MASN dispute update

[OFFNY]

On 5/6/2019 at 7:57 AM, Aglets said:

 

Ugh, the Blue Jays have their own COUNTRY??!?!?!!

How are we possibly supposed to compete with that ........  ) 

 

 

 

On 5/6/2019 at 10:21 AM, DrungoHazewood said:

 

Expansion teams in Montreal, Winnipeg, Vancouver, and Halifax.

 

o

 

That sounds like quite a drastic solution, and frankly, very unrealistic. I don't think that the American public would stand for something like that. I believe that a military invasion of that pesky sovereign nation that is hovering above the United States would be much more prudent.

 

o

[Can_of_corn]

Just now, OFFNY said:

 

 

o

 

That sounds like quite a drastic solution, and frankly, very unrealistic. I don't think that the American public would stand for something like that. I believe that a military invasion of that pesky sovereign nation that is hovering above the United States would be much more prudent.

 

o

We've tried that twice and lost both times.

[OFFNY]

On 5/6/2019 at 7:57 AM, Aglets said:

 

Ugh, the Blue Jays have their own COUNTRY??!?!?!!

How are we possibly supposed to compete with that ........  ) 

 

 

 

On 5/6/2019 at 10:21 AM, DrungoHazewood said:

 

Expansion teams in Montreal, Winnipeg, Vancouver, and Halifax.

 

 

 

6 minutes ago, OFFNY said:

o

 

That sounds like quite a drastic solution, and frankly, very unrealistic. I don't think that the American public would stand for something like that. I believe that a military invasion of that pesky sovereign nation that is hovering above the United States would be much more prudent.

 

o

 

 

5 minutes ago, Can_of_corn said:

 

We've tried that twice, and lost both times.

 

o

 

If at first you don't succeed, try, try again.

 

o

[VaBird1]

On 5/6/2019 at 8:03 PM, tntoriole said:

A lot of Virginia. particularly near the Western MD border and all the way down the Shenandoah and sw Virginia are many more Oriole fans...not Nationals.  And Norfolk area with AAA Orioles have more Oriole fans...If Charlotte ever gets an expansion, Nats will get whacked. 

Even the inner suburbs still have a lot of Orioles fans.  The TV ratings for the different areas with MASN would be interesting to see.

[TradeAngelos]

The Angelos family just lies lies and then lies some more. Tries to pilfer money from anywhere and everywhere humanly possible. The Nationals. Oriole fans....anyone who is dumb enough to believe the bill of goods they are selling. Plenty around here that is for sure. i can't wait til 2022 rolls around when they have pocketed another cool 300mm after 3 years of a 60m payroll, and then cries poor again (and again and again) when people start asking where that money went. (oh right "scouting and development", I forgot). 

https://www.hollywoodreporter.com/thr-esq/a-300-million-arbitration-ruling-gives-inside-look-at-cost-televising-baseball-games-1210628?utm_source=twitter&utm_medium=social&utm_source=t.co&utm_medium=referral

Quote

 

In short, MLB executives have decided that for a young regional sports network like MASN, it should be willing to allocate nearly all advertising income to secure valuable game rights.

Nevertheless, the Nationals wanted to go even further. This team favored an analysis that put weight on what other teams throughout professional baseball were getting in their own TV contracts. The team put forward the New York Yankees, the Los Angeles Dodgers and Angels, the Texas Rangers, the Houston Astros, and the Philadelphia Phillies as "comparables" in its bid for a $110 million-per-year license. Even if four teams outside the top-10 market — the San Diego Padres, the Cleveland Indians, the Seattle Mariners, and Arizona Diamondbacks — were used as the benchmark, that still produced an average license fee of more than $128 million per year.

The arbitrators didn't 100 buy into everything the Nationals put forward. They weren't satisfied with the way the Nationals were backwards adjusting numbers to fit the time frame and agreed with the Orioles that the Nationals' sample of teams' TV deals was "selective." 

