Where Is the O's Boost in DH Production Coming From?

Full disclosure: I sat down to write a post about how Nelson Cruz and Delmon Young have given the Orioles exactly what they needed at the designated hitter position. But, as is often the case, the data does not align with that narrative.

Since the (bizarre) days of Luke Scott, the Orioles have been searching for a competent designated hitter, or at least a group that could perform well enough. (Remember the Vladimir Guerrero experience?) Danny Valencia was effective in limited DH duty in 2013, as was Chris Davis in more than 250 plate appearances in 2012. But Valencia was merely a strong matchup against left-handed pitching, and Davis has shown that he's able to adequately handle defensive duties at first base. Since 2010, when their overall DH production ranked third in wRC+, the Orioles haven't finished better than 10th. But right now, the Orioles are fourth in wRC+ and first in home runs (41).

Orioles' DH production the last five years:

Year	wRC+	Rank
2014	125	4th
2013	88	14th
2012	107	10th
2011	96	13th
2010	118	3rd

Nine different Orioles have stepped to the plate as a designated hitter in 2014. Cruz and Young have received most of those opportunities, but several other players have at least a handful. Overall, Cruz (127 wRC+) and Young (122 wRC+) have clearly been effective offensive weapons. But it's also true that both have performed much better as position players in 2014, which fits with their career patterns.

2014: Cruz as LF ( 240 PA): 156 wRC+
Career: Cruz as LF (436 PA): 130 wRC+; as RF (2,875 PA): 117 wRC+
2014: Cruz as DH (288 PA): 104 wRC+
Career: Cruz as DH (405 PA): 103 wRC+

2014: Young as LF (60 PA): 137 wRC+
Career: Young as LF (2,257 PA): 100 wRC+; as RF (923 PA): 94 wRC+
2014: Young as DH (136 PA): 89 wRC+
Career: Young as DH (802 PA): 89 wRC+

Cruz and Young have hit much better than their overall numbers -- but only as position players. At DH this season, they've both performed essentially the same as they always have. It's worth noting that Cruz has never been a DH all that often until this season, while Young had more than 660 plate appearances at DH. So, as always, note the sample size.

The average major league DH in 2014 has a 103 wRC+. Cruz is right at that mark, while Young is below. Obviously they have contributed much more when adding in their plate appearances while playing in the outfield (though they have looked like designated hitters playing the outfield), which has certainly been valuable. Cruz will end up making around $8.75 million ($8M in base salary plus roster bonuses, per Cot's), while Young is under contract for $1 million (and could make $0.75M more depending on various performance bonuses). They turned out to be shrewd signings.

Still, the O's have a combined 125 wRC+ from their designated hitters, and, as established, that isn't all coming from Cruz and Young. Cruz and Young have 424 of those plate appearances, but seven other batters have combined for 100. Here's the breakdown:

Steve Pearce (36 PA): 207 wRC+
Nick Markakis (23 PA): 79 wRC+
Matt Wieters (18 PA): -17 wRC+
Adam Jones (11 PA): 238 wRC+
Jemile Weeks (9 PA): 175 wRC+
Chris Davis (1 PA): 358 wRC+ (he walked)
Steve Clevenger (2 PA): -100 wRC+

Davis also pinch-hit for the DH twice, hitting a three-run homer.

That's just a limited sample of plate appearances for each player, so looking at that list is more amusing than anything. But hey, of course Steve Pearce would be involved somehow. Also, nice work, Adam Jones. And Jemile Weeks -- remember his early season cameo?

The Orioles have gotten some useful production from some unlikely sources in 2014. It's not guaranteed to continue, but it sure has been fun to watch.

Photo via Keith Allison

Further Discussion of Manny Machado and the Patellofemoral Joint

Wednesday found Orioles third baseman Manny Machado again under the knife, this time to repair a partial tear of his right medial patellofemoral ligament (MPFL); it was performed by Dr. Neal ElAttrache, the same surgeon who repaired his left knee last season. By all reports, the procedure went well and Machado should be able to start the rehabilitation process without any delays. However, news of yet another season ended prematurely by knee injuries for Machado has not only brought skepticism to the rest of season fortunes for the Orioles, but also to the young infielder's chances of a long and productive career. With a 2014 already shortened by an extended rehabilitation from the left MPFL rupture and patellar subluxation suffered in September of 2013 as well as the more recent right knee sprain suffered that evolved into Wednesday's surgery, the revelation of the left MPFL tear casts doubt as to whether he can sustain the physical rigors of the typical MLB season; these injuries also amplify the scuttlebutt on moving Machado to his natural (and more physically demanding) position of shortstop.

