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HHP: MASN/Nats/Orioles case (Inside the Courtroom)

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You mean MASN, not the Orioles, right? Let's not forget that MASN has to pay the O's whatever they pay the Nats for rights fees, so the O's will have some cash coming. I doubt MASN has been distributing dividends the last three years.

But if it bankrupts MASN to do so, I guess that impacts the Orioles. Let's not assume that you can hurt MASN without hurting the Orioles.

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The Orioles really in any discussion can't deviate from the Bortz model, as it is the basis of their stance. Permanently.

The RSDC document clearly states that the MASN agreement says:

After 2011, and for each successive five year period, the Os, Nats and MASN first shall negotiate in good faith using the most recent information available which is capable of verification to establish the fair market value of the telecast rights licensed to MASN for the following five year period.

I guess we need to understand what the Bortz formula does ..... but the implication above is about a negotiation to establish FMV - not a default formula. Now perhaps this Bortz formula establishes FMV based on various inputs from current information, but the contract clearly calls for a negotiation and not the implementation of a formula.

IMO, the Orioles interpretation of the implied use of a formula when the contract specifically calls for a negotiation strains credibility.

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You mean MASN, not the Orioles, right? Let's not forget that MASN has to pay the O's whatever they pay the Nats for rights fees, so the O's will have some cash coming. I doubt MASN has been distributing dividends the last three years.
Yep, MASN.
But if it bankrupts MASN to do so, I guess that impacts the Orioles. Let's not assume that you can hurt MASN without hurting the Orioles.
Have the Orioles been hurt by not having extra rights fees to spend on payroll the past 3 years and in the future?

If it bankrupts MASN to pay fair market value then they are best selling out to company like FoxSportsNet.

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The RSDC document clearly states that the MASN agreement says:

I guess we need to understand what the Bortz formula does ..... but the implication above is about a negotiation to establish FMV - not a default formula. Now perhaps this Bortz formula establishes FMV based on various inputs from current information, but the contract clearly calls for a negotiation and not the implementation of a formula.

IMO, the Orioles interpretation of the implied use of a formula when the contract specifically calls for a negotiation strains credibility.

I couldn't agree more. If this was all to be calculated under a formula there'd be nothing to negotiate.

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The RSDC document clearly states that the MASN agreement says:

I guess we need to understand what the Bortz formula does ..... but the implication above is about a negotiation to establish FMV - not a default formula. Now perhaps this Bortz formula establishes FMV based on various inputs from current information, but the contract clearly calls for a negotiation and not the implementation of a formula.

IMO, the Orioles interpretation of the implied use of a formula when the contract specifically calls for a negotiation strains credibility.

The Orioles will not negotiate off of straight implementation of Bortz formula in all future resets. They might as well fight the battle now.

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The Orioles really in any discussion can't deviate from the Bortz model, as it is the basis of their stance. Permanently.

I don't think this can be true as there is no model in the world in the world that would increase the rights fees by 1M per year for 4 straight years based on math. This was simply decreed either by an explicit description in the contract or by unilateral decision IMHO.

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The rights fees were pretty much locked into the contract through 2011 so your 2008 increase in rights fees would have been against the contract.

The real issue is determining a FMV and both teams provided analyses that would be considered jokes.

You think that if the Orioles agreed to pay more in rights fees the Nationals would have objected? Seriously? I've read lots of documents and maybe I've forgotten, but I didn't think the set dollar figures for the rights fees were documented anywhere in the contract but instead that the fees were at the discretion of MASN and started with X. Am I forgetting the explicit spelling out of the fees for 2008-2011?

Even if they were explicitly stated, I'm sure the Nats would have gladly accepted an upward adjustment. Heck, the Orioles could have used an upward adjustment to possibly keep 2012 from being so ugly.

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I don't think this can be true as there is no model in the world in the world that would increase the rights fees by 1M per year for 4 straight years based on math. This was simply decreed either by an explicit description in the contract or by unilateral decision IMHO.

I meant at the first reset. My apology.

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You think that if the Orioles agreed to pay more in rights fees the Nationals would have objected? Seriously? I've read lots of documents and maybe I've forgotten, but I didn't think the set dollar figures for the rights fees were documented anywhere in the contract but instead that the fees were at the discretion of MASN and started with X. Am I forgetting the explicit spelling out of the fees for 2008-2011?

