You have to wonder if Ted Lerner, the billionaire owner of the Nats, has finally had enough of being bullied by Angelos who he saw sign Chris Davis to a 7 year/$161 million deal, and raise the Orioles payroll to within $10 million of where the Nationals are currently at. Angelos cries poor and the Nats with their current cashflow are feeling poor.
MASN filed with the courts for a ruling to have the MASN arbitration hearings moved to an independent arbitrator which would change the original contract terms where any disputes would be settled by MLB’s RSDC panel of MLB owners.
The Nats countered with notice to the courts that they have complied with a change of counsel where they have retained the law firm of Quinn Emanuel Urquhart & Sullivan who specialize in Media and Entertainment and Sports Law. Quinn Emanuel Urquhart & Sullivan is known as one of the most expensive law firms by billable hours and retainers, and if you believe in “you get what you pay for” then the Nats should be in good hands with their new legal team.
Besides the Orioles signing Chris Davis, the baseball world saw what TV money can do when the Arizona Diamondbacks who landed a major Regional Sports Network deal signed Zack Greinke away from the Dodgers with a record baseball contract for 6 years at a total contract of $206,500,000. The annual amount of that deal before deferrals is $34.4 million per year! http://sports.yahoo.com/news/ap-source-zack-greinke-diamondbacks-reach-6-deal-015320122–mlb.html
You wonder how the Diamondbacks all of a sudden can pull this type of deal off and outbid both the Dodgers and the Giants. Simple, RSN (Regional Sports Network) money kicks in for the 2016 season under their new FOX deal they signed earlier in 2015. The deal believed to be worth $1.5 billion plus an equity share in the network over 20 years averages to over $75 million a year and some estimates believe with a profit share could be closer to $100 million a year.
Contrast that with the Nats MASN deal where the Nats are currently getting paid around $40 million a year versus the $66 million the arbitration panel originally awarded for 2016 and you try to do that math and something doesn’t add up.
It doesn’t add up because the D’Backs local TV market according to the newest Nielsen ratings is much smaller if we compare DC to Phoenix. DC has 32.17% more TV households! http://www.tvb.org/media/file/2015-2016-dma-ranks.pdf If we do some simple math taking that $75 million a year Arizona is set to get multiplied by 32.17% that would equate to $99.128 million a year the Nats should be getting using that very simple math. The Nats asked the MLB RSN arbitration panel for around $105 million annually and it is deals like the one Arizona got which proves out that $105 million a year isn’t crazy when you consider how transient Phoenix is during the summer as the snowbirds move back north.
Have you ever been to a Diamondbacks game? You can expect a conglomeration of fans for both the home team and visitors as well as fans with no allegiance to either team. Arizona’s home attendance was 25,680 per game in 2015 compared to 32,343 for the Nationals. Arizona ranked 23rd in the Majors in attendance compared to 11th for the Nats.
As we wrote on December 5th, 2015, “The RSN TV money is essential to competitive survival for the Nats. It’s also essential for signing Bryce Harper to a long-term contract.”
We used the words “competitive survival” and the Nats this past week used the words “competitive disadvantage”.
The Hollywood Reporter on January 22nd wrote this on the MASN dispute: http://www.hollywoodreporter.com/thr-esq/two-mlb-teams-locked-escalating-858400
Ed Cohen representing the Nationals ownership filed this affidavit with the court, and we have taken this from the Hollywood Reporter article:
“MASN’s underpayment of rights fees has already required the Nationals to fund payroll and other expenses from its own reserves, and further delay could require the Nationals to seek new financing,” says the team’s memorandum. “This is not only burdensome in its own right, but it places the Nationals at a competitive disadvantage to other baseball clubs, which typically receive fair market value from their regional sports networks for their telecast rights. Without this added income, the Nationals are handicapped in their ability to invest in efforts to improve the team. For instance, without this added and steady income, the Nationals cannot bring full economic confidence to investments in multi-year player contracts to keep up with the fierce competition for top players — especially when such control over finances is in the hands of a neighboring club.”
That’s not all.
“Delay also hamstrings the Nationals’ ability to invest in stadium and related improvements which would generate additional income and help keep the Nationals competitive,” the memo continues. “In other words, MASN’s refusal to pay the fair market value fees required under the contract forces the Nationals either to have to borrow more money to fund cash flow needs (which comes with its own costs) or to limit or to forego the sorts of investments the Nationals should be making to build the club’s business for the future.”
From 2 weeks ago, Jim Bowden tweeted this before the Orioles signed Chris Davis:
MASN now worth over 2B. Angelos gets 60% of Nats TV deal @60m..plus own rights fees…well over 200M…should be enuf to sign Davis/Cespedes
— Jim Bowden (@JimBowden_ESPN) January 15, 2016
That 60% figure quoted by Bowden is way off as it’s much larger. We know from court documents (pictured below) that in 2014 the Nats ownership interest was only 15% making the 2015 ownership interest 16% as the Nats ownership interest in MASN grows at 1% per year until they reach 33% ownership 17 years from now. For 2016, the Nats will own 17% of MASN. Bowden thinks MASN is worth over $2 billion. MASN’s fair market value is worth whatever somebody will pay for it and rumors have said that is well in excess of $1 billion.
While we were researching we found this filed by the Orioles side which is almost humorous the extent they have gone to try to make a point in going back almost 10 years before the RSN market exploded:
The mud slinging is getting good, and we all would love to learn more intimate details in documents filed with the courts such as financial and payroll reports. With Angelos and group as the majority shareholders, they make the operational decisions, and made Peter Angelos’ son John P. Angelos the President of MASN . As a 16% owner of MASN, the Nats are paying 16% of John P. Angelos income paid by MASN.
As we wrote on January 16th, “As Nats fans, we should be disgusted by the continued MASN saga. The fate of future signings depend on this MASN cashflow, and for anyone wanting to see Bryce Harper wearing the Nats Curly W for life, you better hope this gets resolved sooner than later in the Nationals favor. The Nats seem to be structuring most deals since Scherzer and as we saw with Daniel Murphy with cash deferrals as well as some of the proposed free agent deals like Jayson Heyward we heard had major cash deferrals as part of the proposal. This could support points we made last year that the Nats had a negative cashflow in 2015.”
“Television contracts play a major role in the sport’s finances, which for the Nationals prevents an obstacle. They suffered a major setback last month in their legal fight with MASN and the Baltimore Orioles over how much money they should receive in rights fees. Their television contract with the Orioles, put into place by Major League Baseball before the Lerners purchased the team, ensures they cannot reap profits from their rights fees as much as other teams in their situation could.
The fate of MASN and Harper are intertwined. It’s why Boras, in December 2014, attended one of the New York Supreme Court hearings in New York regarding MASN.”
The main 3 words in the MASN lawsuit is: FAIR MARKET VALUE
IRS code defines Fair market value. Fair market value (FMV) is the price that property would sell for on the open market. It is the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts.
One of our smart commentors suggested the Nats should go out on the open market and determine what a willing buyer would give as a price for a 5 year deal of broadcasting every Nationals game. The Nats could choose from Comcast, ROOT, Fox, and others. That price should determine Fair Market Value. Would you be surprised if that price was over $100 million a year?