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

[Three Run Homer]

As I said earlier in this thread, it would have been very easy to write language specifying the Bortz formula if that had been what the parties intended. The failure to do it suggests to me that the parties knew the Bortz formula would not be the only factor considered.

But MASN's filings make clear that they believe that any deviation from Bortz is a violation of the contract. At the time the deal was signed the Bortz formula was the established methodology and had been used in similar contracts.

My guess is that the Nats lawyers held out for "established methodology" rather than "Bortz" because they hoped that there would be a different methodology used down the road, while the MASN lawyers (Angelos) believed that "established methodology" would be interpreted by the courts as meaning Bortz only.

[weams]

But MASN's filings make clear that they believe that any deviation from Bortz is a violation of the contract. At the time the deal was signed the Bortz formula was the established methodology and had been used in similar contracts.

My guess is that the Nats lawyers held out for "established methodology" rather than "Bortz" because they hoped that there would be a different methodology used down the road, while the MASN lawyers (Angelos) believed that "established methodology" would be interpreted by the courts as meaning Bortz only.

Well I guess we will see. For all of our sakes, I hope it gets looked at from the perspective that the Orioles look for.

[Frobby]

But MASN's filings make clear that they believe that any deviation from Bortz is a violation of the contract. At the time the deal was signed the Bortz formula was the established methodology and had been used in similar contracts.

My guess is that the Nats lawyers held out for "established methodology" rather than "Bortz" because they hoped that there would be a different methodology used down the road, while the MASN lawyers (Angelos) believed that "established methodology" would be interpreted by the courts as meaning Bortz only.

As a lawyer who deals in a lot of contracts involving tons of money, I can tell you that any lawyer for MASN who would leave a matter that important that vague if he/she believed that a specific formula was to be applied should be sued for malpractice. And knowing the quality of the lawyers involved here and the amount at stake, I absolutely refuse to believe that it happened that way. And by the way, the Nats were owned by MLB when this contract was negotiated, so really it was the MLB's lawyers who negotiated this.

[hoosiers]

I think to compare Comcast SportsNet with MASN, you'd really need to look at all the programming they put on throughout the year, not just their "principal" live sport(s). I believe Comcast has a significant number of ACC basketball games and DC United games in addition to the Caps and Wizards. They also were pretty entrenched in our market before MASN ever arrived, so they get decent viewership for their local sports newscasts, talk shows and other content. I'm not making excuses for MASN here, but it's not completely apples to apples. And again, I'm not saying that MASN couldn't do better.

Obviously, I don't live in the area and can't speak to the specific programming on these channels, but I would assume any apples to apples comparison would start with the fact that the two baseball teams provide twice as much live entertainment - by the very nature of the schedules - as the Wiz/Caps.

I will remind that the comparison between the two networks was not initiated by myself, but an author who worked with subject matter experts.

[hoosiers]

I think it's impossible for anyone not intimately acquainted with the cable industry to know whether MASN has been well-run or poorly run, and whether any difference between the rates it has been able to charge and the rates that some larger cable content provider (like FOX Sports) might be able to charge are the result of poor management, lack of market power due to other non-baseball offerings, or a million other reasons.

First, unlike several participants in this thread, I have introduced links to articles that provide feedback from subject matter experts in the cable industry.

Second, there are not a million possible reasons for the apparent disparity between MASN's actual rates and the industry standards. There might be three to five possible explanations and, after nearly 10 years on the air and playoff teams for three seasons, most reasons would result from a mistake by MASN. I think it is a direct reflection on MASN's inability to provide anything close to market-based local TV rights fees that the Nats/Lerners have pursued the path they have.

Third, PA can be easily quoted as saying the network would provide the type of $ necessary for the Os to better compete in our division. PA knew exactly the type of cash MASN could create when he set it up to have an overwhelming majority interest in the local TV rights to two MLB teams. Aren't there court filings from MASN/PA requesting a 20+% profit margin for the network? Haven't articles been cited that hint at this type of profitability?

[hoosiers]

I think the point at which you and I completely agree is that there is more upside to the Orioles' payroll than I previously believed and we should be able to support more than we've paid for the last several years. However, we are growing the payroll by significant percentages the last three years so I'm not as frustrated as you seem to be. I will be frustrated if we don't see about 125M this year and 135M next year. I'd like to see this issue get settled so PGA can stop hedging his bets. With his conservative nature, I'm sure the lack of clarity on what will happen is causing at least $30M in MASN revenue to be held up pending resolution. The Orioles wouldn't see nearly all of that, but they would see some portion if it were utilized.