Even if they were explicitly stated, I'm sure the Nats would have gladly accepted an upward adjustment. Heck, the Orioles could have used an upward adjustment to possibly keep 2012 from being so ugly.

The first five years were set by contract, and were very low compared to market rates, which favors the O's since they owned 85-90% of MASN. After that period the parties are to negotiate over the fair market value, and if they can't agree, it's to be arbitrated before the RSDC, which is to use its "established methodology" for determining FMV in agreements between related parties. The issue is that the O's say "established methodology" means a formula devised by Bortz, a consultant to MLB. The RSDC didn't agree, saying they (and Bortz) consider other factors than just applying a rote formula.

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You think that if the Orioles agreed to pay more in rights fees the Nationals would have objected? Seriously? I've read lots of documents and maybe I've forgotten, but I didn't think the set dollar figures for the rights fees were documented anywhere in the contract but instead that the fees were at the discretion of MASN and started with X. Am I forgetting the explicit spelling out of the fees for 2008-2011?

Even if they were explicitly stated, I'm sure the Nats would have gladly accepted an upward adjustment. Heck, the Orioles could have used an upward adjustment to possibly keep 2012 from being so ugly.

Just saying the fees were contractually stated. MASN profits were locked in for five years at north of $150M with the lion's share of that for the Orioles MASN owners. Creating goodwill by overpaying to the teams would just result in higher revenue sharing paid to MLB.

Everybody accepted the large profits for MASN destined for the Os MASN owners for the first five years.

There is a contractually required good faith negotiation for 2012.

If you want to show good faith, do it in the resetting of the rights fees to FMV in 2012. Very simple.

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The first five years were set by contract, and were very low compared to market rates, which favors the O's since they owned 85-90% of MASN. After that period the parties are to negotiate over the fair market value, and if they can't agree, it's to be arbitrated before the RSDC, which is to use its "established methodology" for determining FMV in agreements between related parties. The issue is that the O's say "established methodology" means a formula devised by Bortz, a consultant to MLB. The RSDC didn't agree, saying they (and Bortz) consider other factors than just applying a rote formula.

Yup, I've got all that and I'm not trying to be dense but were the fees explicitly stated in the contract as

2007 - 25M, 2008 - 26M, 2009 - 27M, 2010 - 28M, 2011 - 29M

or 2007 - 25M increases by 1M per year through the next four years

or other?

I've read the decision three times and I see it explained what they received and that the agreement "fixes the fees for 2005-2011", but I'm curious how they were fixed. (this is all basically from the page 4, the first paragraph under the background section). I think we are all assuming it was just explicitly stated clearly in numbers by year based on the way it is explained in the mediation decision doc, but I wonder if it was actually that clear.

If so, then I would have tried to find a way to "help" the Nationals by opening the agreement earlier to give them more based on better than expected results for MASN in order to try to extract a later reset. Basically, like buying out a couple years of FA by guaranteeing a contract in the arb years. This would have been the definition of win-win. The Nats get more earlier and the Orioles get certainty of rights fees for longer.

At the end of the day, the teams should have just set a desired profit range of x to y for each year and agreed to split the remaining money equally if they didn't want either team to get pissed off and try to break the agreement. On its face, this agreement is set up to create bad blood which is just stupid and shortsighted IMO.

I'm just saying no businessman is not going to be livid by 2012 if they are watching their "partner" run off with increasing profit that become exorbitant while they get what they got.

By the way, this also just underscores how ridiculous the Orioles 34M rights fee offer for 2012 was in their proposal. Of course, the Nats proposal is even more ludicrous. Both sides should be ashamed IMHO. I would never attempt to negotiate this way.

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Well, as I've stated, someone on the MASN side messed up when they allowed language for a contractual reset of rates to FMV when the carriage rates were fixed - especially without setting a minimum margin. I can't begin to fathom how galactically stupid (in the words of Tom Cruise) this is.