For the moment, let's set aside the gloom surrounding the coming years for Machado on the field and take a focused look at the anatomy involved with his knee problems and the surgical procedure he has undergone with Dr. ElAttrache, with the hope that with a better understanding of the medical intricacies of the situation, the doubts and anxiety surrounding Machado's future can be alleviated or at least put into better perspective.

For better or worse, much of the anatomy of the knee joint and the MPFL in particular has been discussed here at Camden Depot; you can find previous articles here and here. Briefly, the MPFL is a ligament that attaches at the femur and patella and helps resist lateral migration of patella, providing a significant amount of the restraining force against the patella dislocating. With the anatomy and mechanisms innate to the MPFL already discussed, let's now shift focus to another crucial piece to the knee joint puzzle and to Machado's health—the anatomy of the trochlea (also called trochlear groove) of the femur and its relationship with the MPFL.

Collectively, this region of interest is called the patellofemoral joint and consists of the patella and its articulation with the trochlea, with the primary role of the patella increasing the mechanical advantage of the quadriceps muscles of the thigh. The stability of this joint is maintained by a complex interaction between soft tissues and bony structures. Stabilizers of the joint are often divided into three groups: active soft tissue stabilizers (the quadriceps), passive soft tissue stabilizers (ligaments) and static stabilizers (the bony anatomy between the patella and trochlea).

With respect to articulations, the patella is covered in cartilage posteriorly that allows for the bone to glide seamlessly along the femur via the trochlea, with seven facets of the patella coming into contact with the femur as the knee flexes and extends. Normal activities typically find five of these seven surface in contact with the femur. The alignment and positioning of the patella is also important and assists in determining the biomechanics of the knee and how the lower legs 'hang', forming the Q-angle, which is an important aspect of the geometry of the knee. The average Q-angle is 14 degrees for males, with anything over 17 degrees considered excessive and called genu valgum—knock-kneed. Smaller Q-angles are thus considered genu varum, or bow-leggedness. Excessive Q-angles can predispose a person to patellar subluxations, such as those suffered by Machado.

Also potentially complicit in patellofemoral instability is the trochlea itself. In the condition trochlear dysplasia, the trochlea is not properly shaped and the patella does not have the normal bony constraints to provide stability. In essence, the trochlear groove is 'flat' and does not exhibit its usual concave shape, giving the articular facets of the patella less surface area to touch, causing a less stable articulation between the two bones. This leads to reliance upon on the MPFL and quadriceps to hold the patella in place, creating a higher than usual propensity for MPFL ruptures and patellar dislocations, due to the decreased strength of the joint. Along with trochlear dysplasia, conditions such as patella alta (a small knee cap) and lateralization of the tibial tuberosity can also affect joint strength. Ligament laxities, such as those seen in Marfan syndrome and Ehlers-Danlos syndrome can also provide patellofemoral instabilities, but are not frequently seen in the older athletic population.

Anatomy of the trochlea and patella. Taken from Practical Orthopaedic Sports Medicine & Arthroscopy 1st Edition, http://www.msdlatinamerica.com

Surgically, both the MPFL repair or reconstruction is a fairly straightforward procedure, with both lending much of the success to the less invasive, arthroscopic approaches that can now be performed. For repairs, tears of the ligament and other soft tissues are typically sutured, often with suture anchors placed in the femur for additional stability and strength, with patellar mobility assessed once sutures and anchors are placed. For a reconstruction, a graft, which is what Machado had previously performed on his other knee, typically the tendon of the semitendinosus muscle is harvested, with tunnels drilled into both the patella and femur for placement of the graft. Passage of the graft and fixation with sutures is also performed, with the native MPFL sutured to the graft and patellar mobility assessed before closure of incisions. It also appears that another procedure on top of either the repair or reconstruction (which is the more likely procedure to have been performed Wednesday) was also undertaken; while no confirmation of the procedure has been found, a common procedure that is often pursued along with the MPFL procedure is a trochleoplasty, which is performed to reshape the trochlear groove, allowing for increased patellofemoral stability.

