On December 8th the Nationals filed a Stipulation and Proposed Order with the Supreme Court of the state of New York notifying the court that the Orioles have agreed to pay the remaining balance of the rights fees owed to the Nationals for the years of 2017-2021. By not protesting the second round of the rights fees five year resets the Orioles have effectively given up the case and agreed to live up to the terms of the original MASN contract.
The scene at the offices at Nationals Park last week.
However the victory came with some major caveats. First of all, this is far from the end of MASN, just the MASN court case, the Orioles still own a controlling 76% interest of the MASN TV rights. Second, the fees awarded to the Nats by the MLB panel (RSDC) are much lower than the team would have been paid on the open market. Third, the payment being made is for the difference between the prior payments made by MASN and the now determined rights fees, so not the reported $305 million, instead roughly $120 million is my estimate if MASN paid an amount equal to the previous five years. And finally, the Nats have been awarded no interest or legal fees, so this mess ended up being extremely costly for the team. But a win remains good news.
MASN Rights Fees Reset Round Two
Chelsea Janes was the first to report that the RSDC had completed setting the terms for the rights fees from 2017-2021. From a Dec. 3 article in the Post:
And in November, an MLB-appointed committee ruled the Orioles owe the Nationals an average of $60 million in rights fees annually for the period from 2017 to 2021. But there is still no certainty about the value of the rights going forward.Chelsea Janes
Then on December 14th, Daniel Wallach from The Athletic posted that the RSDC decision had been reached on Nov. 8, and that the Nationals had filed a Petition to Confirm Arbitration Award with the Supreme Court of New York asking the court to enforce the RSDC ruling.
The court had set a January date to hear from the Orioles, but that was not necessary as Wallach followed up with the confirmation that the Orioles had agreed to the terms as set by the RSDC.
WHEREAS, Respondents the Baltimore Orioles deny all of the factual and legal contentions in the Nationals’ petition and accompanying papers, except agree that the 2023 RSDC Decision should be confirmed; and NOW THEREFORE, the parties jointly stipulate and agree as follows: The 2023 RSDC Decision should be CONFIRMED.
Hilarious. The Orioles wanted to be clear that they disagreed with 100% of everything that the Nationals and the MLB RSDC had stated, but they had run out of arguments to avoid payment. Here is what the Orioles agreed to pay with the 2020 COVID adjustment:
The RSDC ruling is 50 pages long and not recommended reading, with lots of background information and references to prior baseball rights fees precedents. The big victory for the Nationals was that the panel agreed with a methodology of “prospectivity” where they primarily used data available in 2017 based on the terms of the contract that the fees be set prior to each reset period. The Os had wanted the RSDC to use an “income statement analysis” of actual profits, which would have resulted in lower fees due to increased cord cutting.
Both sides tried to get a little tricky with their evidence. The O’s tried to show that much of the MASN profits were from non-baseball programming and therefore not subject to fee payments to the Nationals. They submitted RSN data from other teams for comparison — but got called out by the Nats for omitting two that were operating with a negative profit margin. The O’s were also caught with a math error greatly inflating non-baseball profits. The RSDC replied to the Orioles that “an average of dubious data is itself dubious” when they tried to explain away the error. The Orioles tried to compare MASN to one of the premier regional sports networks (NESN), which is allowed to operate with a high non-baseball profit margin but got called out for broadcasting third rate college teams and soccer.
The RSDC ruling really destroyed the credibility of the Nationals expert Robert Thompson. Ouch.
Relying on the 2019 Award and Mr. Thompson’s testimony, the Nationals contend that an “RSN’s profits would often be zero, or even negative, after a right fee reset” because RSNs are “willing to pay a premium to secure” the rights to live sports programming, “even if it leads to a zero or negative margin in the early years of the new deal.”
Just as the Committee believes the Orioles/MASN lack a firm factual foundation for their operating margin assumption, the Committee concludes that the Nationals are lacking firm evidence supporting their proposed operating margins for baseball programming. Mr. Thompson relied on his experience in the industry for his operating margin assumptions, but he was unable to identify any RSN that actually had an operating margin of 0% in the first year of its rights fee agreement at any time around or during the 2017-2021 Period.
Similarly, Mr. Thompson had not “explored the average returns of RSNs over the last 15 years,” so he had no basis to conclude that MLB-only RSNs actually operate at margins “lower than the industry average.”. Further, Mr. Thompson admitted that he was unsure whether the factors he identified as impacting MASN’s negotiating posture actually negatively impacted MASN’s revenue.