I think to sit back and look at all of this from 10,000 feet, IMO, is where I get frustrated at the combination of the apparently massive profits being enjoyed by our ownership through the Os and MASN and what I consider a massive under-investment in the Os franchise by the same owners.

It really is unbelievable to look at the explosion in local TV rights fees enjoyed by other teams who set up networks (BoSox, NYY) and those who didn't (Seattle, Houston), to have an owner that owns the majority of local TV rights to two MLB teams, to see pieces of articles mentioning the tremendous profitability of MASN, to see articles hinting at MASN's below-market fee structure, and to see the Os keep payroll under $100M into 2012, to see other small market teams bid over $20M for Chapman (Cincy), $3+M for Sano (Twins), $4+M for Inoa (Oakland), etc ......

I understand the Os have made the playoffs for two of the past three seasons. I understand many large free agent deals don't work and that many multi $M international prospects don't pan out, but the level of profitability and the lack of investment have reached points where I think it is appropriate to complain.

[WEAVERMAN]

I think to sit back and look at all of this from 10,000 feet, IMO, is where I get frustrated at the combination of the apparently massive profits being enjoyed by our ownership through the Os and MASN and what I consider a massive under-investment in the Os franchise by the same owners.

It really is unbelievable to look at the explosion in local TV rights fees enjoyed by other teams who set up networks (BoSox, NYY) and those who didn't (Seattle, Houston), to have an owner that owns the majority of local TV rights to two MLB teams, to see pieces of articles mentioning the tremendous profitability of MASN, to see articles hinting at MASN's below-market fee structure, and to see the Os keep payroll under $100M into 2012, to see other small market teams bid over $20M for Chapman (Cincy), $3+M for Sano (Twins), $4+M for Inoa (Oakland), etc ......

I understand the Os have made the playoffs for two of the past three seasons. I understand many large free agent deals don't work and that many multi $M international prospects don't pan out, but the level of profitability and the lack of investment have reached points where I think it is appropriate to complain.

Bravo, well said.

[BradyBunch]

I think it's impossible for anyone not intimately acquainted with the cable industry to know whether MASN has been well-run or poorly run, and whether any difference between the rates it has been able to charge and the rates that some larger cable content provider (like FOX Sports) might be able to charge are the result of poor management, lack of market power due to other non-baseball offerings, or a million other reasons. In any event, it seems certain that MLB did not expect MASN to pay rights fees based on some hypothetical idea of what profits some other network might have made if they had the rights, as opposed to the profits actually earned by MASN. The RSDC (the Committee that made the arbitration decision) rightly rejected that idea, IMO. After all, the majority interest in MASN was intended to compensate the Orioles for sharing their rights to their broadcast market, and if rights fees were set so high that MASN was actually losing money, that would be no compensation at all, that would be a punishment.

Well it's a good thing my wife works for Time Warner and handled deals for local sports team in Columbus. :thumbsup1:

[Can_of_corn]

Well it's a good thing my wife works for Time Warner and handled deals for local sports team in Columbus. :thumbsup1:

That just means you are intimately acquainted with someone intimately acquainted.

[BradyBunch]

I am not saying the attached article from Feb 2014 - likely previously posted on OH - (as opposed to BradyBunch's 2005 article, assume provided for comic relief) is the definitive source, but it appears pretty clear to me that MASN is under-charging, perhaps severely so, for its services. It is just one article, but I really think those who have been defending PA/Os/MASN are throwing out a bunch of hooey.

MASN is massively profitable for its owners, is under-charging for its services which in turn should be throwing much more $ off to the Os and Nats, and this under-charging hurts the Os (and Nats) competitiveness.

First... the 2005 Article is the time when the Orioles/MASN signed their broadcasting deal with Comcast.

Second... of course MASN is undercharging compared to current deals signed by teams. MASN agreements (contract) with Comcast and others sit at about $2.14 per subscriber but MASN can't change the contract tomorrow to charge $5 either. So MASN has to wait for the renew period. You know just like those other teams had to wait for their deals to end. Those team deals just signed don't get renewed for another 20 plus years.

So you are complaining about something MASN, Orioles and Gnats can't change right now. They are locked into a contract with Cable providers at a certain rate for a certain period for carriage. Just like the Reds are locked into a $30m a year until 2016 or the Twins are locked into a $29m with Fox Sports for almost ever. Then you have really ****ty deals.. you know Cards getting $14m a year until 2017, Royals less then $20m until 2019 and Pirates getting $18m until 2019.