At the end of all of these procedures, the future still remains slightly fuzzy for Machado. While these operations are necessary and will definitely allow him to return to action for next year, the question remains as to whether he will be the player he was prior to the surgeries. One study in particular looked at outcomes in athletes after MPFL reconstruction found that 100% returned to sports after MPFL reconstruction, 53% returned at equal or higher levels of performance, with 47% returning, but at lower levels of performance. Along with these subjective assessments of return to performance provided by the athletes, knee function was tested using a number of assessments that measured range of motion and pain, with postoperative improvements in these scores predominantly seen. However, there are a couple of caveats to these results, despite their somewhat encouraging tone. First, the athletes themselves were self-evaluating their levels of performance upon return to competition, so biases abound; no sport-specific statistics were used to objectively measure performance returns. Also, the authors included the caveat that these results were found in patients without severe trochlear dysplasia, which is something that could also potentially be ailing Machado.

Overall, youth is on Machado's side, as is the timing of the most recent procedure; the quicker the knee is repaired post injury, the better, and of course, the younger the patient, the more hopeful the medical staff are that a quick, complication-free recovery and rehabilitation will be seen. Using 2014 as a template for Machado's possible return in terms of performance next season, Orioles fans should be confident that his knee woes will be finally nipped in the bud, with his hitting less potentially affected postoperatively than his fielding. For his prowess with the glove, things are a little less certain, with the potential for a deterioration in Machado's lateral quickness a real possibility, especially considering both of his MPFL's are reconstructed. That being said, the future remains promising for Machado remaining in the upper echelon of young baseball talents despite his recent run of knee injuries.


References:

Hamill, J., & Knutzen, K. (2009). Biomechanical basis of human movement. Philadelphia: Wolters Kluwer Health/Lippincott Williams and Wilkins.

Miller, M. (2011). Operative techniques in sports medicine surgery. Philadelphia: Wolters Kluwer Health/Lippincott Williams and Wilkins. 

Reconstruction of the Medial Patellofemoral Ligament: Clinical Outcomes and Return to Sports. Am J Sports Med July 1, 2014 42 1661-1668 

The relationship between trochlear dysplasia and medial patellofemoral ligament rupture location after patellar dislocation: An MRI evaluation. Knee. 2011 Jun;18(3):185-8.

Adam Jones' Interesting 2014 Splits

Adam Jones is having another very solid season for the Orioles. Jones' fWAR of 4.4 leads all Orioles and is ranked 18^th among all qualified MLB batters, while his wRC+ of 119 ranks 3rd among all Orioles with 295 or more plate appearances. Jones' current fWAR of 4.4 is tied for the highest mark of his career and ZiPS projects Jones to finish with a fWAR of 5.3. Jones’ improved defensive numbers have played a large part in this, as his offensive production is pretty similar to his career production. However, what is noteworthy about Jones' offensive production is not his level of production but how he's producing. Vs. RHP Jones has been a below average hitter so far this season, but he is still having a productive offensive season because he is crushing LHP unlike he ever has before in his MLB career.

Throughout his career, Jones has hit RHP a bit better than he has hit LHP. Against RHP Jones has posted a career wOBA of .345 (112 wRC+), while vs. LHP he has a wOBA of .326 (100 wRC+). In 2014, Jones' numbers are drastically different. Vs. RHP he has a wOBA of .303 (90 wRC+) but vs. LHP he has a wOBA of .467 (203 wRC+). Here’s a look, courtesy of Fangraphs, at Jones’ season-by-season wOBA that shows just how drastic the change in his splits have been this season.

               

Here’s some of his batted ball numbers that may help to shed some light on Jones’ splits, this season versus his career.

