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

[Can_of_corn]

If no back fees paid then this may never get resolved because Team Angelos knows just to keep this in litigation. Papers have probably been drafted for the lawsuit for 2017-2021. Maybe Baltimore will get the 2022 All Star Game.

Maybe sooner if the discovery process causes the new commissioner to resign.

[Frobby]

This was supposed to be a reset for 2012-2016. Will it get resolved before the contract calls for the next reset period? That's a half-serious question given how long this has taken. Will the Orioles owe the Nationals for back fees not paid in 2012-14?

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.

[weams]

Maybe sooner if the discovery process causes the new commissioner to resign.

I suspect that may be the outcome anyway.

[weams]

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.

[hoosiers]

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.

[TonySoprano]

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.

[Frobby]

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.

[weams]

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.

[weams]

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.

[Frobby]

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.

[hoosiers]

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.

[hoosiers]

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.

[Frobby]

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.

[Frobby]

My point is simply that the price the Lerners paid MLB for the Nats no doubt reflected the fact that they'd be getting the low rights fees for the first five years. If the fees had been $100 mm more over the five years, the Lerners would have had to bid $100 mm more to buy the team. It's MLB that really bore the burden of the low rights fees, because it impacted the sale price of the team accordingly.

[Frobby]

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.

Good lawyers look for a win-win, IMO. On a macro level here, MLB got its team in DC, the Orioles got a share of TV revenue that the Nats are generating and don't have to compete with the Nats for the TV market. In broad terms, I'd call that win-win. I think you look at the first five years as a "buy in," just like a junior partner in a law firm doesn't make what the more senior partners make. Now they should be on a more level playing field, which is what the RSDC has done. It will always be skewed a bit in the Orioles' favor, but both teams benefit if the market grows.