Its about when you signed your deal. Dodgers, Angels, Yankees, Rangers, Astros, and Padres all signed their deals within the last 5 years. When the MASN signs a new deal with cable providers the fees will be much higher.

[BradyBunch]

That just means you are intimately acquainted with someone intimately acquainted.

Ha! Well Dinner and pillow talks are interesting.

[Can_of_corn]

First... the 2005 Article is the time when the Orioles/MASN signed their broadcasting deal with Comcast.

Second... of course MASN is undercharging compared to current deals signed by teams. MASN agreements (contract) with Comcast and others sit at about $2.14 per subscriber but MASN can't change the contract tomorrow to charge $5 either. So MASN has to wait for the renew period. You know just like those other teams had to wait for their deals to end. Those team deals just signed don't get renewed for another 20 plus years.

So you are complaining about something MASN, Orioles and Gnats can't change right now. They are locked into a contract with Cable providers at a certain rate for a certain period for carriage. Just like the Reds are locked into a $30m a year until 2016 or the Twins are locked into a $29m with Fox Sports for almost ever. Then you have really ****ty deals.. you know Cards getting $14m a year until 2017, Royals less then $20m until 2019 and Pirates getting $18m until 2019.

Its about when you signed your deal. Dodgers, Angels, Yankees, Rangers, Astros, and Padres all signed their deals within the last 5 years. When the MASN signs a new deal with cable providers the fees will be much higher.

Of course by then a la carte cable might be a reality and all of the TV deals will be in jeopardy.

[weams]

Of course by then a la carte cable might be a reality and all of the TV deals will be in jeopardy.

A very real possibility. It will be an interesting decade for baseball.

[hoosiers]

Its about when you signed your deal. Dodgers, Angels, Yankees, Rangers, Astros, and Padres all signed their deals within the last 5 years. When the MASN signs a new deal with cable providers the fees will be much higher.

I guess one person's bad timing is another's bad deal. Here's a few questions for you regarding how MASN/Os lawyers have handled this:

Why did the agreement with the Nats include a "re-set" provision BEFORE the carriage rates were "re-set"? Wouldn't a prudent business person have them reset at the same time? Why would someone allow for the possibility that the cost side of the business could increase dramatically with no chance to increase revenues?

On the revenue side, if the reset provision between the Os/Nats and MASN was so great, why wasn't a similar provision included between MASN/Comcast? Or at least some provision that set a floor to the rates relative to market value after an annual or bi-annual independent appraisal of the market value of the cable rates? Or an escape clause for when carriage rates fall below a certain % of market value? As the carriage rates have played out, the Os gave away tremendous upside to Comcast and did not contractually safeguard against this possibility. I understand the need for these carriage rates to provide cost certainty on one hand, but there should be safeguards in case the carriage rates fall way out of line with market rates especially in long term deals.

Why wasn't there a cap on the "re-set" provision for local tv rights to prevent against costs exceeding revenues? If the carriage rate for 2012 was known at the time the deal was set up, why wasn't the total local TV rights to be split by the Os and Nats capped? Isn't this just common sense? How easy is it to add a provision that says, "Under no circumstances are local TV rights fees to be paid to the Os/Nats that would cause Total Costs to exceed Revenue. Local TV rights are to be capped at the lower of a) Revenue Less Programming Costs Less Appropriate Margin or b) market rates."

If the Os are so adamant now in court filings about appropriate margins for MASN, why wasn't a minimum margin or margin range included in the contract?

Timing may be a reason why MASN revenues are not market based, but the largest portion of responsibility for this entire fiasco is on the business people and lawyers who drew up these agreements. They are bad agreements.

[weams]

But MASN's filings make clear that they believe that any deviation from Bortz is a violation of the contract. At the time the deal was signed the Bortz formula was the established methodology and had been used in similar contracts.

My guess is that the Nats lawyers held out for "established methodology" rather than "Bortz" because they hoped that there would be a different methodology used down the road, while the MASN lawyers (Angelos) believed that "established methodology" would be interpreted by the courts as meaning Bortz only.

I think some folks want this to be simple. Or just Orioles are bad people. I think that if you are a fan of the Orioles as a franchise you have to take what is here, and hope for a resolution that promotes the punitive stance of the original agreement.