Sirius XM Radio appears headed for Chapter 11
bankruptcy, with EchoStar and Liberty Media
looking to possibly take over.
UPDATE: Both MLB and the NFL appear shielded from any Chapter 11 bankruptcy filing by Sirius XM Radio.Â
For rabid sports fans, one of the biggest boons to their non-stop addiction was the creation of dedicated sports channels via XM and Sirius satellite radio. When the $13 billion merger between the two was finalized in July of 2008, it placed non-stop radio programming for Major League Baseball, the National Football League, and NASCAR, as well as Howard Stern and Martha Stewart under one roof.
Now, that roof appears to be headed for collapse.
Shares of Sirius XM Radio (SIRI) fell more than 51 percent, closing at 6 cents a share after reports that they are considering filing for bankruptcy ahead of $175 million in debt payments that are due on Tuesday. According to The New York Times, the company has retained bankruptcy lawyer Mark Thompson of Simpson, Thatcher & Bartlett, and Joseph Bondi, a restructuring expert, to work through the Chapter 11 bankruptcy filing process.
In the meantime, Sirius CEO Mel Karmazin has been working with EchoStar CEO Charles Ergen on a possible deal. EchoStar, Inc. owns DISH Network, the nationâ€™s second largest satellite television company. EchoStar has been gobbling up Sirius XM Radio debt in an effort to angle themselves for a take over.
Now, John C. Maloneâ€™s Liberty Media Corp. (LINTA) is in the mix and is in preliminary talks with Sirius XM, setting up a possible bidding war for Sirius XM. Liberty owns the controlling interest in DirecTV, the nationâ€™s largest satellite television company. Also, as part of a separate deal with Time Warner, Liberty acquired the Atlanta Braves in May of 2007.
It has been reported that Karmazin and Ergen do not get along, but since EchoStar has been purchasing Sirius XM debt, they may have the inside track. Liberty also may be showing interest in a bidding war as simply a way to financially weaken EchoStar.
According to the Times online edition, Sirius XMâ€™s fall comes as subscribership growth grew 17 percent in the quarter ended Sept. 30, 2008, a substantially slowed growth. â€śSirius netted 344,081 new subscribers during the quarter, down 59 percent compared to the 839,750 netted during the same period the year before,â€ť according to the NYT.
After the merger between Sirius and XM the company took on substantial debt after investing in satellite technology, and investing in high-priced on-air talent, such as Stern and Stewart.
In 2004, Major League Baseball and XM reached an 11-year, $650 million agreement allowing XM to broadcast Major League Baseball games and other content. The deal averages $60 million annually.
According to Richard Sandomir of The New York Times, both MLB and the NFL appear protected, should Sirius XM file for Chapter 11 protection:
Each league has clauses in its long-term contracts requiring that future Sirius XM payments be deposited into escrow accounts.
The N.F.L. made a seven-year, $220 million deal in 2003 that required Sirius to put $85 million into escrow to cover the 2006 to 2009 rights payments. When M.L.B. signed with XM for $650 million over 11 years in 2004, the contract required the company to put $120 million into escrow. Last May, the company put the money into escrow, borrowing $62.5 million to afford it. The account is earmarked for the 2009 and 2010 rights payments, the first of which is due March 1.
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is contributor to Baseball Prospectus, and is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
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