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

[TonySoprano]

They seem to be talking about the value of MASN, which is presumably tied to a multiple of profits, and not straight cash. As the RSDC decision currently stands, MASN will pay out about $200 million in additional rights fees for 2012-2016.

How does $200M reasonably explode to $800M? Again, some level of increase is expected under the contract.

[Nigel Tufnel]

How does $200M reasonably explode to $800M? Again, some level of increase is expected under the contract.

Like I said, $800 million is the lost value of MASN, and $200 million is the additional 2012-2016 rights fees beyond the expected levels of increase. Since the value is a multiple of profits, it should be obvious that the decrease in value would be bigger than the diminished profits.

[TonySoprano]

Like I said, $800 million is the lost value of MASN, and $200 million is the additional rights fees beyond the expected levels of increase. Makes sense that decreased value is bigger than the diminished profits.

How do they reasonably lose $800M by paying $200M more? What is the value of MASN then if this is an $800M loss? If they were talking about lifetime losing the Nats from MASN entirely, maybe but that's not what is being discussed. People accuse the Nats of throwing a pie-in-the-sky number out there when the Orioles are doing the same with $800M in losses all due to 4 years of rights fees.

[weams]

How do they reasonably lose $800M by paying $200M more? What is the value of MASN then if this is an $800M loss? If they were talking about lifetime losing the Nats from MASN entirely, maybe but that's not what is being discussed. People accuse the Nats of throwing a pie-in-the-sky number out there when the Orioles are doing the same with $800M in losses all due to 4 years of rights fees.

On this, I must agree with you.

[Frobby]

Explain to me how $800 million is reasonable or should I say, in the ballpark.

MASN says Bortz methodology calls for a 20% profit margin; the RSDC awarded 5%. Basically, you'd pay four times as much for a company with a 20% profit margin as you'd pay for one with a 5% margin.

[Nigel Tufnel]

How do they reasonably lose $800M by paying $200M more? What is the value of MASN then if this is an $800M loss? If they were talking about lifetime losing the Nats from MASN entirely, maybe but that's not what is being discussed. People accuse the Nats of throwing a pie-in-the-sky number out there when the Orioles are doing the same with $800M in losses all due to 4 years of rights fees.

A company is worth a multiple of its profits. If MASN needs to pay additional rights fees to the O's and Nats, their profits will drop, which means the value of the company will be lower. I don't know what assumptions the O's used to come up with the $800 million figure, but given that the RSDC decision was designed to decrease MASN's profit margins from 20% to 5%, I guess it could be reasonable.

[TonySoprano]

A company is worth a multiple of its profits. If MASN needs to pay additional rights fees to the O's and Nats, their profits will drop, which means the value of the company will be lower. I don't know what assumptions the O's used to come up with the $800 million figure, but given that the RSDC decision was designed to decrease MASN's profit margins from 20% to 5%, I guess it could be reasonable.

The value of the MASN would have to be multiples of $800M for a rights fee to do that level of damage. Rights fees over a four year period, which will be renegotiated in 2017 can not possibly inflict that much damage.

I can be way off base, but my feeling is that $800M figure is nothing but a very strong message being sent back to MLB or the Nationals or both? It's MASN's way of saying, "Do they know who they are messing with? I'll show them." This goes back to my point that it's not just the Nationals who some say are being unreasonable in their negotiating. It's mutual.

[Frobby]

How does $200M reasonably explode to $800M? Again, some level of increase is expected under the contract.

The decision only covers 2012-16, but it has clear ramifications for eternity. The MASN argument is that the "established methodology" calls for a 20% profit margin, and the RSDC says that's wrong and 5% is reasonable under the circumstances. They might change the 5% number in some future reset, but they sure as heck aren't going to automatically default to 20%, which is what MASN says they have to do. That has a huge impact on the value of the enterprise.

[Frobby]

The value of the MASN would have to be multiples of $800M for a rights fee to do that level of damage. Rights fees over a four year period, which will be renegotiated in 2017 can not possibly inflict that much damage.

I am not an investment banker, but I have litigated some cases about the valuation of companies during acquisitions. One very common method is, you look at the projected future profits of the enterprise, and pay some multiple of the expected annual profits. So, if you cut the annual profits by 75% (from a 20% profit margin to a 5% profit margin), you also cut the price someone is willing to pay for the enterprise by 75%. So, if the decision damaged the enterprise value by $800 mm, to me that implies the enterprise was worth about $1.07 bb before the decision, and lost 75% of its value. Personally, that sounds like a big stretch to me.

