Game Plan : Satellite Communications Firm Hitches Its Star to Sports

Comsat Corp. may have made its reputation in outer space, but it is placing a good part of its future on the ice.

A longtime provider of global communications services via satellites, Comsat this week agreed to buy the National Hockey League’s Quebec Nordiques for $75 million.

If merging sports with satellites sounds odd, well, Comsat already is a hybrid of technology and entertainment holdings that is part Ted Turner and part Madison Square Garden.

The company currently owns the Denver Nuggets basketball team. It also plans to move the Nordiques to Denver so both teams can share the $132-million arena Comsat is building with Denver billionaire Philip Anschutz.

Comsat, formerly called Communications Satellite Corp., also sends TV programs into about 600,000 hotel rooms nationwide, and it owns Los Angeles-based Beacon Communications Corp., a small producer of TV shows and movies.

It’s all part of a corporate alchemy engineered by Comsat’s chief executive, Bruce L. Crockett. By combining sports and other programming with Comsat’s communications expertise, he wants Comsat to exploit the upcoming proliferation in entertainment choices.

Staying at a hotel in Racine, Wis.? Tokyo? Rio? Comsat hopes one day to offer you not only a Nordiques game on TV, but a range of other sports events via satellite.

One day the Nuggets and Nordiques will be known worldwide in the same way Ted Turner’s Superstation has made his Atlanta Braves and Hawks known to sports fans around the United States, Crockett said in a telephone interview Friday.

It all sounds exciting. But you’d never know it by Comsat’s investors.

Comsat’s stock, which closed Friday at $19.25 a share in New York Stock Exchange trading, has tumbled 45% since late 1993. After the Nordiques announcement Thursday, Wall Street yawned and pushed the stock down another 12.5 cents.

Investors’ gripe: Comsat’s core communications business is struggling to keep profits rising in the face of swelling competition, and Comsat hasn’t yet proven that its push into entertainment is really a long-term moneymaker.

Comsat’s recent performance has been like a team playing .500 ball--its revenue is still growing but its profit isn’t. In 1994, Comsat’s net income fell 8% from the previous year, to $78 million, despite a 10% gain in revenue to $827 million. Earnings dropped another 28% in the first quarter of 1995.

“Comsat is going to have to show improved earnings,” said David Leibowitz, an analyst with Burnham Securities in New York. Moreover, it’s unlikely the sports teams will generate much of that improvement in the next two years, he said.

Profits from owning a team come “from selling the franchise, not from the year-over-year operating numbers, which more often than not show red ink,” Leibowitz said.

But Crockett, 51, has a second strategy for his sports holdings, this one modeled after Madison Square Garden.

The Nordiques purchase will help Comsat build a trophy sports complex in the Rocky Mountain region, not unlike Paramount Communications (now part of Viacom Inc.) did with the Garden in the New York area.

Besides the Garden itself, the MSG property included the Rangers hockey and Knicks basketball teams and a cable TV sports channel. Combined, they boosted MSG’s value when it was sold this year to ITT Corp. and Cablevision Systems for $1 billion.

“Certainly, [the MSG sale] has not gone unnoticed to us,” said Charlie Lyons, president of Comsat’s Entertainment Group.

But if investors are dubious about Comsat’s strategy, it’s not without cause.

Congress created Comsat in 1963 to exclusively carry U.S.-originated phone calls to foreign countries via satellites operated by Intelsat, the 135-nation consortium of which Comsat is the sole U.S. member.

Calling Rome? The connection is first handled by AT&T; or MCI, but then handed off to Comsat, which sends the signal to the satellite and then back to Earth, where the call is completed by Italy’s telephone authorities.

Comsat is the U.S. member of another consortium, Inmarsat, that provides satellite links for hand-held and other mobile communications--another major segment of Comsat’s business. Example: If you’re on a U.S.-based airline and use the telephone in front of you for a transoceanic call, Comsat will probably handle it.

Comsat is not part of the government and has long been publicly held. But it still needs government approval for certain stock sales and borrowings, and three of its 15 directors are appointed by the President.

During the 1970s and ‘80s, Comsat’s virtual monopoly over international calls gave it the steady cash flow to expand into other lines, such as satellite-to-home TV broadcasts and data transmissions for large companies.

But those endeavors bombed, handing losses to Comsat and its partners of more than $200 million. Comsat said it had to diversify to offset encroaching competition on its core international communications business. But today, that competition is stronger than ever.

AT&T; and other common carriers are increasingly using underwater fiber-optic wires that bypass Comsat. There are also several satellite-based global telephone systems on the drawing board--Motorola’s Iridium is one--set to begin service later this decade.

Comsat is trying to respond. It’s an investor in Inmarsat-P, which proposes to use 12 satellites for linking transportable phones worldwide.

For now, Crockett is confident that his entertainment ventures will supply Comsat’s needed growth--even if Wall Street is not.

“Sometimes it takes time for these things to be understood,” he said.

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Comsat’s Diversity

Communications services remains Comsat Corp.’s core business, but a growing amount of its revenues are generated by its sports teams and other entertainment assets.

REVENUE BREAKOUT

1990 Revenue International, mobile communications: 69% Entertainment (sports, video, movies): 12% Technology Services: 19%

1994 Revenue International, mobile communications: 53% Entertainment (sports, video, movies): 20% Technology Services: 27%

REVENUE

In millions:

1994: $827

EARNINGS (LOSSES)

In millions:

1994: $78

STOCK PRICE

Monthly closes, except latest:

Friday: $19.25, down 25 cents

Source: Comsat Corp., Standard & Poor’s Corp., Bloomberg Business News