WP: Nats MASN deal renegotations will have a huge impact

[nfotiu]

most RSNs aren't on a basic package, they're on a sports tier, that's what the baseball focused RSNs are fighting against. Besides time warner and comcast could argue that without the Nats, MASN is no longer local. RSNs are expensive and providers are just starting to take a stand against them, who knows how it plays out, but when your most expensive stations have some of your lowest ratings, there may be something that needs addressing

The 9,000,000 people in the DC metro market gets focused on a lot, but it is really the 25 million people in Virginia, NC, Maryland, etc...  that are all paying carriage fees that makes it such a cash cow.  And really it is no different than the rest of the country in that people from a few states over are paying carriage fees for teams they don't care about. 

I wonder how the Red Sox and Yankees owners are feeling about all this.  One thing coming to light is the formula to value the tv rights for revenue sharing is badly outdated, and badly under-valueing the money that NESN and YES must be making.   I wonder if this will all turn into a battle royale!

[HalfSmokes]

That's why the dodgers dispute (as well as the astro's disaster) is so interesting, providers are just saying no and getting support from subscribers who don't want to pay more for a channel they don't want

[comish4lif]

Petey was too clever by half in the MASN deal when he negotiated the clause that required that whatever rights fees are given to the Nats, an equal amount must be given to the O's, whether or not the O's rights are worth that much.  MASN is now in a position where it apparently cannot afford to pay the Nats FMV to both teams.  But if a business negotiates a contract that they later cannot afford, then that business either tries to renegotiate, or declares bankruptcy.  Which is it going to be, Petey?

Maybe that is the Nats issue... MASN wants to pay the Nats based on a formula, but the Orioles are not bound by the same formula.

[imref]

“As those who follow the Clubs are aware, the Settlement Agreement between Baseball, the Orioles, and the Nationals established MASN to compensate the Orioles for the loss of market share and other damages caused by the relocation of the Nationals to Washington, D.C.” the Orioles said Tuesday in a statement. “Contracts are meant to be honored and the Orioles have every expectation that this contract will also be honored. The Orioles continue to work with the Office of the Commissioner to try and resolve this dispute.”

“MASN has honored the terms of the Settlement Agreement, including the formula in that contract for resetting the Nationals’ telecast rights fees and expects all parties will do the same,” Thomas J. Hall, the lawyer representing MASN, said in the statement. “That contract specifically includes an agreed upon and historically applied formula for resetting the Clubs’ telecast rights fees that has been applied by Baseball to virtually every other club-owned regional sports network.

http://www.washingtonpost.com/sports/nationals/in-debate-over-masn-rights-mlb-rules-for-washington-nationals-but-fight-continues/2014/07/29/65a3af4e-1774-11e4-9e3b-7f2f110c6265_story.html

Is there a set formula?  If so, why is there even a debate?

there was a set formula, the Nats were due a 1% increase every year up to a cap, but the deal was open for renegotiation after 7 years so that's where they are now.

[imref]

more detail: http://www.wtop.com/484/3672113/Nats-Orioles-MASN-dispute-goes-public

History of the dispute

The Nationals and Orioles initially signed a contract as part of the agreement that cleared the way for the Nats to move to Washington in 2005. The Orioles would own a 90 percent share of the MASN empire, with the Nationals picking up one percent per year after an initial two-year wait, eventually capping at 33 percent; they currently sit at 17 percent. But also built into that contract was the chance to renegotiate for "fair market value" every seven years, starting in 2012.

When it became clear that the two sides disagreed on the fair market value of their respective broadcasting rights entering 2012, Major League Baseball appointed a panel, made up of representatives from the New York Mets, Pittsburgh Pirates and Tampa Bay Rays, to render a decision, which was due long ago. When asked during the 2012 All-Star break when he wanted the situation resolved, MLB Commissioner Bud Selig intimated to the Washington Post that he had already expected it to be settled.

What is "fair market value?"

This is the heart of the dispute. According to the Post, the Nationals claimed that fair market value for their television rights was somewhere between $100 million to $120 million per year, which would represent an increase of $71 million to $91 million from their previous payment. That figure was based on recent deals for other teams, such as the Astros (roughly $80 million per year), Padres ($1.2 billion for 20 years) and Rangers ($3 billion for 20 years).

The Orioles countered the Nats' claim with an offer of only $34 million a year, leaving the sides miles apart.

As Jonah Keri detailed in a February report on Grantland, MASN generated $167.8 million in total revenue in 2012, and was projected to see that rise to $179 million last season.

Both the Nationals and Orioles received an equal $29 million in rights fees from MASN in 2012. Each club then shared 34 percent of that number with the other clubs, per MLB's revenue-sharing program. The Orioles' extra money came from their stake as majority owner (roughly 85 percent), as that is considered by MLB to be a separate business venture.

It's obvious that MASN wouldn't be able to handle a massive spike in money for the Nationals while also paying the Orioles the same. In addition, the Orioles would have to pay the 34 percent revenue-sharing tax on $100 million instead of $29 million. Clearly, neither of these solutions work for Baltimore.

