WP: Nats MASN deal renegotations will have a huge impact

[NJ Ave]

I mean, look at the chart at the bottom of this post: http://www.fangraphs.com/blogs/dodgers-could-be-last-team-to-strike-gold-with-local-tv-deal/

At $20 million/year, you're talking about the Nats being at the level of the Pirates, Rays, Brewers in terms of value, not to mention about 50% less valuable than they currently are perceived to be in their MASN deal.

Pretty, pretty conservative valuation.

[NJ Ave]

I think they definitely could get that 50-80 million right now.  However, I just don't think whoever paid that would make enough money to pay it out for 10 or 20 years. 

Hahahahaha, well by all means then, let's be the team that decides to take 75% less money for the foreseeable future, in case the pattern is unsustainable in 10-20 years.

Maybe they can get Zimmermann and Desmond to sign for less money by explaining to them that maybe the TV rights bubble will burst after they're retired.

[HalfSmokes]

A carriage fee revolt is why you want a long term deal with an RSN- as long as they're solvent, the team gets payed. If they go bust, then you try to get another deal elsewhere. I think a revolt will come, then again, sports is about the only justification left for live television, so maybe not

[NJ Ave]

I mean, you're seriously arguing that, if the bubble is only sustainable for 5 years (conservative) that it's better than we have a 30 year contract at a sustainable rate of $20 million/season ($600 million total) than take the next 5 years at $80 million/season ($400 million total) have a year where the channel goes bankrupt and the contract gets renegotiated for $20 million/season for the remaining 25 seasons ($500 million additional)?

[Ray D]

sports is about the only justification left for live television

Well, there's news.

[nfotiu]

But mainly, the Nats viewership has nearly tripled in the last 3 years, including a top five in MLB increase in viewership last season, is probably in the middle of baseball in number of viewers at about 70,000 per game, and probably well above average in household income/viewer. So bottom of the barrel rights fees don't make sense on any level.

70,000 viewers per game generates (optimistically) about 200,000 advertising dollars per game, or 34 million per year.  I have to guess that production and operating costs leave at most $20 million.  So that means they need to recover about 40 million in carriage fees from all the people who don't watch the games to pay out $60 million to the Nats.  That $40 million  just isn't sustainable, IMO.

[HalfSmokes]

I mean, you're seriously arguing that, if the bubble is only sustainable for 5 years (conservative) that it's better than we have a 30 year contract at a sustainable rate of $20 million/season ($600 million total) than take the next 5 years at $80 million/season ($400 million total) have a year where the channel goes bankrupt and the contract gets renegotiated for $20 million/season for the remaining 25 seasons ($500 million additional)?

I would hope no one would argue that. I'd like a 20 year deal at an absurdly high number (al la Phillies, 25 years, $100 million per or the Rangers - 20 years, $80 million per). If the RSN thrives, great, if not, you've been paid collecting the paychecks, plus the initial signing one time bonus- going rate seems to be $100-$200 million- and you go shopping for a new deal.

[nfotiu]

I mean, you're seriously arguing that, if the bubble is only sustainable for 5 years (conservative) that it's better than we have a 30 year contract at a sustainable rate of $20 million/season ($600 million total) than take the next 5 years at $80 million/season ($400 million total) have a year where the channel goes bankrupt and the contract gets renegotiated for $20 million/season for the remaining 25 seasons ($500 million additional)?

The latter would be better for the Lerners, but I don't care about them!  And I'm sure they can and will do everything to maximize their tv money.  Counting on 80 million and building your payroll based on that, and then losing that deal and dropping to 20 million is going to be bad for the baseball team.  I am just making a blessing in disguise argument that if we don't get caught up in the tv bubble, we'll not have to come crashing down either.  I predict a pretty nasty reconciliation is coming to the southern California teams.

[NJ Ave]

70,000 viewers per game generates (optimistically) about 200,000 advertising dollars per game, or 34 million per year.  I have to guess that production and operating costs leave at most $20 million.  So that means they need to recover about 40 million in carriage fees from all the people who don't watch the games to pay out $60 million to the Nats.  That $40 million  just isn't sustainable, IMO.

Explain why this is the Nats problem? Who cares if its sustainable?

[NJ Ave]

The latter would be better for the Lerners, but I don't care about them! 

Always interesting to get the cable industries perspective.

I guess I disagree that we should field a less competitive payroll over the next 5-10 years because of the specter of revenue stream losses at some point in the future.