Vs. RHP

	LD%	HR/FB	BABIP
Career	18.5%	16.2%	.314
2014	16.7%	13.7%	.283

Vs. LHP

	LD%	HR/FB	BABIP
Career	18.8%	12.8%	.317
2014	18.7%	25.8%	.404

                                                                               

On the RHP side of things, Jones’ LD% is down slightly and he also hasn’t been as fortunate when putting the ball in play. But vs. LHP, the differences are much more noticeable. While Jones hasn’t been hitting line drives any more frequently, he has been much more fortunate vs. LHP this season relative to his career, with fly balls leaving the park over twice as often while he is hitting over .400 when putting balls in play. The splits could be exaggerated by Jones FB% (not shown in the charts above). Jones’ FB% vs. LHP this season is 4% below his career mark, perhaps helping him to sustain his HR/FB for a bit longer.

Vs. RHP

	K%	BB%
Career	19.0%	3.6%
2014	19.5%	1.2%

Vs. LHP

	K%	BB%
Career	20.2%	6.3%
2014	16.0%	7.6%

Jones' already awful walk rate vs. RHP (and in general) has gotten even worse this season, possibly one of the reasons, albeit small, his production has dropped. Against LHP, Jones has been striking out less, an improvement noticeable enough to partially explain his drastic uptick in production this season. While a 7.6 BB% isn’t anything to get excited about, contrasting it to his 1.2 BB% vs. RHP helps to explain Jones’ splits this season.  

When talking about just a portion of a season, any conclusions about production must come with a sample-size warning. This sudden change in Jones’ splits may prove to be just a blip on the radar screen. Jones’ BABIP and HR/FB vs. LHP scream sample-size warning. Nothing jumped out at me when I looked at heatmaps or spray charts.

With Manny Machado now out for the year, the continued production of Jones becomes even more important for the Orioles. While I don't think Jones is an A.L. MVP candidate, he is definitely one of, if not the, most valuable Orioles players this season. This is not a surprise. What is a surprise is the way in which Jones has been productive at the plate so far this year, hitting LHP like never before. Jones’ current production vs. LHP, if sustained, could prove to be especially valuable to the Orioles in the playoffs, as many of their potential opponents have impressive LHP’s on their roster.

All stats from Fangraphs and current as of 8/25/14

Steve Pearce, Masher of Lefties and Inside Pitches

If you were going to make a case for the most valuable Orioles player of 2014, you'd consider names like Adam Jones, Nelson Cruz, and J.J. Hardy. Jones and Hardy shouldn't be surprises, and Cruz has demonstrated in previous seasons the ability to post impressive power numbers. But another name needs to be included in that group as well, and it's one that couldn't have been predicted: Steve Pearce.

Player	bWAR	fWAR
Steve Pearce	4.4	3.2
Adam Jones	3.4	4.4
Nelson Cruz	3.2	2.5
J.J. Hardy	2.8	3.0

Pearce has been an important piece for the Orioles, who boast a 73-55 record and a six-game lead in the American League East. His .380 wOBA (best on the Orioles) and competent defense have been vital to a team dealing with Chris Davis's floundering bat, Manny Machado's knee injuries, and Matt Wieters's season-ending Tommy John surgery. He's essentially been the O's version of a Swiss Army knife, filling in at first base, left field, and designated hitter, and instead of hitting like a mere utility player, he's been hitting nearly as well as more celebrated names like Freddie Freeman, Justin Upton, Adrian Beltre, Michael Brantley, and Anthony Rizzo. With only 295 plate appearances, Pearce hasn't played as much as those guys, but with Machado now lost for the season, Pearce is essentially a must-start for Buck Showalter for the rest of the season.

Imagining that the Orioles would need to rely so much on Pearce would have sounded ridiculous (and discouraging) in April, when he was designated for assignment, released, and claimed by Toronto, but he chose to stick around anyway. From mid-May to late July, Pearce knocked the cover off the ball, forcing Showalter to keep putting him in the lineup. He slowed down in August, barely playing for more than a week, but he's currently riding a seven-game hit streak during which he's homered three times.

Throughout his career, Pearce has excelled at hitting left-handed pitching. That's something we brought up before the season when discussing the wisdom of signing Delmon Young to a minor league deal. Of course, the Orioles have been able to find roles for both Pearce and Young (or, more accurately, they've been forced to find roles for them), who has been a useful DH and bench bat (.338 wOBA). Unfortunately, Young has started 11 games in left field for the Orioles, which is precisely 11 too many.

