Comparing The Nationals/Orioles Media Deal To Other Teams' Media Deals

In my previous two blog posts, I discussed MASN’s financial situation and the amounts that the Orioles and Nationals are projected to receive from MASN in media rights fees and equity stake payments from 2012-2031. In this post, I want to compare what the Nationals and Orioles are projected to receive to what the Phillies, Astros, Rangers, Dodgers, Angels and Padres are projected to receive in media rights fees and equity stake payments from their deals.

The value of media rights are not the same for each team. The value of media rights for teams that control large media markets is higher than the value of media rights for teams that control small media markets. In order to make valid comparisons, it is necessary to understand each team’s media market.

Nielsen Media Research is one of the authorities when it comes to determining media market size. Nielsen divided the United States into 210 unequal parts and called each one a designated media area (DMA).  Nielsen then estimates how many standard, cable and satellite TV subscribers are in each DMA.

The Business of Baseball blog posted a map showing where each team has broadcasting rights. Media Street Smarts produced a map that shows the locations and sizes of all DMAs. Using the two maps mentioned above, it is possible to determine which DMAs are in which media markets. Finally, Dave Warner from the blog “What you pay for sports” put together a spreadsheet that shows the number of cable and satellite TV subscribers in any given DMA. With this information, it is possible to quantify each team’s media market.

 ORIOLES AND NATIONALS MEDIA MARKET 

As this Washington Post article states; the Orioles/Nationals media market encompasses all of Maryland; Virginia; the District; Delaware; seven counties in West Virginia; 13 counties and three cities — York, Lancaster and Harrisburg — in central Pennsylvania; and most of central and eastern North Carolina. In addition, Comcast does not license CSN Philadelphia to satellite TV providers. My understanding is that satellite viewers in the Philadelphia DMA receive MASN as their home sports station. Therefore, the Orioles/Nationals media market consists of the following DMAs.

At first glance, MASNs media market looks large with 9.5 million potential cable and satellite subscribers. The Orioles media market, which covers the Baltimore, Salisbury, Harrisburg and Philadelphia DMAs, consists of nearly 2.3 million potential viewers. The Nationals media market covers the rest of the region and consists of roughly 7.2 million potential viewers. It’s not that simple.

Many potential subscribers in the Orioles/Nationals media market do not have access to MASN. As shown in this article, Times Warner, the primary cable provider in North Carolina, has refused to provide MASN to its subscribers. Times Warner has taken the position that there is little interest in the Orioles or Nationals in North Carolina and therefore showing MASN on basic cable would cause them to lose money. After years of lawsuits, the Fourth Circuit Court agreed with Times Warner and MASN has conceded legal defeat. Negotiations are ongoing but have been unsuccessful.

Likewise, MASN has been unable to convince Comcast to provide MASN to subscribers in the Norfolk/Portsmouth DMA partly due to lack of subscriber interest. While Cox and Verizon do provide MASN to subscribers in the Norfolk/Portsmouth DMA, it is my understanding that Comcast is the major provider. In contrast, Comcast does provide MASN to its subscribers in the other DMAs listed above.

As a result, according to Grantland, MASN has 5.4 million subscribers instead of the 9.5 million available in their market area. My understanding is that slightly more than 60% of the subscribers are in the Nationals territory while 40% are in the Orioles territory.

PHILLIES MEDIA MARKET AND MEDIA DEAL

Philadelphia’s media market consists of the Philadelphia, Harrisburg and Wilkes-Barre DMAs. Here are the numbers.

2014 Rank	DMA Name	State	TV Homes 2014	Cable Homes
4	Philadelphia	PA	2,963,500	2,347,092
43	Harrisburg-Lncstr-Leb-York	PA	725,340	468,569
54	Wilkes Barre-Scranton-Hztn	PA	584,870	343,318
	Total		4,273,710	3,158,979

As stated above, satellite TV providers are not offered access to CSN Philadelphia. Therefore, about 900,000 people who could be paying subscription fees to CSN Philadelphia are not. Comcast sacrifices this potential revenue to convince households in the Philadelphia region to be customers of Comcast. According to CSN Philadelphia’s website, CSN Philadelphia has over 3 million viewers so I assume that all of the cable TV subscribers in these DMAs receive CSN Philadelphia.

CSN Philadelphia has nearly 60% of the subscribers that MASN has but supports only one baseball team while MASN supports two.  In addition, unlike the Orioles/Nationals market which is geographically large, the Philadelphia market is geographically smaller. Most people in the Philadelphia media market are interested in watching the Phillies while the same may not be as true in the Orioles/Nationals market. Therefore, CSN Philadelphia charges more money to broadcast the Phillies than MASN does to broadcast the Nationals. Despite bringing in less revenue, the Phillies market is more lucrative because CSN Philadelphia only needs to support one team while MASN supports two teams.

The Philadelphia Inquirer states the new deal with Comcast is a 25 year deal starting in 2016 worth 2.5 billion in media rights fees although the annual fee will start at a lower number and increase over the length of the deal. The Sports Business Daily states that Philadelphia will increase its ownership stake in CSN Philadelphia to 25% and that the annual media rights fee will grow 3-4% each year.