But pointing to the distinguishing feature how the Orioles and Nationals share a geographic region, the arbitrators identified the Yankees/Mets, White Sox/Cubs, and Giants/Athletics as the correct points of comparison, and after adjusting everything to further fit the regional context, they came to some results. 

States the decision, "Because the Committee’s two numerical analyses yielded such similar results, the Committee finds that the most appropriate measure of fair market value is the average of the two—the license fees produced by its bottom-up analysis and its comparable teams analysis, which yield the following license fees..."

Hence, the decision worth $59.4 million a year, or collectively nearly $300 million.

What now?

 

Just how valuable and profitable are regional sports networks these days? 

https://www.washingtonpost.com/sports/2019/05/14/masn-owes-nationals-about-million-mlb-panel-rules/?utm_term=.d2f4c6cb20b4

Quote

The Nationals argue for a methodology based more closely on the market value of MLB television rights fees, which have escalated in recent years. The Philadelphia Phillies, for example, signed a 25-year, $2.5 billion deal in 2014.

Maybe one day MASN will turn a profit to pay all the money it owes to people......including the fans. But hey I guess they are just trying to keep the lights on these days.

[atomic]

Shouldnt have the exact formula for rights fees have been included in the original deal?  Paying fair market value to the Nationals broadcast rights seems to be of no benefit to the Orioles.  I am not sure why the Orioles didnt spend more time negotiating original contract.

[Frobby]

For anyone with the patience, here is a link to the 54-page RSDC decision:   https://www.documentcloud.org/documents/6003588-MASN-Arbitration-Decision.html

I’ve read it once over, and will put together a short summary later.   It suffices to say that while the result was similar to before, the rationale for getting there was different and much more detailed than the last decision.   This has some ramifications for how the calculations will be done for future rights periods, and at first blush, I think this decision will be more helpful to the Orioles in future periods than the previous decision would have been.    But the O’s definitely aren’t getting everything they wanted, now or later.    And I don’t think this decision will get overturned.    

[Frobby]

2 hours ago, atomic said:

Shouldnt have the exact formula for rights fees have been included in the original deal?  Paying fair market value to the Nationals broadcast rights seems to be of no benefit to the Orioles.  I am not sure why the Orioles didnt spend more time negotiating original contract.

Short answer is, they tried.   They only had so much leverage.   

[AnythingO's]

11 minutes ago, Frobby said:

Short answer is, they tried.   They only had so much leverage.   

So in a nutshell, this decision says about 60 M per year in rights to Nats so we owe them an extra 100 M for the 5 years. Then masn was paying 40 M in rights already. And the Nats share of profits would be reduced about 30 M  or about 6 M per year. So if the Nats share is about 20% of profit now that would mean Orioles MLP share of profits drops 24 M but rights increase 20 M. If that's right it doesn't sound too catastrophic.

[spiritof66]

2 hours ago, Frobby said:

For anyone with the patience, here is a link to the 54-page RSDC decision:   https://www.documentcloud.org/documents/6003588-MASN-Arbitration-Decision.html

I’ve read it once over, and will put together a short summary later.   It suffices to say that while the result was similar to before, the rationale for getting there was different and much more detailed than the last decision.   This has some ramifications for how the calculations will be done for future rights periods, and at first blush, I think this decision will be more helpful to the Orioles in future periods than the previous decision would have been.    But the O’s definitely aren’t getting everything they wanted, now or later.    And I don’t think this decision will get overturned.    

Thanks for sending. Unless the Orioles have some strong gripe about the arbitration process that was followed, this decision is not going to be subject to a serious challenge by MASN or the Orioles.

 

44 minutes ago, AnythingO's said:

So in a nutshell, this decision says about 60 M per year in rights to Nats so we owe them an extra 100 M for the 5 years. Then masn was paying 40 M in rights already. And the Nats share of profits would be reduced about 30 M  or about 6 M per year. So if the Nats share is about 20% of profit now that would mean Orioles MLP share of profits drops 24 M but rights increase 20 M. If that's right it doesn't sound too catastrophic.