Young is a lefty masher himself, with a career wOBA of .345 vs. left-handed pitching (and .312 vs. right-handed pitching). This season, however, Young's splits look like this:

vs. RHP: 128 PA, .359 wOBA
vs. LHP: 71 PA, .300 wOBA

So, obviously note the sample size, along with Young's .361 BABIP (career .323). But Pearce is not only superior against lefties, but he's taken things to a whole other level this season. Here are his numbers against right- and left-handed pitching both for 2014 and his career:

Handedness	2014	Career
RHP	.344 wOBA	.296 wOBA
LHP	.462 wOBA	.372 wOBA

(Again, note the sample size: 2014 vs. RHP: 204 PA; vs. LHP: 91 PA. Career vs. RHP: 692 PA; vs. LHP: 450 PA.)

Pearce's numbers against left-handed pitching this season trail only five other major leaguers who have had at least 90 plate appearances vs. lefties. Those five hitters are Troy Tulowitzki, Justin Upton, Giancarlo Stanton, Paul Goldschmidt, and the Orioles' own Adam Jones. That's not a bad collection of players to be grouped with.

Throughout his career, Pearce has been a hitter that pitchers can retire by keeping the ball low and on the corners both inside and outside and by throwing him pitches up and away. But pitching him inside-middle, let alone elevating those pitches, can be dangerous. Here are his career slugging percentage numbers for various pitch locations:

In 2014 against right-handed pitchers, he has maintained that skill-set, even on pitches inside that are not strikes.

Up-and-in pitches are still his bread and butter, but against lefties he's exceeded those numbers.

Not only has Pearce been outstanding against lefties on pitches up and in, but he's also been excellent on pitches in the middle and down. He appears to favor the ball there instead of pitches right down the middle of the plate. Overall, pitchers have also been trying to throw him fewer fastballs and more breaking pitches, which is a good plan considering that he hits fastballs better than both breaking and offspeed pitches. But Pearce has been so good at hitting fastballs in 2014 that it hasn't mattered. For instance, 12 of Pearce's 14 home runs have come against fastballs (and they've all been to left field or left-center).

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You'd be crazy to think that Steve Pearce will produce these same kinds of numbers in future seasons. He is likely putting together his best major league season, and he's doing so when the Orioles desperately need the production. But as a player who can play multiple positions and can at least wear out left-handed pitching, he's certainly useful, and at 31 years old still has one year of arbitration eligibility left before he can become a free agent in 2016. Expecting that Pearce will be this fantastic next season and beyond would be foolish, but having him around is a nice backup plan considering Davis's struggles and the decisions the Orioles have to make on Nick Markakis, Cruz, and Hardy.

Stats (as of August 25) via Brooks Baseball and FanGraphs. Photo via Keith Allison.

An Update to the MASN Situation

The situation with MASN has been in the news a lot over the past month. First of all, I would like to congratulate the Eutaw Street Report for having an article included in the court record. Camden Chat has written a comprehensive series of posts that do a good job explaining the situation. Given everything already written about the situation I questioned whether it made sense to write yet another article discussing it. However, we do have access to many of the redacted documents on the court record and I thought there’s information in those documents that hasn't been discussed that explain aspects of the situation that haven't been discussed.

To understand the situation it is necessary to start from the beginning. The Orioles were promised by MLB in 2002 that the Expos would never be moved to Washington without the Orioles consent. So, the Orioles were very concerned to learn in 2004 that there were serious discussions about the Nationals moving to Washington. After all, 30% of the Orioles' fan base, sponsorships and revenues came from Washington DC and its suburbs. An analysis by Deloitte estimated at that time that the harm this would cause the Orioles should be valued at $40-50 million annually. Presumably that number would be considerably higher in 2014 dollars. MLB recognized the damage that moving a team to Washington would cause the Orioles and therefore proposed deals that would mitigate the Orioles’ losses. Eventually, the Orioles and MLB agreed that a team could be placed in Washington if the Orioles could have the majority control of a television network that had control of both teams’ television rights.

As a result of this deal, it was agreed that the Nationals would receive $20 million in 2005 and 2006, $25 million in 2007, $26 million in 2008, $27 million in 2009, $28 million in 2010 and $29 million in 2011 in media rights fees. The Orioles received slightly less in 2005 and 2006 as the deal indicated that the Nationals and Orioles would only receive the same amounts starting in 2007. The amount that the Nationals received ranked between tenth and fifteenth in baseball during each year of the 2005 to 2011 period.

