Charter Communications is looking to offload a complete albatross of a deal from its balance sheet.
The telecom company, which owns Spectrum SportsNet, the local television home for the Los Angeles Lakers, is looking to sell the regional sports network, according to a report by Puck’s John Ourand. Charter has hired The Raine Group to facilitate the sale.
Charter’s media rights deal with the Lakers is by far the most expensive local rights deal in the NBA. The company paid the Lakers nearly $200 million last season, nearly double what the New York Knicks, the franchise with the second-most lucrative local broadcast deal, earned for its rights. The deal, which was signed in 2012 and inherited by Charter in 2016 via its acquisition of Time Warner Cable, looks more out of whack with each passing year, especially when many NBA franchises are faced with local broadcast fees that are decreasing as cord-cutting accelerates.
A sale of Spectrum SportsNet might not be simple, however. According to a report by Tom Friend of Sports Business Journal on Friday, incoming Lakers owner Mark Walter would likely need to accept a lower media rights fee from any prospective buyer before the network could be sold.
“Based on the Lakers’ rights fee numbers, this is an unsustainable deal,” an industry source told SBJ. “I don’t care who owns this network. They can’t pay out these rights fees on a network that’s essentially based on cable television affiliate fees. And those affiliate fees are dropping by eight to 10% a year.”
When the Lakers’ deal was signed in 2012, cable television was at or near its peak, and regional sports networks owned some of the most valuable programming available. Since then, nearly 40 million households have left the cable bundle, and regional sports networks that signed long-term deals predicated on the continued health and growth of the business have been left holding the bag. It’s the same dynamic that led to the prolonged bankruptcy process of Diamond Sports Group, which was resolved late last year.
Unfortunately for Charter, the Lakers’ contract is not the only horrible sports rights deal the company inherited from Time Warner. Charter also owns sister channel Spectrum SportsNet LA, which holds rights for the Los Angeles Dodgers under a similarly expensive long-term deal. That deal, in fact, is actually worse than the Lakers’ contract. According to Ourand, Charter would need to declare bankruptcy itself to try to weasel its way out of that agreement, which pays the Dodgers an average of $334 million annually.
By finding a buyer to take on Spectrum SportsNet and the Lakers’ deal, Charter can at least alleviate some of the financial strain of these contracts.
“If I’m Spectrum, I’m trying to get out at any price, because this is just an enormous financial burden,” the industry source told SBJ. “The question is who’s going to buy it? And I think the only people are going to buy it are people who are going to then turn around and go to the Lakers and say, ‘We can’t pay you this anymore.'”