I've run the numbers a little more precisely and get the total spread between the Orioles' position and this decision as about $29.7 million over the five-year period, a bit higher than your $20 million. The Orioles have gotten (and continue to get) some value back by withholding payment of that spread for years without having to pay any interest on it.

[Frobby]

Here is a brief summary of the new RSDC decision, and how it compares with the old one. 

In the old decision, the RSDC rejected the idea that they were bound to use the so-called Bortz Methodology, and also rejected the Nats' proposal that they use comps to other teams' deals.    They ended up using a methodology very similar to Bortz, but decided only a 5% profit margin was appropriate, instead of 20% commonly used in previous Bortz calculations.   They did not really question the revenue/profit projections used by MASN, though they believed them to be conservative.   Using that methodology, they came up with rights fees that were increasing every year, starting at $53.2 mm in 2012 and increasing to $66.67 mm by 2016, and averaging $59.6 mm over the period.

In the new decision, the RSDC again rejected the idea that they were bound to use the Bortz Methodology, but concluded that they were bound to use the same methodology as for other clubs at the time that the rights fee award was being determined.    This contrasts with the MASN position, which was that the "established methodology" in 2005 when the deal was made was the Bortz Methodology and that method was locked in permanently.    The RSDC concluded that the established methodology as of 2012 was to look at both the Bortz Methodology and comparable deals.

The RSDC then took issue with how MASN had applied the Bortz Methodology, in two respects.    First, the RSDC found that a start-up RSN would not expect a 20% profit margin, so they used a method that started at 0% in the first year and ramped up 5% per year until reaching 20% in year 5.   That is very favorable to MASN in future rights fee awards, because they are no longer a start-up so 20% is likely to be the standard in the future.   Second, the RSDC found that MASN has improperly allocated certain revenues and expenses as between baseball programming and other programming, and made adjustments it deemed appropriate.    Doing all this resulted in decreasing rights fees over the five year period, starting at $62.7 mm in 2012 and decreasing to $57.5 mm in 2016, averaging $61.9 mm.

Next, the RSDC did a second analysis using comparable deals.   Without getting into too much detail, the RSDC found that some of the markets proposed by the Nats weren't comparable to the O's/Nats market, and tossed them out of the pool.   Second, they found various errors in the way the Nats had adjusted the remaining comps to fit the facts relating to the O's/Nats market.    After doing all this, the RSDC concluded the comp methodology would yield rights fees beginning at $47.1 mm in 2012 and increasing to $67.2 mm in 2016, for an average of $56.9 mm.

Rather than choosing one set of figures or the other, the RSDC decided that because the numbers were close either way, they would simply take the average of the two sets of figures.    So the end result was rights fees beginning at $54.9 mm in 2012, and increasing to $62.4 mm by 2016, for an average of $59.4 mm.    

The end result of $59.4 mm/yr average for the five year period is almost identical to the $59.6 mm decided last time, though the methodology is very different.   Probably most significantly, the amount by which rights fees are increasing each year under the new RSDC decision is much slower, and that could lead to future rights fees decisions for 2017-21 and beyond to be more favorable to MASN (and therefore, the Orioles) than they would have been under the rationale of the old RSDC decision.    However, that is not guaranteed, because (1) the RSDC has made clear that the "established methodology" can change in the future depending on what methodology is being used for other clubs' rights fees deals at the time, and (2) the data used for comparable deals may change over time depending on what further deals teams make.

So where does this go from here?    Unclear.   The Nats have filed a motion in the New York Supreme Court (which despite the name, is a trial-level court) to enforce the arbitration award.   MASN/Orioles are seeking to stay that proceeding, while they appeal to the New York Court of Appeals (the state's highest court) the previous decision of the intermediate appellate court that said the matter should go back to the RSDC rather than being heard by an independent arbitral body.   The Court of Appeals had declined to hear that appeal before, on the basis that the decision of the court below wasn't a final disposition of the case and thus the matter wasn't ripe for the Court of Appeals to hear.    I expect MASN/Orioles to argue that now that the RSDC has ruled, that's a final decision and the Court of Appeal can now hear the issue of whether the case should have been heard by the RSDC in the first place.   That seems to be to be a weak argument, and I think that the Court of Appeal will not hear the case now, but will require that any other challenges to the new decision be presented first to the trial court, and then to the intermediate court, before the Court of Appeals considers any final appeal.    But, this procedural skirmish about whether MASN/Orioles can have their appeal heard now may delay things in the trial court for a few months.   (I'd be interested in spiritof66's views on this since he's a NY lawyer and I'm not.)

