that ruling cost the lawyers a boatload of money. Once that happened, the NHL had the plaintiff’s lawyers over a barrel. The lawyers would take any offer that gives them anything back.

The only thing there is left to negotiate is the extent of the settlement. Thus, the NHL gets to keep their blackout policy.

If the lawyers truly represented their clients, and not their own pocketbook, they could have negotiated differently, and gotten some traction on the blackout issue. Instead, they wanted to get some money back on the costs they incurred (and the costs that they risked by taking the case), thus the settlement.

You may not want to call it lawyers helping lawyers, but I don’t see where the plaintiff got much relief.

AvidFan
Guest
AvidFan

Your argument would make sense if Plaintiffs did not have to approve of a lawyer’s settlement offer. Lawyers can’t just go out there and do what is in their best interest, they have a strict fiduciary duty to their clients. Plaintiff did not get much relief because of the decision of the Judge to only provide possible injunctive relief, which realistically never would have happened, hence why the Plaintiffs settled

bc
Guest
bc

No, contingency fees don’t go to $0 simply because the judge ruled out damages. Attorney fees can and are awarded for securing injunctive relief under the Sherman Act. What the Court’s ruling did is remove leverage for settlement.

In any event, your paragraph about “lawyers truly representing clients” misunderstands the basics of class action practice. The plaintiffs are irrelevant. Or perhaps you think all of the blackout-stricken sports fans can pool their nickels and pay millions to prosecute the case? Or maybe you envision a pro bono antitrust class action plaintiffs’ bar funded by taxpayers?

Turducken
Guest
Turducken

Thank you for the civil discussion. It took me down the rabbit hole of anti-trust attorney’s fees vs. other contingency fees, and my basic ignorance on how class actions are administrated.

It still seems odd to see the settlement of $1k to named plaintiff(s) and $6.5M to lawyers. I guess it is up to the judge to determine if that’s equitable.

Finally, I don’t see a major issue with removing the attorney’s fees under this settlement. I don’t think the lawyers should be rewarded for taking a home run swing at an issue with a small likelihood of success (as evidenced by the judge removing damages), and that, too, is supported by the Sherman act (as one can define reasonable).