28 January 2015

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.  


Howard Beale said...

Thanks. Now my brain hurts.

Wonder if I could hire one of Angelos' lackeys to sue you for personal injury? haha

Matt Perez said...


Yeah, I haven't really figured out how to write these posts so that they're more informative and detailed than the average post discussing MASN while being relatively easy to understand.

I feel like it's easy to find blogs discussing the basics but it's harder to find more detailed content.

Anonymous said...

Who owns TCR Sports Broadcasting Holding, LLP? Is it Angelos and his partners or is it the Orioles franchise? This makes an enormous difference since profits directly to Angelos would not necessarily funnel back into the team.

Also, isn't it true that the Orioles would actually benefit from the arbitration ruling since they would receive the same increase as the Nats?

Matt Perez said...

Tough questions. MASN and TCR are pretty much the same thing so in the interests of simplicity I'm just going to use them interchangeably.

My understanding is that MASNs legal position is that Angelos and his partners owns MASN and therefore isn't bound by the MLB constitution or any MLB discipline. This is why they think they can go to court without MLB permission.

MLB claims that the Orioles Franchise owns MASN and therefore MASN should be binded by the MLB constitution/discipline whatever. So, the ownership of TCR is in dispute.

Either way the profits go directly to Angelos and none of the money is subject to revenue sharing. I think it's safe to presume that these profits don't necessarily funnel back into the team. It makes sense that some teams make a profit each year and that money goes to their owners.

Certainly, the RSDC decision means that the Orioles receive more money in rights fees and therefore more guaranteed money. But it isn't clear what Angelos does with the money he receives from his equity share distributions.

Based on estimated revenue and payroll I'm inclined to believe that some of that money does go to support the Orioles. Enough that the Orioles will be better off if MASN wins in arbitration because if MASN loses then I suspect that source of revenue will be cut off.

The difference between the RSDC winning and losing was worth $10.6M for the Nationals in 2014. Winning this case will mean that the Nationals have to pay into revenue sharing as opposed to being owed money by revenue sharing. I'd say a similar amount is at stake for the Orioles.

It's relevant but $10M is barely enough to sign a decent free agent. I question how much of an impact this decision would have on any of the clubs either way.