Dave Warner proposes that if the escalator clause is 3.5% then Comcast will start paying the Phillies $64.14 million in media rights fees in 2016, $107.54 million in media rights fees in 2031 and $146.63 million in media rights fees in 2040. I will create a table with all the media rights fees information after I’ve discussed all of the deals listed above.

ASTROS AND RANGERS MEDIA MARKET

The Houston Astros and Texas Rangers share a media market of nearly 12 million potential subscribers from Texas, Oklahoma, New Mexico, Louisiana and Arizona. The DMAs in this region consist of the following:

According to this article, the Astros’s original media provider reached 9 million households and earned $300 million in revenue in 2012. Forbes claims that the original media provider only reached 8.1 million households. This is larger than the Nationals/Orioles media market and therefore their rights should be more valuable.

ASTROS MEDIA DEAL

The first thing to keep in mind when discussing CSN Houston is that CSN Houston is applying for bankruptcy. Dave Warner explains the reasons for that in this article. Houston failed to be competitive last year and by doing so angered their fans. Many fans felt that if Houston was unwilling to spend money on the team that they were unwilling to spend money on the team as well. This emboldened other carriers to not carry CSN Houston at the requested rates because of limited demand by their customers and therefore limited customer pressure. Indeed, some customers pressured their cable providers not to carry CSN Houston. As a result, CSN Houston didn’t receive as much revenue as they were projecting and therefore declared bankruptcy.

The Astros and CSN Houston agreed to a twenty year media deal, in which the Astros were to receive $1.6 billion in media rights fees starting in 2013 in addition to a 45% equity stake in CSN Houston. Forbes claims that the deal was valued at $3.2 billion and the Astros would collect $1.6 billion in media rights fees over the twenty year period thereby implying that the equity in CSN Houston as well as the equity rights fees would be worth $1.6 billion over the twenty year period. According to this article from the Houston Chronicle the Astros were supposed to earn media rights fees of $55,572,454 in the first year which was 2013. These rights were supposed to adjust upwards in subsequent years.

Based on these numbers, it would appear that the upward adjustment was by roughly 3.75% per year. The first year payment and the total payment are known. All that is necessary to determine the annual rate of increase is to determine which standard rate of increase results in the sum equaling $1.6 billion. According to these numbers, the Astros were expected to receive $62 million in media rights fees in 2016 and $107.67 million in 2031.

RANGERS MEDIA DEAL

As stated earlier, the Rangers share the same media market as the Astros. According to the Dallas News, the Rangers signed a deal for twenty years and $1.6 billion in media rights fees. Forbes notes that the total value of the deal is $3 billion and begins in 2015. Not only does it have $1.6 billion in media rights fees but it also offers an upright payment of $100 million and gives the team a 10% equity stake in Fox Sports Southwest. I am unable to determine how much the Rangers are expected to make in media rights fees in 2015 and therefore am unable to determine how their deal might look. Given that the deal starts in 2015 and pays a similar amount as the Astros deal, then it stands to reason that the deal is similar to but less lucrative than the Astros deal. This is because media deals pay more in future years than current years.

ANGELS AND DODGERS MEDIA MARKET

The Angels and Dodgers both share the Los Angeles media market which consists of the Los Angeles, Santa Barbara, Bakersfield, Las Vegas and Honolulu (shared by all West Coast teams) DMAs. Here are the numbers.

The Angels and the Dodgers share a media market consisting of nearly 6.5 million cable and satellite subscribers. Like the Philadelphia market, the reason why this market is so strong is because so many people live in the Los Angeles DMA proper. Those fans are more likely to be fans of the Dodgers or Angels and have more interest in watching Dodgers or Angels games than a person living in Virginia would in watching an Orioles game. As a result, while there are a similar amount of potential subscribers in the Los Angeles and Nationals/Orioles market, the Los Angeles market is considerably more lucrative. 

DODGERS MEDIA DEAL

Currently, the Times Warner and SportsNet LA only have 1.55 million Los Angeles subscribers. According to the Review Journal, no providers in Southern Nevada have agreed to carry the channel. It isn’t clear whether any providers in Southern Nevada are expected to agree to provide the channel. Times Warner is hoping that when other carriers in California are shut out of the market that their customers will either subscribe to Times Warner or that these carriers will give in and pay between $4.50 and $5 per month to subscribe to SportsNet LA.

The Bloomberg article above claims that the Dodgers and Time Warner Cable agreed upon a 25 year deal that pays the Dodgers $8.35 billion in media rights fees. According to the LA Times, the annual fee that Time Warner Cable will pay to the Dodgers starts at $210 million in 2014 and increases dramatically through the life of the contract. If the fee increases by a standard rate then the increase is about 3.625% per year. This means the Dodgers are projected to receive $225.5 million in 2016, $384 million in 2031 and $493 million in 2038. Given that MLB and the Dodgers have agreed that fair value for the deal is $140 million for 2014 the Dodgers will only have to contribute $47.6 million into revenue sharing for 2014. They will be able to keep $162.4 million from their media rights deal in 2014. If Times Warner is able to convince other providers to pay the carriage fee for SportsNet LA, then the Dodgers will be in an advantageous position for the next twenty five years.