In the big picture, I expect the new decision to stand up in court.   But, it could be another 1.5 - 3 years before we know.

[atomic]

8 minutes ago, Frobby said:

Here is a brief summary of the new RSDC decision, and how it compares with the old one. 

In the old decision, the RSDC rejected the idea that they were bound to use the so-called Bortz Methodology, and also rejected the Nats' proposal that they use comps to other teams' deals.    They ended up using a methodology very similar to Bortz, but decided only a 5% profit margin was appropriate, instead of 20% commonly used in previous Bortz calculations.   They did not really question the revenue/profit projections used by MASN, though they believed them to be conservative.   Using that methodology, they came up with rights fees that were increasing every year, starting at $53.2 mm in 2012 and increasing to $66.6 mm by 2016, and averaging $59.6 mm over the period.

In the new decision, the RSDC again rejected the idea that they were bound to use the Bortz Methodology, but concluded that they were bound to use the same methodology as for other clubs at the time that the rights fee award was being determined.    This contrasts with the MASN position, which was that the "established methodology" in 2005 when the deal was made was the Bortz Methodology and that method was locked in permanently.    The RSDC concluded that the established methodology as of 2012 was to look at both the Bortz Methodology and comparable deals.

The RSDC then took issue with how MASN had applied the Bortz Methodology, in two respects.    First, the RSDC found that a start-up RSN would not expect a 20% profit margin, so they used a method that started at 0% in the first year and ramped up 5% per year until reaching 20% in year 5.   That is very favorable to MASN in future rights fee awards, because they are no longer a start-up so 20% is likely to be the standard in the future.   Second, the RSDC found that MASN has improperly allocated certain revenues and expenses as between baseball programming and other programming, and made adjustments it deemed appropriate.    Doing all this resulted in decreasing rights fees over the five year period, starting at $62.7 mm in 2012 and decreasing to $57.5 mm in 2016, averaging $61.9 mm.

Next, the RSDC did a second analysis using comparable deals.   Without getting into too much detail, the RSDC found that some of the markets proposed by the Nats weren't comparable to the O's/Nats market, and tossed them out of the pool.   Second, they found various errors in the way the Nats had adjusted the remaining comps to fit the facts relating to the O's/Nats market.    After doing all this, the RSDC concluded the comp methodology would yield rights fees beginning at $47.1 mm in 2012 and increasing to $67.1 mm in 2016, for an average of $56.9 mm.

Rather than choosing one set of figures or the other, the RSDC decided that because the numbers were close either way, they would simply take the average of the two sets of figures.    So the end result was rights fees beginning at $54.9 mm in 2012, and increasing to $62.4 mm by 2016, for an average of $59.4 mm.    

The end result of $59.4 mm/yr average for the five year period is almost identical to the $59.6 mm decided last time, though the methodology is very different.   Probably most significantly, the amount by which rights fees are increasing each year under the new RSDC decision is much slower, and that could lead to future rights fees decisions for 2017-21 and beyond to be more favorable to MASN (and therefore, the Orioles) than they would have been under the rationale of the old RSDC decision.    However, that is not guaranteed, because (1) the RSDC has made clear that the "established methodology" can change in the future depending on what methodology is being used for other clubs' rights fees deals at the time, and (2) the data used for comparable deals may change over time depending on what further deals teams make.

