Once again, we put Ted Leonsis into our headlines yesterday as he is still the clear frontrunner to buy the Washington Nationals if the team is sold. Leonsis heads Monumental Sports & Entertainment that owns the Wizards and Capitals as well as the largest local sports TV network (NBC Sports Washington).
Source: The Leonsis side is making some positive progress in their hopes to purchase the Washington Nationals. Notable obstacle is MASN. Final obstacle is agreeing on a price that works for Lerners and for Leonis and partners.
— Talk Nats ⚾ (@TalkNats) November 9, 2022
From what we understand, of the Monumental business model, is that they are led by Leonsis as the managing partner, and he has 19 other partners that includes a name familiar to everyone here: Nats principal owner Mark Lerner. The other 19 partners are some of the wealthiest people in the world. Currently, the oft-mentioned David Rubenstein is not listed as a Monumental partner. Besides Lerner, the other partners are David Blair, Scott Brickman, Neil D. Cohen, Jack Davies, Richard D. Fairbank, Raul Fernandez, Michelle DiFebo Freeman, Laurene Powell Jobs, Sheila Johnson, Richard Kay’s estate, Jeong H. Kim, Roger Mody, Anthony Nader, Dick Patrick, Fredrick D. Schaufeld, Jeff Skoll, Earl W. Stafford, George P. Stamas, and Cliff White. Some names you know, and others you will have to Google. Of note, Kay passed away two years ago. What they all have in common is that they are mega-rich. Some say Jobs is the wealthiest of them all and 127th on the billionaire’s list.
If Monumental’s business structure works like most closely held groups like this — when they want to make a new purchase, they can do it by debt financing to keep everyone’s ownership level the same, or make a capital call, a combination of the two, or they bring in new capital through new partners like Rubenstein to infuse more cash into the group. When you do the new partner route, it dilutes the ownership interests if the other partners do not add in more capital. But if each current partner does not invest any more money into the deal, they would still own the same asset value of a larger pie if the Nationals were folded in. Owning 3 percent of a $10 billion asset is the same value as owning 2.4 percent of a $12.5 billion asset. That ownership interest is still worth $300 million in both scenarios. What we don’t know is how much Leonsis, Lerner, or Rubenstein would own of Monumental.
Monumental owns teams, arenas, and NBC Sports Washington. It is an impressive portfolio. Because cash is easier to raise to buy a new team by just adding new partner(s), there would be no reason to sell the Wizards just to raise cash. By keeping debt off the books, there is no interest expense or the typical cashflow issues that other teams have.
This is very similar to the set-up of other groups out there like Fenway Sports Group. The only difference hanging over the Nats purchase is MASN. No other major sports franchise has a geographical business competitor that owns the majority of their TV rights like the Nats have with the Orioles. That control has been acrimonious with multiple lawsuits that spilled into the public.
Because the lawsuit’s documents became public, we know a lot about MASN and it’s structure. In 2023, MASN will be owned 24 percent by the Nationals and 76 percent by the Orioles. In 2032, the partnership will set at a final 33 percent to the Nationals and 67 percent to the Orioles unless the two sides workout a way to buyout of this. The following is an actual snapshot of Section 21 of the MASN agreement which gives the partnership and profit percentages:
In just 2015 based on MASN’s reported $60 million profit filed in the lawsuit, the Nats share was just $9.6 million while the Orioles pocketed $50,400,000 that year. There is a reason why we called MASN the Rubik’s Cube in this debacle back in September. Remember, the Nats still have to contractually be paid “fair market value” for their annual rights fees and that is what is the basis for the ongoing lawsuit in defining fair market value. Last we saw it was about $66 million in 2016, and that is far below what the Texas Rangers were getting back in 2010 or the Phillies get today. It has led to an EXTREME competitive disadvantage for the Nats, and the reason the Phillies started spending “stupid” money to acquire free agents. Normally you determine FMV by the value someone is willing to pay for something. In this case, you compare yourself to teams of similar market size.
Since the Nationals will own 24 percent of all of MASN next year, a buyout valuation is very complicated. We can apply a classic private company valuation method for non-capital expenditure heavy businesses and those without extraordinary growth prospects: Earnings Before Interest, Taxes, & Depreciation (EBITDA) times a market multiple. What is MASN’s EBITDA? Some on this blog have generously hypothesized about $30M, and keep in mind that MASN argued in court that they do not even think they can make a profit if they paid an annual rights fee that the Nationals were looking for.
After agreeing on the EBITDA, we now have to find a market multiple. We understand that the multiple for sale of the Fox RSNs was 6x (2019). The crown jewel of RSNs, the YES Network, went for 8.4x (2019). We read that one analyst indicated his 2019 thinking that 4.8 to 6.3 may make sense. More currently, we read a Sep 2022 Forbes piece that noted multiple RSNs are barely breaking even.