The Nationals asserted numerous times in documents that their rights should have been worth a considerably larger amount but I haven’t seen any substantial supporting evidence. Perhaps the evidence is redacted. In response to these claims, Mark Wyche (the managing director of Bortz Media Group) stated that according to his methodology the Nationals rights over this period were worth approximately $119 million or $16 million less than the Nationals actually did receive. The Nationals were paid more than a fair amount for their rights according to the Bortz methodology. It is important to consider that MASN had to fight a number of legal battles with Comcast to become viable and this could have had an impact on the media rights fees that the Nationals could expect to receive.

The contract states in paragraph 2.I that after 2011 and for each successive five year period, the Orioles, Nationals and RSN shall negotiate in good faith using the most recent information available which is capable of verification to establish fair market value of the telecast rights licensed to the RSN for the following five year period. The contract states in paragraph 2.J.3 that if the parties are unable to agree on fair market value then the rights shall be determined by the RSDC.

MASN and the Nationals were unable to come to an agreement. Using the Bortz methodology MASN determined that the Nationals rights over this five year period were worth nearly $200 million dollars or roughly $39.5 million per year. The Nationals claimed that their rights over this five year period were worth AT LEAST a total of roughly $590 million dollars or $118 million dollars/year from 2012-2016. The Yankees TV contract pays them roughly $470 million dollars from 2012-2016 in media rights fees. The Nationals were claiming that their rights were worth at least about $24 million a year more than the Yankees. The Nationals further stated that whether MASN underpriced its programming by design or mismanagement is irrelevant as is whether MASN can afford the amount. They stated that fair market value is neither negated nor constrained by MASN's economics. Most of the Nationals’ argument is redacted testimony. All I know is that the Nationals were basing their request at least in part on what MLB considered to be fair market value for the Dodgers.

Dr. Hal Singer's affidavit stated that the RSDC ruled out the Nationals' valuation explaining that the contention that they would receive a rights fee of $109 million in an arm's length transaction with MASN cannot be accepted by the Committee because MASN would not agree to a rights fee that would potentially bankrupt the network. However, the RSDC also stated that they were unwilling to exclusively use the Bortz methodology to determine media rights fees. Instead, the RSDC decided that MASN has to pay each team about $300 million over the five year period. The Nationals have claimed that since the RSDCs decision is closer to the MASN' numbers than the Nationals' numbers shows the RSDC isn't biased.

I’ve seen testimony suggesting that the RSDC determined the amount that MASN should pay based on two primary arguments. The first is that MASN has had low operating margins in the past and should be willing to accept low operating margins in the future to secure must-have rights especially given that MASN will be able to renegotiate its rates in 2016 and improve its operating margin. The second is that MASN shouldn’t expect to receive historical operating margins because of the robust demand for sports rights fees and because the Orioles and Nationals are paid the same amount per the Agreement.

Dr. Singer attacks these arguments in his affidavit. He notes that while it is true that MASN did have low operating margins in 2007 that was because they were struggling to come to agreements with all of their providers and from 2008-2011 they have had industry-standard margins. He further stated that while some RSNs have had low operating margins in order to secure must-have rights this isn’t the case for all RSNs. Likewise it is true that MASN can renegotiate their rates in 2016 but having a low operating margin will weaken MASNs bargaining position. MASN may need to go to court to receive fair rates from its cable providers. If MASN has only a limited amount of money in the bank then MASNs leverage is limited. Speaking for myself, I don’t understand why MASN being able to renegotiate its rates in 2016 should have anything to do with what MASN pays to the Nationals and Orioles from 2012-2016.

Dr. Singer notes that rights fees only increase as affiliate fees increase. In the absence of being able to raise affiliate fees (at least until 2016), it is unclear why rights fees should increase significantly. Given that the Nationals and Orioles share the same market, MASN would maintain its same markets if having the media rights for a second team resulted in a 42% increase in affiliate fees. He notes that MASN enjoyed a near doubling of affiliate rates upon the addition of Orioles’ rights in 2007 and that therefore MASN has received historical operating margins.  