So where does this go from here?    Unclear.   The Nats have filed a motion in the New York Supreme Court (which despite the name, is a trial-level court) to enforce the arbitration award.   MASN/Orioles are seeking to stay that proceeding, while they appeal to the New York Court of Appeals (the state's highest court) the previous decision of the intermediate appellate court that said the matter should go back to the RSDC rather than being heard by an independent arbitral body.   The Court of Appeals had declined to hear that appeal before, on the basis that the decision of the court below wasn't a final disposition of the case and thus the matter wasn't ripe for the Court of Appeals to hear.    I expect MASN/Orioles to argue that now that the RSDC has ruled, that's a final decision and the Court of Appeal can now hear the issue of whether the case should have been heard by the RSDC in the first place.   That seems to be to be a weak argument, and I think that the Court of Appeal will not hear the case now, but will require that any other challenges to the new decision be presented first to the trial court, and then to the intermediate court, before the Court of Appeals considers any final appeal.    But, this procedural skirmish about whether MASN/Orioles can have their appeal heard now may delay things in the trial court for a few months.   (I'd be interested in spiritof66's views on this since he's a NY lawyer and I'm not.)

In the big picture, I expect the new decision to stand up in court.   But, it could be another 1.5 - 3 years before we know.

Peter Angelos is 89 and Ted Lerner is 93.  Becoming likely neither one will ever find out the final decision in this case.  I am not sure why the US judicial system is so slow but these types of delays are ridiculous.  The Lago oilfield lawsuit began in 1993 and wasn't finally decided until 2018.  If you have enough money these types of lawsuits can go on forever. 

[Going Underground]

11 hours ago, AnythingO's said:

So in a nutshell, this decision says about 60 M per year in rights to Nats so we owe them an extra 100 M for the 5 years. Then masn was paying 40 M in rights already. And the Nats share of profits would be reduced about 30 M  or about 6 M per year. So if the Nats share is about 20% of profit now that would mean Orioles MLP share of profits drops 24 M but rights increase 20 M. If that's right it doesn't sound too catastrophic.

This is important about right fees from an old article. Unless revenue sharing has changed. The ownership is also less now by Angelos.

The problem with Angelos okaying more money being provided to the Orioles in broadcast rights fees is in his agreement with Major League Baseball. For every additional dollar he agrees to give the Orioles in broadcast rights fees, he must match it exactly for the Nationals (or, in this scenario, the other way around). A $1M increase in the rights fees paid to Baltimore really costs him $2M (assume that this is $1M from Angelos’ pocket and not $1M total; since he holds an 87% ownership stake in MASN, this equates to a $1.149M increase in rights fees paid to each team for an additional $2.298M in total outlay).

However, profit from MASN that isn’t paid to the team in broadcast fees is not subject to revenue sharing. This provision that benefits the small handful of teams that get their own RSN and provides clear incentive for the Orioles and for Peter Angelos: keep broadcast fees as low as possible. Where the Astros and Dodgers pay far more in this pocket of revenue sharing because their broadcast rights fees are higher, those teams wouldn’t have any money if it weren’t for broadcast fees. The Orioles, on the other hand, can take just a few dollars in broadcast dollars and keep the rest for themselves.

https://www.baltimoresportsandlife.com/ownership-economics/

 

[Frobby]

7 minutes ago, Going Underground said:

However, profit from MASN that isn’t paid to the team in broadcast fees is not subject to revenue sharing. This provision that benefits the small handful of teams that get their own RSN and provides clear incentive for the Orioles and for Peter Angelos: keep broadcast fees as low as possible.

The whole reason the RSDC exists is to control the ability of teams to avoid revenue sharing by setting rights fees for their captive RSN’s too low.    And here the Angelos family has two reasons to want to set rights fees low: (1) to avoid revenue sharing, and (2) to keep more of MASN’s revenue for themselves and the Orioles and give less to the Nats.    

[esmd]

Very educational stuff, thanks Frobby.  So let me ask this, and I guess this might be a hard question to answer as you probably don't have all the info to really give a good answer, but I'll ask it anyway.  Does the decision of the RSDC seem, on the face of it, fair to both the O's and Nationals, and does it seem to ensure the financial viability of both MASN and, by extension, the Orioles?