Thoughts on the 2017-21 arbitration award in the MASN case

[Frobby]

I’ve now had a chance to read the new arbitrators’ decision in the MASN case determining the rights fees for 2017-21.   The 49-page decision can be found here.

Althiugh the total amount of rights fees awarded for 2017-21 ($305 mm) are nearly the same as in 2012-16, that’s misleading.  The annual rights actually were a little higher, except that the fees for the short 2020 season were drastically reduced.  Here’s a summary of the issues raised by the parties and how the arbitrators ruled.  

1.  The Nats argued that calculations should be based on projections that would have been made before the 2017 season about what the 2017-21 MASN income was expected to be.  MASN argued that calculations should be based on MASN’s actual results from 2017-21, since the actual results are known now.  The arbitrators sided with the Nats, since the arbitration was supposed to occur before the 2017 season ever took place.  The fact that MASN was arguing to use the actual results tells you that MASN did worse in reality than would have been expected back in 2017, because that would lead to lower rights fees.  There were a few allusions in the decision to the fact that cord-cutting had hurt more than would have been been expected before 2017, even though the fact that cord-cutting would impact revenue was already known.

2.  The Nats argued that rights fees should allow MASN to have a profit margin of zero for 2017, increasing to 10% by 2021.  MASN argued that the profit margin should be 20% all five years (they also argued this the last time).  The panel gave MASN a bit more than half a loaf, deciding that profit margin should start at 12.5% and ramp up to 20%.

3.  The Nats argued that 100% of the fees paid by cable affiliates to MASN should be attributed to baseball programming, while MASN argued that 20% of the fees should be attributed to non-baseball programming.   The panel noted that the quality of MASN’s non-baseball programming is very inconsistent and that the network doesn’t really let the affiliates know what’s coming in advance.   The panel concluded that 94.6% of the affiliate fees should be attributed to baseball programming.

4.  The Nats wanted the panel to consider various comparable deals that were the subject of expert testimony the Nats submitted.  The panel rejected the comps and said they weren’t analogous to the Nats and Orioles’ situations.  The panel didn’t give the Nats’ expert on this any credence.

So overall, it’s a “split the baby” decision.   Now that this is done and each side has decided not to challenge the award in court, the parties can either reach an agreement or go to arbitration on the fees for 2022-26.  Given how fast this one moved after the final court challenges to the 2012-16 arbitration were resolved, there’s every reason to expect that the 2022-26 issues should be resolved during 2024.   

 

Edited December 15, 2023 by Frobby

[Billy F-Face3]

Frobby, you must be a fast reader.

Thanks for taking the time to fill us in on what you found out. I appreciate your insight & legal experience.

Glad to have this issue finally resolved.

[SteveA]

One thing worth noting that might be of interest moving forward.

For the past several years before this year, ACC football and basketball broadcasts were split between ESPN and it's other stations (ESPN2, ESPNU), the ACC Network (which is owned by ESPN but run by the ACC), and what was left over went on a mix of regional sports networks in various ACC markets, which included MASN, NESN, YES, Bally Sports and other regional networks.   So MASN had some ACC basketball and football.   MASN had at least one ACC football game each Saturday during football season and I believe about 2 ACC basketball games a week through the basketball season.

The new ACC TV set up as of this fall, for both football and basketball, has eliminated that last part.  The games that used to go tot he package of regional sports networks that included MASN are now on The CW (which for those who are unaware as the #5 over the air network with stations in most cities, behind CBS/NBC/ABC/Fox.  A distant #5).

So when you have the comments about how MASN's other programming was not very good and was hit or miss... the last few years, the ACC was probably one of their top non-baseball properties.   Probably THE top one   Better than some of the other leagues they show like the CAA, etc.   Certainly better than endless poker reruns and some of the other stuff they air.   They have now lost that, which means their non-baseball inventory has gotten even weaker moving forward.

When you look at the rights fees going up, the cord cutting phenomenon, RSNs around the country folding and now no longer having at least a major conference for NCAA football and basketball.... the future of MASN looks pretty grim.  

[waroriole]

6 hours ago, SteveA said:

One thing worth noting that might be of interest moving forward.