As a stopgap, the league has been paying the Nationals a previously undisclosed amount of money each year to keep them at bay.

[JCA-CrystalCity]

there was a set formula, the Nats were due a 1% increase every year up to a cap, but the deal was open for renegotiation after 7 years so that's where they are now.

the equity stake in MASN increases 1% a year.  there is a separate rights fee to the Nats and Os from MASN for the right to carry the teams.  That's the $29MM that is scheduled to go up in the renegotiation. MASN's income goes to its shareholder's equity.  The rights fee gets split with MLB, as the second to last paragraph in the next quote says.

[PowerBoater69]

I had thought that the Nats publicly denied receiving cash from MLB, but apparently they were only lying to their staff.

From today's Boswell chat:

The Nats have denied -- to their own people internally (which doesn't make it true) -- that they have not received any money from MLB.

[JMW IV]

I had thought that the Nats publicly denied receiving cash from MLB, but apparently they were only lying to their staff.

I see "have not" in that Boswell quote.

[PowerBoater69]

I see "have not" in that Boswell quote.

Looks like a typo on Boz's part, otherwise the double negative doesn't make much sense.

[imref]

First ruling goes to the orioles

http://www.fangraphs.com/blogs/instagraphs/new-york-court-hands-orioles-early-victory-in-masn-dispute/

[redskinsJB321]

First ruling goes to the orioles

http://www.fangraphs.com/blogs/instagraphs/new-york-court-hands-orioles-early-victory-in-masn-dispute/

I am not a lawyer, but this seems more like common sense than a true victory for the O's.  Obviously, the judge will want to review the evidence/procedure.

[comish4lif]

First ruling goes to the orioles

http://www.fangraphs.com/blogs/instagraphs/new-york-court-hands-orioles-early-victory-in-masn-dispute/

Wasn't this ruling on the Nats request to be removed from MASN? They weren't going to get that as the first decision....

[PowerBoater69]

This has the PDFs:

http://hardballtalk.nbcsports.com/2014/08/07/fuse-lit-masn-goes-to-court-to-keep-from-having-to-pay-the-nats-more-money-for-tv-rights/

[JCA-CrystalCity]

Standard for a stay is irreparable harm to the moving party (MASN) and likelihood of success on the merits, combined with a lack of irreparable harm to the non-movant.  That said, a lot of times if there is big $$$ alleged by the moving party, courts seem to look less critically at likelihood of success on the merits, despite the standard.  don't ask me how I know this  

I guess having to shell out $$ you ultimately do not owe is viewed as a bigger harm when you can say it threatens your viability than being deprived of additional $$ when you are viable now.  If it were the Orioles moving for a stay, then I think they would have had less of an ability to get it than MASN.  Nominally, the Orioles make out better under the arb ruling than they do under the current structure because their rights fees are tied to the Nats amount.  MASN can make the argument that the entity cannot take on the rights fee award because it would go not only to the Nats but also the Orioles. MASN is threatened by the ruling, and while it is controlled by the Orioles, it is a separate entity.

[HalfSmokes]

Since the Os aren't a party to the suit, anyone else hoping that selig just starts fining/pulling draft picks?

[JCA-CrystalCity]

ironically, the O's are a "nominal respondent" in the suit by the broadcast entity.  That is, on the surface, their interests align with the Nats and MLB because the Os entity would be due a higher payment under the arb award than under the formula pushed by MASN.  Of course, the O's are the managing partner and majority owner of the TCR/MASN and benefit more from a MASN-favorable ruling than they would from a ruling favoring the baseball teams and the league.

I think the problem for the Nats and MLB may be that, even if there is a market price for broadcast of the Nats that is substantially higher than the fee MASN says is due under what they say is the historic formula, the market price fee would bankrupt MASN.  It's kind of futile to let the Nats and Os get the fee because they will never see it from MASN.  I don't do bankruptcy work to know how that woudl get worked out (trustee renounce the contract? sell the rights as an asset?  If the rights are sold, how are the proceeds split? etc...).

[imref]

Wasn't this ruling on the Nats request to be removed from MASN? They weren't going to get that as the first decision....

all they did was stay the previous ruling, so status quo until this works its way through the courts.  I guess the Nats aren't going to get their hush money now so this suit costs them a lot in the short term.

[HalfSmokes]

I think the problem for the Nats and MLB may be that, even if there is a market price for broadcast of the Nats that is substantially higher than the fee MASN says is due under what they say is the historic formula, the market price fee would bankrupt MASN.  It's kind of futile to let the Nats and Os get the fee because they will never see it from MASN.  I don't do bankruptcy work to know how that woudl get worked out (trustee renounce the contract? sell the rights as an asset?  If the rights are sold, how are the proceeds split? etc...).