While the Committee credits Mr. Thompson’s testimony in other respects, because of this dearth of factual foundation, his opinions with respect to appropriate operating margins verge on inadmissible ipse dixit or speculation.
Timeline of the MASN Case
- December 2004: In a Washington Post 0p-ed Marion Barry warns that the ballpark deal does not include broadcast rights, calling it a “hidden cost”
- March/April 2005: The existence of MASN is first made public. Coverage is limited and the Nats first ever win, with Brad Wilkerson hitting for the cycle, is never broadcast in the DC area.
- April 2012: The first RSDC panel meets to determine the fees for 2012-2016. Not much coverage as no one would have predicted an 11 year process to resolve the fees.
- June 2012: The sides are $70 million apart, MLB delays the announcement of the rights fees.
- June 2013: A year has passed, the sides remain far apart.
- June 2014: The MLB RSDC sets the rights fees at an average of $60 million per year.
- August 2014: The case goes from an internal MLB dispute into a New York courtroom. The judge rules that the Os can make the minimum payments and blocks the Nats from breaking the contract.
- May 2015: Testimony is presented in the first court hearings.
- October 2015: The first Talk Nats article on MASN includes the line: “This needs to be resolved quickly and in-time for the Nats Free Agency shopping.”
- November 2015: The Orioles win their appeal based on the Nationals using a law firm that had previously worked for MLB, a conflict of interest.
- May 2016 (two articles): The teams had been forced to return to mediation, which they report as fruitless, both sides file mud slinging motions with the court
- June 2016: The ugly case gets uglier as the Orioles take aim at MLB, claiming bias towards the Nats and insisting on an outside arbitration panel. MLB’s response is copied below.
- July 2017: The Nats win their case, forcing the Orioles back into MLB arbitration. This led to nearly six years of appeals, but this was the win.
- November 2018: The Nats have hired a new law firm and the case goes back to a new MLB RSDC panel
- April 2019: The Os halt profit sharing with the Nats while the case is pending.
- April 2019: The second RSDC ruling ended up being very close to the first, resulting in slightly lower fees.
- October 2020: MASN loses their appeal that MLB is too biased to determine fair fees as set in the contract. The Os subsequently escalated the appeal to the Supreme Court of New York. At this point the slow appeals court process gets slower due to the impact of Covid.
- February 2023: In a desperation move the Orioles have the city of Baltimore file a brief with the court that losing the MASN case will lead to the team no longer being viable in Baltimore.
- March 2023: The Supreme Court of New York hears testimony from both sides. The Orioles threaten to move the case to Maryland if they lose in New York.
- April 2023: The Nats win what would be the Orioles final appeal. The first MASN reset for fees from 2012-2016 is over.
- June 2023: The Orioles, having run out of options and stall tactics, pay the $105 million difference between the prior payments and the fees as determined by the second RSDC panel.
- November 2023: On 11/8 the RSDC sets the fees for the 2017-2021 reset at an average of $69.9 million per year, minus $45 million for 2020. On the same day the Nationals filed the ruling with the Supreme Court of NY to block a change in jurisdiction.
- December 2023: The Orioles confirm the decision by the RSDC, agreeing to pay the remaining balance.
MLB’s Attorney Responded to a Letter from MASN’s Attorney
What Comes Next
If all things stay the same, another MLB RSDC panel will meet in the near future to determine the rights fees for the 2022-2026 reset. These fees might take a step back based on the accelerated cord cutting. Having confirmed the prior reset it is unlikely that the Os will contest this next reset, so they will submit payment for the 2022 and 2023 seasons. Moving forward the Nats will receive the rights fees on an annual basis just like the other 29 teams.
The big questions now are whether the Orioles will be sold in the near future? Will MLB mandate an end to the control of the Orioles over the Nats broadcast rights as a condition for approving any new owner? What is the value of the Nats TV rights and will the Lerner family put up the cash to make the purchase? Will the sale of the Nats move forward now that the litigation has ceased? Will Ted Leonsis try to acquire both the Orioles and Nats TV rights under his Monumental Network?
An era of Nationals history has ended but too many questions still remain as the team heads into what is likely another rebuilding year.
I stand with Ed Cohen, rip up that contract