SiriusXM Should have Filed Chapter 11

Liberty Media’s move to invest an aggregate $530 million in the form of loans to Sirius XM in exchange for a 40 percent equity interest in the company allows the satellite radio provider to avoid Chapter 11. But I’m not sure that is such a agood thing.

It seems like Chapter 11 would have allowed management to renegotiate the impossibly rich deals it cut with Howard Stern, Oprah Winfrey, Martha Stewart and sports leagues like Major League Baseball and the National Football League.

Those deals were all cut when Sirius and XM were dealing against each other and propelling themselves into unworkable business models.

$650 million for 11 years for MLB is one whopper that XM cut before the two companies merged.

My colleague Tom Lowry’s story reported the following: “SiriusXM CEO Mel] Karmazin is particularly bothered by the deal to air Major League Baseball games, a deal that costs his company $60 million a year, according to a radio industry source. As recently as last week, Karmazin met with top league officials in New York, including league COO Tim Brosnan, who negotiates television and radio deals. Talks apparently didn’t go Karmazin’s way. Brosnan declined to comment, other than to say “We have a binding agreement that we intend to honor.” Karmazin inherited the baseball deal from XM, which merged with Sirius last year. The 11-year deal doesn’t expire until 2015.”

This was a pretty insane deal when it was cut. Each major league city carries its local ball games on terrestrial radio. Outside of truckers and cross-country traveling baseball geeks, just how big is the market in Boston, for example, for a radio broadcast of the Kansas City Royals versus the California Angels? Think about it.

MLB knew it fleeced XM at the time. It was found money for the league to divide among teams. Without a bankruptcy judge staring me in the face, I wouldn’t renegotiate the deal if I was MLB either.

The Stern deal, $500 million, was an absolute joke. Paying Oprah $55 million for three years? Another deal from hell.

With ad revenues down across the board at Oprah’s media company and season ticket sales under pressure at every stadium this year and into next, these content providers don’t have much incentive to renegotiate, especially now with Liberty’s infusion of help.

Satellite radio is incremental revenue to all these content providers. If SirusXM was in Chapter 11, they’d have to take less. There is no other game in town.

Details of the deal are here: The Liberty deal came on the day Sirius XM’s debt of $175 million was due.Under the terms of the deal, Liberty’s investments will come in two separate phases. Upon completion of the second phase of Liberty’s investment, Liberty will receive seats on Sirius XM’s board of directors in proportion to its equity ownership.

In the first phase, Liberty will load Sirius XM $280 million with $250 million funded today (Feb. 17). The proceeds of the loan will be used by Sirius XM to pay its debt due Feb. 17 and the balance used for general corporate purposes. The second phase provides Sirius XM with an additional loan of $150 million. Liberty also agreed to purchase $100 million of the loans outstanding under XM Satellite Radio’s existing credit facilities from the lenders.

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