I would think that the contract would be an asset in bankruptcy, however, a contract at fair market value would probably have little to no value. Personally, bankruptcy is my hope since it is the only way the nationals will ever get a fair deal (MASN cannot pay both Baltimore and Washington an amount that is fair market for Washington, however, it is required to pay the clubs the same amount)

[JCA-CrystalCity]

Just a guess - if the baseball (MLB, Nats, and nominally the Os) were to win, then MASN would say, "here's our projected income, here's our projected obligations, the obligations we are under contract to incur exceed our projected income and other assets, we need the protection of the bankruptcy court to either reorganize or liquidate."   The bankruptcy court would stop any collection of past amounts owed if MASN were not current on its payments, then would allow the trustee to pick and choose what contracts to honor.  I don't think current receivables (RSN fees and ads) would match current obligations (rights fees for the broadcast going forward). Perhaps he could arrange for financing to carry the entity forward (debtor in possession) while they auction off the asset, which would be the right to broadcast both baseball teams under the terms of the arbitration decision.  I don't know if the court could restructure the arbitration decision (lower the fees) to make the asset more attractive, but the court has equitable powers to alter contracts, I think.  From the Nats perspective, I think they would say the simplest way for the trustee to resolve the future obligation that triggered the bankruptcy would be for the trustee to reject the rights agreement (contract), but I would think the cable entities would be able to get out of the obligation to carry the MASN, leading to liquidation.

[HalfSmokes]

Just a guess - if the baseball (MLB, Nats, and nominally the Os) were to win, then MASN would say, "here's our projected income, here's our projected obligations, the obligations we are under contract to incur exceed our projected income and other assets, we need the protection of the bankruptcy court to either reorganize or liquidate."   The bankruptcy court would stop any collection of past amounts owed if MASN were not current on its payments, then would allow the trustee to pick and choose what contracts to honor.  I don't think current receivables (RSN fees and ads) would match current obligations (rights fees for the broadcast going forward). Perhaps he could arrange for financing to carry the entity forward (debtor in possession) while they auction off the asset, which would be the right to broadcast both baseball teams under the terms of the arbitration decision.  I don't know if the court could restructure the arbitration decision (lower the fees) to make the asset more attractive, but the court has equitable powers to alter contracts, I think.  From the Nats perspective, I think they would say the simplest way for the trustee to resolve the future obligation that triggered the bankruptcy would be for the trustee to reject the rights agreement (contract), but I would think the cable entities would be able to get out of the obligation to carry the MASN, leading to liquidation.

liquidation isn't always a bad thing. MASN is setup in such away that it has two teams under its umbrella, one who controls it and the other who has valuable rights. MASN/Os ownership structured the deal between MASN and the Os in such a way that precludes the Nats ever getting fair payment without bankrupting MASN- the nats portion of the deal isn't what would make MASN insolvent, it's the Os portion which was hardly negotiated at arms length. 

[mitlen]

Just a guess - if the baseball (MLB, Nats, and nominally the Os) were to win, then MASN would say, "here's our projected income, here's our projected obligations, the obligations we are under contract to incur exceed our projected income and other assets, we need the protection of the bankruptcy court to either reorganize or liquidate."   The bankruptcy court would stop any collection of past amounts owed if MASN were not current on its payments, then would allow the trustee to pick and choose what contracts to honor.  I don't think current receivables (RSN fees and ads) would match current obligations (rights fees for the broadcast going forward). Perhaps he could arrange for financing to carry the entity forward (debtor in possession) while they auction off the asset, which would be the right to broadcast both baseball teams under the terms of the arbitration decision.  I don't know if the court could restructure the arbitration decision (lower the fees) to make the asset more attractive, but the court has equitable powers to alter contracts, I think.  From the Nats perspective, I think they would say the simplest way for the trustee to resolve the future obligation that triggered the bankruptcy would be for the trustee to reject the rights agreement (contract), but I would think the cable entities would be able to get out of the obligation to carry the MASN, leading to liquidation.

Non-lawyer question.    If Angelos controls the Oreos and MASN, couldn't there be some sort of collusion claim by the Nats?    And  ..  what would be the benchmark to prove that?

[welch]

Solution: move the Orioles back to St Louis. (1) Corrects the damage done to the Washington market when the Browns encroached on the Old Nats territory. (2) Eliminates the MASN mess.

[Clever]

Solution: move the Orioles back to St Louis. (1) Corrects the damage done to the Washington market when the Browns encroached on the Old Nats territory. (2) Eliminates the MASN mess.

what about the Carolina Orioles? Or would that still impinge?

[tomterp]

what about the Carolina Orioles? Or would that still impinge?

As long as the Nats get the coastal areas I'd be ok with that.  When O's fans talk about "goin' down e oshun hun" they ain't talking about Kitty Hawk.

And we gotta look out for Mathguy and 2IPA's.

[welch]

Maybe move the Orioles to Montreal? I just finished Jeff Stuart's "Twilight Teams", a history of the "original 16" teams and how some moved. Bill Veeck, owner of the Browns, wanted to move to Kansas City. That would have kept the team within the same state; also would have allowed the Browns fans (though there were not many) to keep following the team.

MLB disliked Veeck so it blocked the move, while later allowing the guy who bought Connie Mack's team to move the A's to KC.

Charlotte is not a big-league city, at least from what I've seen. Problem, though, is that MLB has put teams in AAA+ cities like Tampa, Miami, Phoenix, and Denver. Who's left?