ANGELS MEDIA DEAL

The LA Times reported that the Angels deal was worth $2.5 billion over 17 years starting in 2012. Forbes reported that they signed a 17-year, $2.5 billion deal that pays an average $95 million rights fee with a 25% equity stake in Fox Sports West. If so then they would receive $1.615 billion over a 17 year period in media rights fees. I do not know how much they made in 2012. If they receive a 5.5% annual increase then they will receive $60 million in 2012, $74 million in 2016 and $141 million in 2028. If they receive a 3.7% standard increase per year then they will receive $70 million in 2012, $81 million in 2016 and $125 million in 2028.

PADRES MEDIA MARKET AND MEDIA DEAL

The Padres media market covers the San Diego, Yuma-El Centro, Las Vegas, Tucson, Albuquerque and Honolulu DMAs. Here are the numbers.

The Padres media market consists of nearly 3.2 million possible subscribers. However, there are no providers in Albuquerque that carry Fox Sports San Diego. In addition, Cox Cable is the only cable provider that offers Fox Sports San Diego in Tucson or Las Vegas. It is unclear whether Times Warner will start providing Fox Sports San Diego in either Tucson or Las Vegas as a result of their recent agreement. As a result, their media market is the smallest of the ones we’ve discussed and therefore their deal is the least lucrative. 

Forbes claims that the deal is worth $1.4 billion and that the Padres will receive $1 billion in media rights fees. According to Inside the Padres, the deal pays the Padres $30 million for media rights fees in 2013 and grows to a number between 65 and 70 million in its final year. The percentage increase in rights fees will not be the same each year.

If the deal grows by 5.5% in the first ten years and 4.5% in the last ten years then the deal will be worth $37.2 million in 2016 and $74.7 million in 2031.

A COMPARISON OF ALL THE MEDIA DEALS

The following table shows how all the deals compare to each other.

With the exception of the Angels, all of the deals cover at least 2016-2031. In order to get an idea of what the Angels deal might look like if it lasted past 2028, it is possibly to multiply the 2028 numbers by the standard increase per year. The following table shows how the deals compare to each other from 2016-2031.

Year	Nationals	Phillies	Astros	Dodgers	Angels 1	Angels 2	Padres
2016-2031	1356.60	1345.08	1325.94	4389.68	1724.84	1831.56	873.35

Despite having a weaker market than the Phillies or Astros, the Nationals/Orioles are projected to receive more from 2016-2031 than either of those teams in media rights fees. Given that the Rangers are expected to receive a similar amount in rights fees (but starting two years later) to the Astros, the Nationals/Orioles should receive more than them as well. It appears that comparing the first year of the MASN deal to the average amount in the Phillies or Astros deal does not provide an accurate picture of the future. While a significant part of each teams deal is the equity that they receive in their network, it is likely that each of these deals are similar in value.

What MASN is offering the Nationals/Orioles appears to be far inferior to what the Dodgers are receiving from SportsNet LA until one considers that the Dodgers received no equity in their deal. The Dodgers deal is still the most lucrative but by less than it may appear on first glance. The Angels are also receiving more in media rights fees than the Nationals/Orioles and will receive roughly the same amount from 2016 to 2028 that the Nationals/Orioles will receive from 2016 to 2031. Given the strength of the Los Angeles market, this should be expected.

The Padres are receiving less money in media rights fees than all of the other clubs in this post. Given that their market is easily the smallest this should come as no surprise.

CONCLUSION

To sum up, MASN has a similar but less lucrative media market to most of the other teams listed in this comparison especially when factoring in the fact that it controls the rights for two teams. Despite this, the amount that they are paying the Nationals and Orioles from 2016-2031 is projected to be slightly larger than the amount that the Phillies and Astros are receiving from their deals and considerably larger than the amount that the Padres are receiving from their deal.

So, why were the Nationals asking for between $100 million and $120 million in 2012? Especially if it’s true as Forbes states that MASN’s revenue will likely be under $200 million in 2012, obviously not nearly enough to support $100 million rights fees for the Nationals and Orioles and have any money to reinvest back into the RSN. After all, the Nationals are receiving a fair amount in media rights fees and if MASN goes bankrupt they’d lose their equity stake. Furthermore, if the Nationals are being offered a fair deal then why is MLB giving them money to make up for their current deal?

Part of the reason is that the current deal presumes a 7.7% increase each year. It may be questionable to expect a 7.7% increase annually in 2026 when the deal is on par with the deals that the Phillies, Astros and Angels received. Another part is that the Nationals position really hasn’t been explained clearly in the media and as a result there are a number of misconceptions. In Part 4, I will explain the Nationals position in the dispute between them and MASN.