If the New York Yankees, the richest team in baseball, gets its way, it will double its local TV-rights revenue over the next decade to roughly $1 billion. But it may not get its way.
A big obstacle is a lawsuit filed July 14 by the current rights holder of the Madison Square Garden Network. MSG claims a proposal by the team to start its own cable sports network beginning in 2001 violates a clause in MSG's contract that allows it to match any new rights offer from a third party.
Ostensibly, a third party has proposed the new network-but it exists only on paper. And it's 95% owned by the Yankees. MSG contends that the Yankees are basically concocting rights fees it wants to earn in the next decade and hasn't really received an outside offer.
Last week, the New York State Supreme Court barred the Yankees from going ahead with its plans for at least two weeks while it looks into the matter. A hearing on the lawsuit has been set for July 31.
According to court papers filed by MSG, the Yankees plan to launch a regional sports network anchored by Yankees games and those of the New York Nets basketball team. The two teams merged their operations last year into an entity known as the YankeeNets. The YankeeNets organization has a deal pending to buy the New Jersey Devils National Hockey League team, whose games would also air on the new network.
According to court papers, the new sports network (tentatively called the New York Sports Network) would be operated by a yet-to-be-established company called Newco. Newco, in turn, would be 95% owned by the YankeeNets. The remaining 5% would be owned by Transworld International, the New York-based sports-TV program packager.
Under the terms of the proposed new network, Newco would pay the Yankees $65 million in rights fees in year one of a 10-year contract that would go through the 2010 season. Each year, the rights fee would escalate by 7%, so that, in the final year of the deal, the payment would be almost $120 million. The 10-year total would come to $898 million. In addition, Newco would pay the YankeeNets organization $180 million over the period in management and consulting fees.
And, for the rights to the Nets, the new sports network would pay $7 million in year one of a 10-year deal, with 7% annual increases thereafter-a total of almost $97 million over the life of the contract.
Under the terms of the proposed agreement, Newco would be prohibited from televising the games of any competing teams in the New York market and would get 25% of any profits derived from sports networks operated outside the New York market.
MSG, owned by Cablevision, currently airs New York Knicks basketball and Rangers hockey games, which it would presumably have to dispose of to match the Newco offer. Cablevision has interests in sports networks throughout the U.S.
In its lawsuit, MSG called the new network proposal a "sham" designed specifically to prevent MSG from exercising its right to match competing offers and, therefore, a breach of the existing rights agreement. MSG first entered into its current Yankees deal in 1988 and has paid roughly $500 million for 12 years of rights to Yankee games.
And MSG has done well over those 12 years. The Yankees have done well, too. The Yankees became the first team to break the $100 million annual payroll barrier earlier this year. And owner George Steinbrenner has opposed revenue sharing for years.