Fox Sports Near Deal With Cablevision

News Corp.’s Fox Sports arm is close to striking an agreement with Cablevision Systems Corp. to buy a 40% interest in the cable operator’s seven regional sports channels and two professional sports teams for about $850 million, according to sources close to the deal.

The deal would provide a key link for ambitious plans by Fox Sports to build the first head-to-head competitor to ESPN, the largest and most profitable cable channel, which is owned by Walt Disney Co.

Executives at Fox Sports and Cablevision declined comment Thursday, but sources say an announcement could be made by Monday if Disney, which has been actively bidding against Fox, doesn’t sweeten its offer in the last minute.

Fox and Disney are locked in a heated battle for dominance over cable sports. Sources say Disney is interested in the Cablevision properties to protect ESPN.

Fox Sports, a 50-50 partnership of Liberty Media Corp. and News Corp., has been buying up regional networks over the last two years. Its eight regional sports networks include the two Fox Sports West channels in Los Angeles.

While Fox can offer advertisers higher ratings because its local networks draw more viewers than ESPN, it has not been able to match ESPN’s national reach. Fox has lacked a network in the nation’s top advertising market of New York, which it would pick up in the Cablevision deal. Sources said the deal with Cablevision would include SportsChannel networks in New York, San Francisco, Chicago, Philadelphia, New England and Ohio as well as Madison Square Garden, its two sports teams--the New York Knicks and Rangers--and its sports channel.

Analysts said Cablevision would use the proceeds from the sale to pay down the debt it took on in its recent purchase of a controlling interest in Madison Square Garden from ITT Corp. Cablevision, however, may have to share some of the proceeds with ITT if it makes a profit from flipping the ITT interest to a new partner.

Sources said Thursday that Cablevision has been negotiating a sports partnership with Fox since ITT was forced to sell all but 10% of its interest in an attempt to block a hostile takeover attempt by Hilton Hotels Corp. Cablevision had the right of first refusal to buy ITT’s interests.

Analysts said the $850-million price tag is rich. Most cable networks are trading at multiples of 14 times annual cash flow. But Fox could be paying at the equivalent of 20 times cash flow, which is estimated at about $100 million a year. One source said that only two of Cablevision’s networks, in New York and Chicago, make a profit.

Analysts said a Fox deal may be in part because of the influence of John Malone, the chairman and chief executive of Tele-Communications Inc. Last week, TCI acquired a one-third interest in Cablevision in exchange for more than 800,000 of TCI’s New York cable customers. That deal gave Long Island-based Cablevision the largest cable cluster in the country, with 2.5 million subscribers in New York.

Sources said Malone used his interest in Cablevision to help push the deal toward Fox Sports, which is half-owned by another company Malone controls: Liberty Media.

The sports deal also explains what some analysts saw as an enormously lucrative deal for Cablevision in acquiring TCI’s subscribers. Some analysts have been waiting for a further development to justify the high price Malone paid.

They said the value of his stake in Cablevision could increase substantially once the sports networks, which are held in the cable operators’ Rainbow Programming Holdings, merge with Fox Sports.

Said one cable sports executive: “ESPN could have real problems. This makes Fox a formidable competitor.”

A related deal to supply Rainbow’s American Movie Classics, Romance Channel and Bravo networks with movies also may work in Fox’s favor. One source said Disney has offered only financing to help the channels get the movies it needs, while Fox was willing to give them access to its movie library.

While rivals like Time Warner’s Turner Movie Classics, TNT and TBS are drawing on the studio libraries of their owners, Rainbow has no such backer.

BOYCOTT BLASE

For Walt Disney Co., it’s another year, another boycott. A1