IMO, other contract provisions, once hailed as strong for the Orioles, which set Os/MASN ownership at 67% and Nats/MASN at 33% and required the Os to receive the same rights fees as the Nats, now look less favorable to the Os. High rights fees to both the Os and Nats severely lowers the profitability of MASN and the Nats low ownership share means they don't care about MASN profitability because they own so little of MASN. This wasn't thought through very well.

A mutually beneficial contract would have recognized the larger Washington area as generating more $ for the Nats, but still finding a way for the Os to be subsidized for ceding this territory. In the past, using round numbers, I have suggested shifting about $10M-$15M of the Nats true FMV to the Os annually. As it is, everyone signed an agreement which contractually gave the Os/MASN owners 85% of $150+M in profits and then appeared to level the playing field in terms of fairness.

That the MASN/Os appear to believe they could set tv rights fees below market and walk off with the lion's share of $50+M in annual profits is among the greedier (and comical) assumptions I've seen.

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I think it's easy to second guess the contract terms now and think of ways that they could be more favorable to the Orioles. The truth is, the terms of the contract were the product of a negotiation, one in which the Orioles didn't have great leverage IMO. I've always thought their legal argument for keeping the Nats out of DC/out of "their" TV market was weak. Had they litigated and lost, they would have gotten nothing.

So, instead they got a deal that was very sweet for five years, and still is somewhat favorable to them going forward. I have a hard time calling that "collosally stupid."

As to the Nats' owners possibly being "livid" about the first five years, I don't see why. The rights fees for that period were set before they bought the team, and I'm sure that was factored into what they bid to buy the team.

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I think it's easy to second guess the contract terms now and think of ways that they could be more favorable to the Orioles. The truth is, the terms of the contract were the product of a negotiation, one in which the Orioles didn't have great leverage IMO. I've always thought their legal argument for keeping the Nats out of DC/out of "their" TV market was weak. Had they litigated and lost, they would have gotten nothing.

So, instead they got a deal that was very sweet for five years, and still is somewhat favorable to them going forward. I have a hard time calling that "collosally stupid."

As to the Nats' owners possibly being "livid" about the first five years, I don't see why. The rights fees for that period were set before they bought the team, and I'm sure that was factored into what they bid to buy the team.

You wouldn't feel taken advantage of if your equity "partners" were reaping 85 cents on every dollar of profit while paying both teams equally for rights fees that were clearly low and the result of this was conservatively 50M dollars in lost revenue for the Nats over the five years, especially when you were in the bigger market?

I've got no issue with splitting the market equally in rights fees despite the Nats having a much bigger market. They did "intrude" on Orioles' territory per MLB rules. I've got no issue with PGA being the bigger equity partner in MASN as he started the network. I would have an issue with the fees being clearly skewed so he can walk away with 85 cents on every dollar instead of 50 cents (really 33% for the Orioles, 33% for the Nats, and 34% for revenue sharing which does suck).

There was a legal contract, no doubt, and the Nats were bound to honor that contract, but that doesn't mean the contract was fair and it certainly doesn't preclude the Nats from feeling abused in the situation. Those sorts of feelings are what lead to situations like the current one. It is personal to them now. That is why they tore up the recommendation from the Bortz group, cursed, and left the room. It is never smart to make it personal when all parties can come out happy. This isn't smart and the Orioles proposed number for 2012 was especially bad IMHO.

I'm not saying the Orioles had to do better than they did prior to 2012, but I am saying that, when they chose to follow through on the original terms despite the fact that all parties knew the terms had become incredibly skewed once MASN started making money, there was no chance any offer in 2012 short of extra compensation for the ugly years from 2008-2011 would have left the Nats feeling like they were partners. In 2005/2006 the Orioles and PGA couldn't be sure that MASN would be really profitable. They hoped and projected, but didn't know for sure. Once they started reaping the huge profits in 2008, they should have offered an olive branch of fairness IMHO and this wouldn't have gotten so acrimonious. There is money for everyone here.

Edited by vatech1994

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When I negotiate things like this I try to put myself on both sides of the argument and find the most fair resolution without being emotional. I do truly believe most situations can be win-win. There is nothing win-win about the situation from 2008-2011 IMHO and neither side approached 2012 with a win-win mentality. I probably wouldn't be a very good lawyer, but I truly believe win-win solutions end up working out the best in the end.

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