On May 6th and 7th, MASN responded to the Nationals request to send the case back to the RSDC for a second arbitration. In support of this effort, Mr. Haley, the executive Vice President and CFO of MASN wrote an affidavit. He wrote that the Nationals have received fair market value as determined by Bortz Media, a longtime MLB consultant that developed the RSDCs established methodology. He noted that the Nationals received over $9.6 million in 2015 from profit distributions and tens of millions more via rights fees ($42M). Finally, he stated that the Nationals partnership interest has increased from an initial 10% to its current 17%. As MASN’s EBITDA has grown, so too has the Nationals’ asset value in MASN.
The Nationals have received a considerable amount of cash via profit distributions. As stated above, they received over $9.6 million in 2015, from 2014 distributions. Alan Rifkin wrote an e-mail two years ago, which showed the Nationals received $6.76 million in 2012 (based on 2011 results), $7.56 million in 2013 (based on 2012 results) and $9 million in 2014 (based on 2013 results). In addition, the Nationals' received a distribution for non-resident tax withholding payments. Mr. Wyche, the Managing Director of Bortz, developed a table in 2012 with the Nationals’ Rights Fees as proposed by MASN and the Nationals projected profit distributions from 2012-2016. It makes sense to compare the Nationals projected and actual profit distributions. Here’s a chart that puts everything together, with (P) standing for projected and (A) standing for actual/derived.
MASN has had larger distributions than expected despite the ongoing lawsuit. This makes sense because the Orioles and Nationals weren’t particularly successful from 2005-2011 but were extremely successful from 2012-2016. This resulted in higher ratings and therefore likely higher advertising revenue. It was impossible to predict that this was going to happen and therefore MASN was unable to account for it back in 2012.
MASN also appears to have distributed less cash in 2014 than in 2013. In all likelihood, this probably has little significance. For starters, MASN isn’t required to distribute all of its profits as distributions. Just because they distributed less cash doesn’t mean they earned lower profits. Also, the amount of cash in question is a few million dollars and therefore not a large sum. It’s probably worth keeping an eye on though.
Mr. Wyche also included a chart complied from the MLB Financial Information Questionnaires (FIQs) for media rights payments from 2005 through 2014 that compares the Nationals’ and Orioles’ relative media rights payments to all other MLB clubs. The CBA explains in Article XXIV that this questionnaire is completed by each of the Major League Clubs and submitted, together with audited financial statements, on an annual basis for each revenue sharing year to the Office of the Commissioner. It appears that this chart shows the media rights payments as defined by the clubs themselves.
These rankings indicate that the Nationals were paid above average rights fees from 2005-2008, average rights fees from 2009-2012 and below average rights fees in 2014. The Nationals 2013 rights fees of $61.2 million were the third highest in baseball and are a combination of the rights fees received from MASN and a $25 million payment from MLB.
This $25 million payment corresponds to the difference between MASN’s calculated rights fees and the now-vacated RSDC Award for 2012 and 2013. MLB made this payment to the Nationals in order to buy more time to find a solution to the current dispute. This payment isn’t a loan and the Nationals are allowed to keep this $25 million regardless of the result of this case. However, the Nationals will be required to repay MLB from any extra revenue they may receive from a favorable RSDC decision. If the RSDC decision is reinstated then MLB receives $25 million from the extra MASN payments.
It’s worth noting that this methodology understates the actual amount that the Nationals received. MLB actually gave the Nationals $32.8 million, but deducted $7.8 million for revenue sharing. All other media rights revenue is determined before revenue sharing and therefore the Nationals’ accounting method understates the actual value of the money they received.
It’s worth remembering that in March 2012, the Nationals argued that fair market value for their media rights in 2013 was $113.3 million. It turns out that the $61 million they did receive trailed only the Yankees ($89 million) and another club. Unless that other club received a larger rights fee then the Yankees, it would have been the largest in the majors by roughly $25 million and at least $50 million more than the team that received the fourth largest amount. It is safe to say that the Nationals significantly overvalued the fair market value of their media rights fees.
At the same time, it’s concerning to note that the Orioles and Nationals ranked only 18th and 19th in total media rights fees for 2014. They’re probably closer to the average than it appears as the difference between 3rd and 20th in 2013 was roughly $24.6 million. It’s also worth noting that this chart doesn’t include profit distributions and that MASN will renegotiate its contracts with its major carriers in 2018.
To be clear, MASN believes that the Bortz Methodology should be used to determine fair market value and therefore what other teams receive is mostly irrelevant. Using this formula, MASN has an interest in maximizing its revenue in order to ensure the largest possible profit because it determines MASN's profit margins and therefore a reasonable rights fee for each team.
All in all, the new data provides an update on MASN's financial situation and each team’s rights fees. It suggests that MASN is distributing more money than originally projected. It suggests that the Nationals requested media rights fees in 2012 were unjustifiable. Finally, it makes it clear that MASN is paying the Nationals and Orioles rights fees lower than that of the median MLB team.