[nfotiu]

A carriage fee revolt is why you want a long term deal with an RSN- as long as they're solvent, the team gets payed. If they go bust, then you try to get another deal elsewhere. I think a revolt will come, then again, sports is about the only justification left for live television, so maybe not

It seems as though, even though these RSNs are called Comcast or Fox, that they are individual entities that can go bankrupt even if their parents are doing quite well.  The worst case scenario is ending up in Houston sports teams' situation where the games aren't on tv, they can't sell to anyone else, and they aren't making any money.

[NJ Ave]

It seems as though, even though these RSNs are called Comcast or Fox, that they are individual entities that can go bankrupt even if their parents are doing quite well.  The worst case scenario is ending up in Houston sports teams' situation where the games aren't on tv, they can't sell to anyone else, and they aren't making any money.

Again, who cares? First of all, if the bankruptcy problem becomes an issue for half of baseball, the problem disappears. It's not like Congress or MLB will allow half of baseball teams NOT to be on television. Second of all, because of the specter of bankruptcy, you're advocating taking reduced rights fees on a long-term contract?

What if Houston is an isolated example, the rest of them survive, and we are just getting 25% of market value for the next 30 years?

This is like building a tunnel before you reach the bridge, on the off chance the bridge is out.

[nfotiu]

I am not

Again, who cares? First of all, if the bankruptcy problem becomes an issue for half of baseball, the problem disappears. It's not like Congress or MLB will allow half of baseball teams NOT to be on television. Second of all, because of the specter of bankruptcy, you're advocating taking reduced rights fees on a long-term contract?

What if Houston is an isolated example, the rest of them survive, and we are just getting 25% of market value for the next 30 years?

This is like building a tunnel before you reach the bridge, on the off chance the bridge is out.

I'm not advocating they do anything.  I'm sure they'll fight for their share and get as much as they can. 

All I'm saying is we may be better off in the long run if we continue to build attendance and tv viewership, and have a payroll that is based on what we are getting now.   Compare that to teams that are spending recklessly, sacrificing prospects and cost controlled players, and counting on that 9 figure tv deal to make it all work. 

[NJ Ave]

Again, if you take the example of (A) getting $20M/season for 30 seasons, or (B) getting $80 for 5 years, having the RSN explode and getting $20M/season for the next 25 seasons, it's a difference in NPV of $283 million assuming a 3% discount rate.

I guess your argument is that maybe the Lerners will recklessly make long-term investments of 100% of future assumed revenue streams based on an assumption they will be there forever? Seems a pretty big assumption to make to give up $283 million. How about we take the $283 million and continue making wise decisions?

And besides the Dodgers, I cannot think of (m)any teams that have gone on spending sprees to spend these extra revenue streams. I haven't even seen evidence that teams have spent 100% of the extra $25 million each team is getting in national TV money, let alone the extra $50-100 million they're getting from RSN deals.

[NJ Ave]

As far as concrete examples, I'd rather take the dough and sign Zimmermann, Desmond, and Ramos right now for $283 million, then worry about 2025 later.

[HalfSmokes]

It seems as though, even though these RSNs are called Comcast or Fox, that they are individual entities that can go bankrupt even if their parents are doing quite well.  The worst case scenario is ending up in Houston sports teams' situation where the games aren't on tv, they can't sell to anyone else, and they aren't making any money.

houston is why you don't want an equity stake (between the astros and the rockets, the station is bascially team owned- wiki has astros at 46%, rockets at 30% and the rest NBC), you just want payments, and you can easily insert provisions to protect the team that void the deal if the station isn't carried or if certain other conditions aren't met

[HalfSmokes]

All I'm saying is we may be better off in the long run if we continue to build attendance and tv viewership, and have a payroll that is based on what we are getting now.   Compare that to teams that are spending recklessly, sacrificing prospects and cost controlled players, and counting on that 9 figure tv deal to make it all work. 

(from the payroll thread) fangraphs is projecting the Nats to have a grand total of 2 pre-arbitration players on the opening day payroll, so we're past the point of relying on cost controlled players

[NJ Ave]

Then there's this pretty good description of MASN finances: http://camdendepot.blogspot.com/2014/02/what-we-know-about-masn.html

In addition to the $58 million in media rights fees that MASN paid to the Nats and Orioles in 2011, there were $55-60 million in total equity stakes (read: profits) between the two franchises.

So at the very least, you're talking about $115-120 million as the minimum profit/loss point for these two franchises, and that's the profit/loss point from a REALLY crappy RSN.

In no way is $20 million is a fair number, considering that's 66% less than is currently being generated, and when MASN is basically 100% available and extremely profitable.

Now I can see where the Nats are coming from - I mean it does seem bogus to artificially keep the media rights fees lower than other like-sized clubs get, just to push more of the profits into an equity stake agreement that is vastly tilted towards the Orioles.

