What do you do about a problem like London Underground?

When CBS Outdoor, creaking under the weight of a crippling billion-pound Tube deal, opted to take legal action against Transport for London, the industry consensus suggested it was a risky strategy.

Win or lose CBS risked forfeiting its biggest contract.

Last April CBS Outdoor (CBSO) announced plans to take London Underground’s (LU) parent group Transport for London (TfL) to court over their outdoor ad sales contract. Fast forward nine months and we have a public statement confirming CBSO as the Tube’s ad sales partner.

The joint press release proudly announced: “CBS Outdoor will retain responsibility for all adverts on the London Underground (LU) network through Transport for London’s (TfL) commercial advertising concession.”

Publicly they have made up and CBSO has stated the new terms will run until the end of the contract in 2015. So what happened?

This much is clear: with hindsight CBSO’s previous management signed an optimistic contract; the minimum guarantees promised to TfL rose at an unrealistic growth rate; parent group CBS Corporation promised to underwrite the guarantees; engineering works to improve the Tube ran late and CBSO was prevented from improving its ad sites; then the recession hit revenues; CBSO sued TfL for a sum in the “hundreds of millions of pounds”; and following legal discussions the two parties have reached an agreement.

Understandably there have been questions from London Assembly members about what this means for the taxpayer. Caroline Pidgeon, leader of the Lib-Dem group at the London Assembly and the transport committee, wants more “transparency” and to know why such deals are done behind “closed doors”.

CBS Corp is in a good place financially: a fact testified by its share price increasing by more than 40% in the last year on the back of dividend increases and strong TV ratings and radio revenues in the States. But even if CBS Corp could have continued to pay the guarantee was it in TfL’s interest to have a struggling CBSO UK?

In CBS Outdoor UK’s 2010 annual report the company refers to its “onerous contract” with LU and recognises provisions for liabilities at a whopping £82.10m at 31 December 2010. CBS Outdoor reported pre-tax losses of £12.03m in 2010, on revenues of £175.06m (up 7.1% year on year) after being hit by non-exceptional administrative expenses or £24.94m and exceptional administrative expenses of £19.80m.

Moreover CBSO had grounds to renegotiate. CBSO’s argument is that this is all about late running of the public private partnership upgrades and has nothing to do with the collapse in ad revenues from 2008/9. Sources close to CBSO maintain the issue of declining ad revenues was never discussed, even privately.

Whether TfL should have agreed to budge at all is a question Pidgeon and her fellow members of the transport committee are there to ask. CBS’s negotiation was led by its New York-based central legal team. Would a high court battle against a well resourced global media giant have been in the public interest?

It appears no-one won. TfL gave ground but CBS has been forced to concede to much better terms than anyone else in the market would offer in a pitch. A source close to CBS said to me last month: “We haven’t got a good deal here. It was a shit deal and it’s still a shit deal. It’s just a little less shit.”

The LU contract is assumed to be the biggest outdoor contract in the world and worth up to £1bn in ad revenue over the course of 10 years. It was once the best asset CBSO had but questions around its viability became the reason why CBS Corp could not try to flog its outdoor arm – even if it wanted to.

The next step will be an interesting one. JCDecaux likes its position as the only major global outdoor media owner who can be said to be wholly committed to the medium. Clear Channel is part-owned by Mitt Romney’s asset strippers Bain & Company and also owns an expansive radio business and CBS Corp’s chief has repeatedly said outdoor is non-core to its business.

But does CBS Corp want to sell? Rumours have been rife for some time but sources close to CBS maintain its position has not changed. Like anything it will depend on price and interest. The natural buyer JCDecaux would run into competition issues in the UK and it is assumed it would probably have to sell the LU assets.

Even at these better terms would anyone want to take on the Tube contract?