The RSDC further tried to support its claim by looking at the media rights fees for four comparable markets. The Rangers were one of the four comparable markets and another comparable extended their contract in 2013. The Rangers extension doesn’t begin until 2015. The RSDC discounted the values of a contract extension beginning from 2015 backwards to 2012 while the Orioles used the prior contract for 2012 to 2014 and the new contract for 2015 to 2016. I would suspect that Orioles argument is more accurate as illustrated by the media contract that the Phillies signed and Comcast Philadelphia’s subsequent actions to significantly raise carriage fees in 2014 despite not having to pay increased media rights fees until 2016.  

The Orioles made their offer based on the Bortz methodology as well as promises made to them by MLB when they agreed that majority control of a media network would be acceptable compensation. The eighteenth report of the RSDC discusses how the Bortz methodology was applied for NESN in 2003. This document was written by the RSDC in January 2005 and states the following:

“In brief, the so-called “Bortz analysis” avoids the examination of “comparable” arm’s-length contracts and instead collects estimated or actual revenue and expense data from the related broadcasting entity, assumes a market-driven operating margin that should satisfy the broadcasting entity and then calculates back to a rights fee that should be available to the club.” It further states that since no two markets are truly comparable a better approach is using the Bortz analysis and that even if a market analysis were appropriate, the RSDC finds selection of “comparable” markets to be an inadequate and unpersuasive basis for determining an arm’s length rights fee. In the past, Bortz has used an assumed 20% operating margin for cable and an assumed 30% operating margin for over-the-air broadcasts. In the case of NESN, the RSDC recommended that an operating margin of 21.9% be used.

In case that wasn’t clear I’ll explain the methodology.

Part I: Determine total revenue.

Part II: Determine total expenses other than rights fees.

Part IIIa: Subtract expenses from revenue. This number is called disposable revenue.

Part IIIb: Determine “Bortz” Operating Margin. This percentage is determined by the RSDC and has never before been less than 20%.

Part IIIC: Multiply Disposable Revenue by Bortz Operating Margin. This is the amount of RSN Profit.

Part IIID: Subtract Disposable Revenue by RSN Profit. This is the net rights fee per contract.

The Bortz Methodology determines how much money a team should be able to keep as profit and requires the rest to be used for the rights fee. Mark Wyche notes that the Bortz methodology has been used in nineteen other cases but not in this case. In those other nineteen cases, the Bortz operating margin was no less than 20%. In this case it was 8%. Mark Wyche doesn’t understand the logic of this.

In addition the Orioles received promises from MLB. When MASN was first created an investment bank called Allen and Co was hired by MLB to analyze RSN market economics and options. MLB and Allen and Company presented a number of pro formas that showed EBITDA in the mid-30% range and that this was “industry-norm” and sufficient to provide “free cash flow” to fund Orioles’ compensation while providing both clubs with “attractive rights fees”. One of the main reasons why the Orioles agreed that control of MASN would be acceptable compensation for the Nationals moving to Washington is because they understood that if the network was successful they would receive a significant amount of profit.

I’ve seen nothing explaining why the Nationals believe they should receive $590 million over 5 years. I’ve seen one document potentially explaining their reasoning but most of the testimony was redacted.  

One of the arguments between MASN and MLB comes down to this. MASN believes that it was understood that an acceptable operating margin for MASN would be between 20 to 30%. That was the reason why the Orioles agreed to the creation of MASN as compensation for the damage caused by the Nationals moving into town. If MLB can force MASN to accept an operating margin of 8% then this will cause the Orioles to suffer hundreds of millions of dollars if not more than a billion dollars. This limits MLBs’ options to convince Peter Angelos to drop litigation.

MLB believes that MASN should be forced to pay an amount comparable to what other similar markets are receiving despite the fact that MASN is unable to renegotiate its rates until after 2016. They believe that other RSNs have accepted low rates for a period of time to receive must-have rights and there’s no reason why MASN shouldn’t do the same.

So far, the judge involved has granted and extended an injunction preventing MLB from forcing MASN from paying roughly $20 million to the Nationals and preventing the Nationals from pulling their games from MASN. He questioned whether the MLB panel was impartial and whether the Nationals’ threat should be considered blackmail and possible extortion as well as stating that his court was the proper forum for these concerns. We’ll just have to wait and see whether the judge ultimately agrees that MLBs proposed rates are unfair and should be vacated.