[BradyBunch]

I am not an investment banker, but I have litigated some cases about the valuation of companies during acquisitions. One very common method is, you look at the projected future profits of the enterprise, and pay some multiple of the expected annual profits. So, if you cut the annual profits by 75% (from a 20% profit margin to a 5% profit margin), you also cut the price someone is willing to pay for the enterprise by 75%. So, if the decision damaged the enterprise value by $800 mm, to me that implies the enterprise was worth about $1.07 bb before the decision, and lost 75% of its value. Personally, that sounds like a big stretch to me.

I was an investment banker in past life... so few things to keep in mind on MASN $800m number. Start value of MASN in 2005 is $750m when MLB bought 10% for $75m. Adjusted for inflation for MASN value in 2011 was $863.82. Today it's (2014) $906.88. So inflation adjusted before figuring in revenue streams and profits, MASN is close to $1b in value on paper due to MLB's purchase of 10%. So $800m number is not a stretch in any sense.

[BradyBunch]

I am not an investment banker, but I have litigated some cases about the valuation of companies during acquisitions. One very common method is, you look at the projected future profits of the enterprise, and pay some multiple of the expected annual profits. So, if you cut the annual profits by 75% (from a 20% profit margin to a 5% profit margin), you also cut the price someone is willing to pay for the enterprise by 75%. So, if the decision damaged the enterprise value by $800 mm, to me that implies the enterprise was worth about $1.07 bb before the decision, and lost 75% of its value. Personally, that sounds like a big stretch to me.

Here is another way to look at it.. At $800m, the O's are saying there is $53m in profit each year and using the standard multiple of 15.

[TonySoprano]

I was an investment banker in past life... so few things to keep in mind on MASN $800m number. Start value of MASN in 2005 is $750m when MLB bought 10% for $75m. Adjusted for inflation for MASN value in 2011 was $863.82. Today it's (2014) $906.88. So inflation adjusted before figuring in revenue streams and profits, MASN is close to $1b in value on paper due to MLB's purchase of 10%. So $800m number is not a stretch in any sense.

Help me understand. In terms of damages then, are the Orioles arguing that if they were to sell their $1B franchise, they could only get $200M because of this business over 4 years of rights fees?

[weams]

Help me understand. In terms of damages then, are the Orioles arguing that if they were to sell their $1B franchise, they could only get $200M because of this business over 4 years of rights fees?

I am confused with that.

[BradyBunch]

bb, I would have to understand the comps used to get to $40M as a 2012 start. I believe it is in the upper end of the range of the Os FMV comps presented to the RSDC. It would not surprise me if a quality analysis arrived at a low number like $40M for that period based on known comps, but I also don't think the RSDC numbers supporting a comp reset closer to $65M is improper either.

Comps are viewership, performance at the time. You could throw in ability to bring in ad revenue as well with 20% profit margin (industry standard).

I would also like to understand the comps used to get to the next reset at $65M. This hints the market will have increased by over 50% in those five years. And a 150% increase from 2012 to get to the 2022 numbers. IMO, these type of increases may fit nicely in a pattern of increases/resets, but the increases are of a nature that suggest the starting point is too low.

Doesn't mean a 50% increase in market but rather 2016 season numbers would be $52.3m a year and indicates a 6.5% increase over 2016 payout. The 2021 to 2022 increase would be a 25% increase year over year. Over that 10 year period from 2012 to 2022, that would equate to 3.15% market increase year over year during that period (basically population growth).

I do find it interesting for all the mocking that you have done previously in this thread that you offer up a 20 year deal at over $100M per year .... see your post 650 in this thread. Who are you and what have you done to BradyBunch? I would take your deal for the Nats given how much it guarantees the Os over the same time period, but I have doubts that it is fair market value for the Nats in 2012.

I mocked Nats asking for $80m plus as the start number over the next 20 years with lower increase rates. It's the upfront number that was wrong. The shared market right doesn't call for $80m plus right now, and doesn't call for $100m (which would have been breached in 2017 under Nats deal) until 2022.

Finally, getting back to the RSDC, I have been thinking at the numbers they provided for the comps. The Rangers and Astros deals were known at the time of the reset, but, help me here, they became effective in 2013 - so the committee discounted back to 2012? Why is this so improper?

Because the MASN comps were to reset in 2011 for the 2012 season. Rangers and Astro deals would have been signed after 2012 reset.

[TonySoprano]

I am confused with that.

Well, if there $800M in damages, it means his property has been devalued by that much.