But okay, what if we generously assume an EBITDA for MASN of $30M and use an EBITDA multiple of say 7x. This would result in an enterprise value (ie, Debt + Equity) of ~$210M. To get to equity value, we would then look to extraordinary adjustments and then subtract any long-term debt on the MASN books. We would consider monies owed to the Nats as an extraordinary adjustment — really a debt equivalent. The Nats are owed $100 million per the courts award two years ago, and that money is in escrow. Okay, so ~$210M less $ owed to the Nats, less any debt on the books, and you get equity value using this classic valuation method.
But MASN is such a mess, one also should consider a fresh-start valuation – as if there were no MASN and the Nats were to set-up their own RSN. And here one could roll-in the news we read that “MLB clubs were invited to choose up to three foreign markets where they’d like new commercial rights. Revenue generated there will be treated like revenue generated locally.”
Finally, to extricate themselves from the existing MASN deal, the Nats’ side must negotiate against a counterparty themselves in turmoil and known to be very difficult.
The other angle in all of this is when the Orioles might be sold and if that is tied to the estate planning of their patriarch, Peter Angelos. The Angelos brothers have been battling it out in the courts, and their mother is choosing sides per reports. All of this is happening while the patriarch of the family is in failing health per reports.
Georgia Kousouris Angelos has worked directly with the Moore & Van Allen law firm to ensure that the family’s estate planning and the “Orioles near and long-term strategic plans are well put together.”
Ryan Clary at the Locked ōn Nationals pod went off about MASN today. He didn’t yell or scream, but I liked his points.
What has been clear to every potential buyer of the Nats is that MASN is a major issue as well as an obstacle to being as fiscally successful as you want this team to be. But this is also about being on an equal footing with your competition that has free reign of their regional TV rights. The Nats have to rely on attendance and corporate partnership more than the other teams. So when attendance is down, this team is going to suffer financially until MASN is solved.
All of this of course segues into the ownership spending and budgetary constraints in this crucial offseason as free agency opens up. The General Manager’s meetings at Resorts World in Las Vegas wraps up today. By 5 pm, all teams must add back 60-day IL players back to their roster, and that will mean the Nationals must take at least one player off the roster to add back the group of six players on the 60-day IL to get the 40-man roster at or under 40 players. Depending on how you look at it, there is no shortage of underperforming players who can be DFA’d.
Last night, general manager Mike Rizzo held a brief press conference with the media. Here are some of his comments:
“We’ve been told to do business as usual. … What has changed is the uncertainty of what’s the final payroll going to look like — and what’s the ownership group going to look like down the road?” Rizzo said to the assembled media.
“As far as coming here, and coming to the Winter Meetings, we’re going as we always have with the Lerners as ownership, trying to just do what we can do to move this process along.”
“At this point, there’s not a whole lot of challenges [to not having a budget]. But there will be a time where we’ll need some clarity to make some finite, concrete decisions.”
“I think we’re going to do deals that make sense for us. That means the age of the free agent or the age of the trade candidate would come into play, and where he would fit into our timeline of when we’re going to win again. Those things all come into play. We’re not taking anything off the table … We’re going to be as diligent and aggressive as it makes sense.”
You can certainly read between the lines there. Free agency and trades are on the table. There is no budget at this point which means any player that Rizzo wants in free agency or via the trade market, or even in a waiver claim, he will most likely have to get the approval from ownership to sign for now depending on the salary.
“I think that we’ve been pretty outspoken about the need for [starting] pitching,” Rizzo said. “Our starters were last in the league last year in ERA — that has to improve. We feel that we have some really good young starters that are going to take the next step —hopefully all of them at the big league level — sometime during the  season. But you never can have enough starting pitching. That’s going to be a point of emphasis for us.”
Also, Rizzo reiterated what his manager Dave Martinez has been saying about getting some starting pitching help and one big bat. The new clarity we got was that Rizzo won’t limit himself to just looking at leftfielders, he will consider that big bat to also come from a first baseman, DH, and even a third baseman.
“I think the most impactful offensive player [is who] we will be looking for,” Rizzo said. “We’ve got a handful of positions that are more or less settled going into the season, but believe me … we’ve got enough positional flexibility to add a bat at several spots.”
So free agency will open up for all teams to start negotiating with players in the first full day tomorrow, and we will see if the Nats are early buyers this year since they most likely will not be buying from the top of the free agent pool. This is a deep market in the middle of free agency with players projected in the $8 to $15 million a year range. That seems to be the aisle of the store that Rizzo will be shopping in kind of like last year when he signed Nelson Cruz at $15 million. At least we certainly hope Rizzo is shopping there and not on the bargain aisle.