January 29, 2013 / 12:31 AM / 6 years ago

UPDATE 4-Dodgers-Time Warner Cable deal faces league scrutiny

* League will examine revenue sharing provisions

* Dodger owners need guaranteed cash flow to repay investors

* Channel will carry Dodgers games starting in 2014

By Ronald Grover and Liana B. Baker

Jan 28 (Reuters) - Time Warner Cable’s contract to carry a new Los Angeles Dodgers television channel faces a review by Major League Baseball that could prove crucial to the ability of the team’s new owners to repay backers of its $2.15 billion purchase of the franchise.

The agreement announced on Monday and estimated to generate as much as $8 billion over 25 years, faces league scrutiny to ensure it meets baseball’s revenue sharing rules.

Each of the major league’s 30 baseball clubs are required to share proceeds from local TV contracts with other franchises, according to a person with knowledge of the review.

“We are waiting to review the details of the deal, just as we do with every other TV contract,” said MLB spokesman Patrick Courtney.

Under the league’s revenue sharing agreement, each team puts 34 percent of its local TV revenues into a league-wide pool established to help smaller market teams compete with richer clubs with larger contracts. Teams are allowed to deduct their costs from those revenues.

The Dodgers’ owners, a group of investors led by Guggenheim Partners, need to guarantee as much of that cash flow as possible to repay insurance companies that provided a large portion of the fund to acquire the team, said Marc Ganis, president of Chicago-based sports consulting firm SportsCorp.

“The size of the deal was so large that revenue sharing could make a huge difference for the new owners ability to repay that money,” said Ganis, whose firm advises teams on TV contracts.

The Dodgers agreement with Time Warner allows the Dodgers to own a new channel, to be called SportsNet LA, that is scheduled to begin airing Dodgers games at the start of the 2014 season.

As part of its agreement to exit bankruptcy proceedings last year, the Dodgers can exempt the first $84 million in local TV revenues from baseball’s revenue sharing agreement.

A Time Warner Cable spokeswoman said in a statement on Monday that “the agreement is subject to certain closing conditions.” A spokeswoman for Guggenheim Partners did not return a phone call.

Details of the Time Warner Cable agreement were not disclosed.

The cable operator outbid News Corp’s Fox Sports for the deal, and The Los Angeles Times reported the contract could be worth between $7 billion to $8 billion over more than 20 years. It is the latest in a string of expensive contracts with media and cable companies for the rights to carry popular sports events.


Time Warner Cable will be the main distributor of the channel and control advertising sales and affiliate agreements, according to a statement. This means the cable company is permitted to sell the channel to pay TV competitors in Los Angeles, such as DirecTV, Dish Network Charter Communications, Verizon Communications Inc and Cox Cable.

Time Warner Cable has about 2 million subscribers in the area, while the next largest provider, DirecTV has about 1.2 million, according to SNL Kagan research.

This is the second time that Time Warner Cable beat News Corp’s Fox for L.A. sports rights. In 2011, it outbid Fox, agreeing on an estimated $3 billion, 20-year deal to carry Los Angeles Lakers basketball games on its newly minted Time Warner Cable Sports channel.

Fox Sports and Time Warner Cable clashed last April, when the cable operator decided against paying the $3.95 per-subscriber monthly fee that Fox Sports San Diego charges cable and satellite operators to carry the channel. Fox controls the rights to San Diego Padres baseball games.

Lingering animosity between the two companies could carry over to likely negotiations between Fox and Time Warner Cable to extend the cable operator’s contract to carry the Yankee Entertainment and Sports (YES) network, which holds the rights to Yankee baseball and Brooklyn Nets basketball games, according to one person with knowledge of the arrangement.

News Corp paid $500 million in November for a 49 percent stake in YES, and will operate the cable channel for partners that include team owners and other investors.

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