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.
10 comments:
Lots of news to digest here, so let's take it one at a time...
1. So MLB gave the Nationals more than $25M? Hadn't heard that one before, nor that it was not a pure loan or that MLB retained a large portion for revenue sharing. That sounds rather hinky, i.e. MLB giving with one hand and taking with the other. The Nationals might claim that only the $25M number matters since that's all they ever saw.
2. Not sure what this chart was supposed to prove. The argument today is whether to return to the RSDC or go outside. Since that decision is not based on numbers, of what value is this information right now? The next arbitrator(s) might be interested in it but why would a judge care? Am I missing something here?!?
1) Here's a link to the letter that MLB sent the Nationals. https://drive.google.com/open?id=0B8KjsFMWOxo1aEVQcWN3WTZkLVE
MLB gave the Nationals $25M after deducting $7.6M for revenue sharing. The Nationals received $25M but got to keep that entire amount. The Nationals also received $36M in rights fees from which they had to pay some revenue sharing tax.
It's net vs gross. Both are acceptable measures of value, but it doesn't make sense to mix the two.
2) This post was about the economics of MASN and not the legal case. It could have zero relevance to the legal situation and would still be of interest to those readers that want to know about the economics.
That said, it does have minimal importance to the court case. The Nationals are arguing that the fact that they aren't receiving a fair rights fee is hurting their ability to function (sign free agents). If the Court agrees with this, then the Court would have a strong incentive to send the case back to the RSDC quickly and even let the Nationals receive any additional money that the RSDC awards them.
So, MASN is using this chart to attempt to show that the Nationals are receiving an roughly average rights fee. Enough that the Nationals aren't suffering a significant harm by waiting until the appeals are over. That's also why they're talking so much about Scherzer, Murphy and in the near future Strasburg.
Thanks for the clarification and, as always, the excellent reporting. I'd be shocked if the Nationals agreed to any proposal from MASN that did not follow the Agreement to the letter. They're entire approach since Day 1 suggests that they think that time is on their side, and that any rush solution would only benefit MASN.
Were I the Nationals lawyer (which I clearly am not), I would spin that chart as evidence that the team is not getting anywhere near what they should be getting on the open market based on market size and viewer ratings. Further, suggesting that they're getting plenty is a specious argument. MLB is a competitive business, and the loss of several million dollars are year could indeed affect the team's ability to sign players.
On a tangent, is there any similarities between this issue and the Ravens/Redskins media rites? I know the NFL and NFL Network is a completely different beast than the MLB and MASN, but did the Ravens have to make any concessions to the Redskins to move to Baltimore?
So, the Nationals have made this argument twice already in the court proceedings and have lost both times. MASN has made this argument once and was successful. These examples somewhat illustrate the legal standard.
The Nationals claimed at the start of the proceedings that MASN should be forced to pay the arbitrator decided rights fees during the court proceedings. It is unquestionable that the Nationals were harmed by not receiving that extra $20M per year. But the Court decided that the harm caused wasn't large enough to force MASN to pay before the Court ruled whether the RSDC decision was correct. Therefore, MASN was required to simply bond the money. As the case dragged on, the Nationals made the same argument and it was again denied. The Court didn't really explain its reasoning, but it's reasonable to presume that this harm wasn't considered irreparable. Harm, in and of itself, isn't enough.
On the other hand, MASN requested that the Nationals shouldn't be allowed to terminate MASNs broadcasting rights. The Court agreed that this is a credible threat that would cause irreparable harm to MASN because it would nullify all of MASNs contracts with cable providers. MASN would be forced to renegotiate contracts without knowing whether it would regain the Nationals broadcasting rights and therefore it would cause them irreparable harm.
In every case where an arbitration is appealed, the winning side is being damaged because they don't get whatever it is they requested right away. That's why the standard isn't harm but irreparable or at least substantial harm. Apparently, the amount in question isn't enough to meet that standard.
I don't believe that the Ravens had to make any concessions to Washington. I don't know for sure.
In MLB, teams control their own media rights. When Washington moved into the area, the Orioles media rights were significantly less valuable. In the NFL, the league controls all media rights and splits the proceeds equally.
The only harm that could possibly be done is attendance. But how many people from Baltimore really attended games in DC? DC is the big market in the region and not Baltimore. If the Skins got something, it was small.
Matusz NEEDS to go!
The Nats have yet to argue that Matusz is in the way. Would be an interesting choice.
Bortz is a consultant for both the Os and MLB (but not the Nats), they are testifying on behalf of the Os, so any statements coming from Wyche should be viewed as bought and paid for.
LOL. Everyone is testifying on behalf of somebody. Bevilacqua was hired by the Nationals. Ed Cohen represents the Nationals. Alan Rivkin represents the Orioles. People don't just testify for the fun of it.
That stated, people don't lie in court or they go to jail. And people don't fraudulently create documents written by MLB. That's why you need to look at the evidence and determine your own thoughts about it.
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