I can also see how, if MASN can afford to be on 100% of outlets and still generate $120 million in annual team payments, that Fox or Comcast might come in and say - hey, we can generate 20% more revenues and pay each team $75 million/year without going bankrupt.

[NJ Ave]

It also makes it clear what a criminal Peter Angelos is as an owner. Because of this TV deal, he's getting about $85-90M/year in local TV money, while the Nats are getting $35M. The Nats have a payroll $30M higher. Ridiculous.

[HalfSmokes]

Then there's this pretty good description of MASN finances: http://camdendepot.blogspot.com/2014/02/what-we-know-about-masn.html

In addition to the $58 million in media rights fees that MASN paid to the Nats and Orioles in 2011, there were $55-60 million in total equity stakes (read: profits) between the two franchises.

So at the very least, you're talking about $115-120 million as the minimum profit/loss point for these two franchises, and that's the profit/loss point from a REALLY crappy RSN.

In no way is $20 million is a fair number, considering that's 66% less than is currently being generated, and when MASN is basically 100% available and extremely profitable.

Now I can see where the Nats are coming from - I mean it does seem bogus to artificially keep the media rights fees lower than other like-sized clubs get, just to push more of the profits into an equity stake agreement that is vastly tilted towards the Orioles.

I can also see how, if MASN can afford to be on 100% of outlets and still generate $120 million in annual team payments, that Fox or Comcast might come in and say - hey, we can generate 20% more revenues and pay each team $75 million/year without going bankrupt.

interesting post, It's nice to see the data broken out in chart form. It also shows why the lerners will never get market value. Media rights + equity payments last year were about ~$130 million between both teams. Revenue was $179 million. The deal requires equal payments to the Os and nationals. If lerner is right about the fair value being in the neighborhood of $100 million, MASN is paying out more than it's taking in before you even start to look at expenses. Here's hoping that lerner wins and bankrupts MASN

[NJ Ave]

There's a huge conflict of interest here for MLB owners. The way to even out the payments is to demand that MASN shift more of the team payments to the media rights side and away from the equity payments side. You could increase the media rights payments to $60M per team for example and then the total payments would be Nats $61M, Os $69M or whatever after they get their lopside equity share.

However, other teams use the equity payments also because equity payments are NOT subject to revenue sharing while media rights payments ARE (I believe). So if they say its not fair for the Os to hide their revenues in equity profit sharing, how can they defend their own practices?

At some point, this will get struck down either in court or by the powers that be at MLB and the Orioles will be forced to push more money into the media rights payments or give the Nationals a larger share of MASN equity. It's egregious that it was even agreed to in the first place. Based on the unequal equity payments over 30 years, assuming 3% both as a discount rate and the rate of inflation, equity payments to the Orioles are worth $800 million in current dollars more than those to the Nationals over 30 years.

Quite a payoff.

[mitlen]

Good discussion today nfotiu, NJ Ave and hs.   

Thanks

[NJ Ave]

In you cut the total equity payments to $10 million a year (adjusted for inflation) and forced the rest into the 50/50 media rights payments, the total payoff to Angelos, including equity payments already made, would be more like $300 million with $120 million still to come.

That's more reasonable.

[HalfSmokes]

Bud was always afraid of litigation. I wonder what the response would be if Lerner sent him a courtesy copy of a complaint to be filed in a couple of days? At this point, I think it will take lerner pushing the issue. If MLB really thinks this is a fair way to keep the Os financially viable, then make the Yankees split their rights with the Marlins and make the Redsox split their rights with the Indians.

[NJ Ave]

Bud was always afraid of litigation. I wonder what the response would be if Lerner sent him a courtesy copy of a complaint to be filed in a couple of days? At this point, I think it will take lerner pushing the issue. If MLB really thinks this is a fair way to keep the Os financially viable, then make the Yankees split their rights with the Marlins and make the Redsox split their rights with the Indians.

That's what Angelos wants everyone to think, that this is about the Os viability. But that's just not true: http://www.forbes.com/teams/baltimore-orioles/

The Orioles operating profit according to Forbes was $30M in 2012 and their revenues were only $19 million less than the Nats. Forbes estimates them to be worth $618M, which is $445M more than when Angelos bought the team 20 years ago. They are absolutely not on the brink of failure.

I think most people agree that Angelos should be given a large payment to compensate him for the difference between the market he bought into and the market he's going to have going forward. An NPV of $300 million would be more than sufficient, that's basically half of what the Nationals are worth! An NPV of $800 million is patently aburd, demonstrated by the fact that it's 130% of what the Nationals are currently worth.