For the past several years before this year, ACC football and basketball broadcasts were split between ESPN and it's other stations (ESPN2, ESPNU), the ACC Network (which is owned by ESPN but run by the ACC), and what was left over went on a mix of regional sports networks in various ACC markets, which included MASN, NESN, YES, Bally Sports and other regional networks.   So MASN had some ACC basketball and football.   MASN had at least one ACC football game each Saturday during football season and I believe about 2 ACC basketball games a week through the basketball season.

The new ACC TV set up as of this fall, for both football and basketball, has eliminated that last part.  The games that used to go tot he package of regional sports networks that included MASN are now on The CW (which for those who are unaware as the #5 over the air network with stations in most cities, behind CBS/NBC/ABC/Fox.  A distant #5).

So when you have the comments about how MASN's other programming was not very good and was hit or miss... the last few years, the ACC was probably one of their top non-baseball properties.   Probably THE top one   Better than some of the other leagues they show like the CAA, etc.   Certainly better than endless poker reruns and some of the other stuff they air.   They have now lost that, which means their non-baseball inventory has gotten even weaker moving forward.

When you look at the rights fees going up, the cord cutting phenomenon, RSNs around the country folding and now no longer having at least a major conference for NCAA football and basketball.... the future of MASN looks pretty grim.  

I wonder if MLB will centralize the broadcasting process after Bally crashed and a few more could follow. Why do you need a whole channel devoted to a baseball team? Too many unnecessary costs. 

[One eyed Bird]

John Angelos wants to know if they will take an IOU, he is a little short on cash after spending big this offseason

[Frobby]

7 hours ago, SteveA said:

 

 

So when you have the comments about how MASN's other programming was not very good and was hit or miss... the last few years, the ACC was probably one of their top non-baseball properties.   Probably THE top one   Better than some of the other leagues they show like the CAA, etc. 

* * *

When you look at the rights fees going up, the cord cutting phenomenon, RSNs around the country folding and now no longer having at least a major conference for NCAA football and basketball.... the future of MASN looks pretty grim.  

1.  The RSDC made this very point, pointing out that MASN at times showed “Presbyterian College, Liberty University and Charleston Southern” and at other times showed “Georgia Tech, Duke and Syracuse.”

2.  The two advantages MASN has over other RSNs are (1) their rights fees are renegotiated every 5 years, whereas some of these RSNs entered into 10-20 year contracts before the effect of cord-cutting became apparent, and (2) the RSDC decisions plainly are intended to leave MASN with an operating profit once rights fees are paid.  So, if revenues drop, the rights fees will drop.  MASN should never go bankrupt, but the teams may see declining rights fees and profits paid to them as revenue shrinks, which isn’t good.  

[SilentJames]

All I want for christmas is a standalone streaming option that doesn't require me to use my Mother-in-law's comcast login. 

[Warehouse]

The next process should be less contentious, as the Nat’s increased equity share will change their incentives.  

For every incremental dollar of MASN profit, Nats will keep 25% (avg equity share from 2022-2026).

For every incremental dollar of combined rights fees, Nats will keep 27.7% (50% split reduced by 48% rev share pay-in net of 3.3% rev share payout).

In the 2027-2032 cycle, the O’s and Nats will be aligned in wanting to minimize rights fees to inflate profits, so this will look like a more typical RSDC process.

[DrungoHazewood]

16 hours ago, SilentJames said:

All I want for christmas is a standalone streaming option that doesn't require me to use my Mother-in-law's comcast login. 

And if we still have to do that, can someone at MASN figure out how to code a Roku app so that it doesn't weirdly resize the screen every couple innings so that half the video is off the frame and you have to exit and start over and then be forced to watch 2-3 minutes of commercials while the game is going on?

[bobmc]

3 hours ago, DrungoHazewood said:

And if we still have to do that, can someone at MASN figure out how to code a Roku app so that it doesn't weirdly resize the screen every couple innings so that half the video is off the frame and you have to exit and start over and then be forced to watch 2-3 minutes of commercials while the game is going on?

All I want for Christmas are my two front teef (back).  

[sportsfan8703]

I could see the new owner selling the naming rights of the stadium to help offset some of the money owed. 

[Osornot]

All the litigants probably spent more $$ on legal fees than any decision made (not based on any factual knowledge just cynicism). 

Frobby - I apologize that I have never had the patience, let alone expertise, to read through all of this.  Was there any breach of the original contract?