Two New Developments in the MASN Dispute

The Nationals and MLB submitted new documents in the MASN case on Tuesday which discuss two new developments.

The first development is that MASN and MLB (not the RSDC) discussed giving the Nationals a 33% profits interest for years 2014-2016 under the condition that MLB would agree to use the Bortz Methodology to determine rights fees.  Rob Manfred sent Alan Rifkin an e-mail stating that the Commissioner sees Peter’s willingness to move the Nationals to 33 percent equity as a very significant move and appreciates the effort. He noted that he understands that this agreement would eliminate any possibility of issuing the current RSDC opinion and that at least through 2016 the Bortz rights fees would have to continue.  He argued that the Bortz Metholodogy shouldn’t be used post-2016. Alan Rifkin countered by noting that accelerating the Nationals to their 33% profits interest without clear confirmation of Bortz simply means that we are kicking the can down the road at great expense. He argued that the Nationals’ profits interest should revert back to its current progression in 2016 if the parties have not resolved their differences or if there has not been a larger transaction. Ultimately, this attempt at a deal fell through after MLB insisted that Angelos and MASN would have to reimburse MLB for the $25 million that they gave the Nationals as well as make a firm commitment to accelerate the equity interest to 33% immediately.  

This attempted deal also didn’t work because the Nationals determined that they would receive the same amount of value if they were given a 33% profits interest then they would under the proposed RSDC deal. The Nationals believed that this proposal would have done long term damage to their contractual rights. The Orioles would have received roughly an extra $80 million more from this deal than the RSDC proposed deal.

This shows that MASN and Angelos were willing to make compromises in an attempt to make a deal. Unfortunately, they were unable to convince the Nationals to agree partly because the Nationals felt they deserved $590 million for their rights from 2012-2016. 

The second development is that MLB tried to convince Angelos to either restructure MASN or sell MASN to Comcast. MLB told the Orioles that if they were willing to give the Nationals 50% equity in MASN that MLB would agree that a rights fee of $44m per Club that grows at 4% thereafter would be fair value. It is questionable why the Orioles would have agreed to such a deal because they wouldn’t receive any extra money using this plan instead of the RSDC plan but would lose a considerable amount of equity. 

MLB also attempted to convince Angelos to sell MASN to Comcast. MLB proposed that the Orioles would give the Nationals 23.5% equity as of 1/1/2013. The Orioles would sell 30% of the network to Comcast for $216M in 2013 and then annually sell Comcast equity ranging from 1-2% per year from 2013 to 2032. In 2032, Comcast would own 53% of the network and the Orioles and Nationals would each own 23.5%. Comcast would pay each team a rights fee of $42.5M in 2012 growing by 4% annually from 2012-2031. MLB claimed that this would be a better deal for Angelos than the RSDC decision but they used some assumptions that I would be skeptical of using.

What’s interesting about this deal is that it results in the network earning a profit margin of about 36% each year. It’s interesting because MASN requested a profit margin slightly higher than 30% due to the Bortz Methodology. MLB claimed that 30% was too much for MASN but not too much for a network owned by Comcast. MLB also claimed that each team should earn $300M in rights fees from 2012-2016 if MASN was paying the bill but only $230M if Comcast owned the network. If $300M is the fair rights value than why is it different for Comcast? In addition, MASN would need to go through a rights fee reset every five years but Comcast wouldn’t. Not only is Comcast being asked to pay less than MASN in rights fees from 2012-2016 but it’s likely they’d pay less from 2017-2031 also. One might wonder why that is reasonable.

MLB and MASN discussed possible solutions to this situation but weren’t able to come to a decision. It probably didn’t help much when MASN learned that MLB thought that Comcast deserves a reasonable profit but that MASN doesn’t.