In a two-part series on July 2 and July 6, the Sports Business Report at PressBoxonline.com analyzed the ongoing dispute between the Mid-Atlantic Sports Network and the Washington Nationals about the allocation of television rights fees from the regional sports network. PressBox has continued to monitor the situation and sources close to the negotiations say that the framework of a resolution has been assembled and is before the three-person ownership panel charged with ruling on the matter. That committee is composed of the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays.
At the Baseball Writers Association of America luncheon before the All-Star Game July 10, Major League Baseball commissioner Bud Selig said MLB employees were in the middle of intense discussions about the MASN-Nationals situation and he had sought a resolution to the situation a month ago.
Industry sources said debate between the two entities centered on the interpretation of a longstanding MLB television formula, which was part of the 2005 relocation settlement agreement between the league and the Orioles when MLB moved the Montreal Expos to Washington. That move infringed upon the Orioles' TV territory, as determined by MLB.
According to a source close to the negotiations, representatives from the Orioles, including principal owner Peter Angelos, returned from the All-Star Game feeling confident that MLB would adhere to the stipulations in the 2005 agreement. A source close to those 2005 dealings said the agreement specifically required the use of this formula, which MLB has used for more than 15 years when calculating rights fees.
The formula, which Bortz Media & Sports Group developed, factors into consideration the local market size, geography, network revenue and expenses and other relevant data to determine rights fees for clubs that have a stake in their TV partners. It has been used in determining TV rights fees for the likes of the Boston Red Sox, New York Yankees and Toronto Blue Jays.
Based on the parameters of Bortz's formula, the payment due to the Nationals is expected to fall roughly between $40 million and $42 million per year. This number includes the TV rights fees, as well as revenue from the club's equity stake in MASN. During the next five years, that number would increase to almost $60 million. The next re-set would correspond with the 2012 season, according to sources. The Nationals currently hold 13 percent equity in the regional sports network and will receive a percentage increase up to 33 percent during the next two decades.
This settlement amount would be a far cry from the number the Nationals' representatives think MASN owes the team. Chris Bevilacqua, founder and CEO of Bevilacqua Media Company, represents the Nationals in these negotiations with MASN. A message to him seeking comment about the proposed resolution was not returned.
A concern for MASN, according to sources, is whether the committee's findings about the application of the Bortz formula will now be accepted as the procedure for use in the future. If not, the network and Nationals could have to undergo another intense series of negotiations when the next re-set activates.
As part of the current TV agreement with MASN, the Nationals receive $29 million annually. But the deal that was negotiated between MLB and the Orioles entitles the Nationals to a re-set, or increase in rights fees, from the network every five years. MASN representatives argue that the Nationals should receive $35 million per year, a 20 percent increase from their current annual payment. The Nationals are arguing for a deal that would pay them in excess of $100 million each year. Because MASN did not secure the rights to all Nationals and Orioles games until 2007, that re-set kicked in this season instead of five years from the time the team arrived in the District of Columbia in 2005.
Washington has argued that the current open-market conditions in baseball should determine the rights fee, and not the pre-existing formula. A number of teams, including the Texas Rangers, Houston Astros and Los Angeles Angels, recently entered lucrative long-term network deals. MLB recently approved a deal between the San Diego Padres and Fox Sports Net to establish a regional sports network in San Diego County. The 20-year deal is reportedly worth an estimated $1.2 billion. As part of this arrangement, the Padres' annual fee is comparable to what the Nationals will receive during the course of the next five years.
Although the ownership panel reviewing the case may rule that the formula holds, an industry source said Selig could exercise creative ways to balance the equation to favor both clubs. Such items range from the allocation of the All-Star Game (the Orioles have applied to host the 2016 game) to excluding the Nationals from the list of clubs in the 15 largest markets that will no longer be allowed to receive revenue-sharing funds by the end of baseball's labor deal in 2016. Currently, the Nationals are among those 15 teams.
Ironically, the source involved with the negotiations said Angelos had always supported the idea that the
Nationals not be included on that list of teams that would lose revenue.
The arrangement MLB made with Angelos regarding MASN was included in the deal when the Lerner family purchased the team from MLB, meaning the family was aware of the TV situation before agreeing to buy the team.
Selig was asked about that 2005 deal during the Baseball Writers Association of America event and voiced no regrets.
"No, that was part of a process that was really complicated," he said. "You can second-guess anything in history ... but I can't second-guess that.
"We just have to work our way through this, and disputes between clubs are not uncommon. That's frankly why you have a commissioner. So I wouldn't say that. That was a deal that had to be worked out."
Angelos did not achieve the success he has today without being a smart, strategic businessman. When MLB infringed upon the Orioles' TV territory, he could have taken a lump sum fee from the league as restitution. Instead, Angelos saw the long-term value a regional sports network would have, the source close to the 2005 negotiations with MLB said, and is now simply protecting that investment.
According to a source with knowledge of the process, a final decision about the recommended amount is likely to be handed down at the owners' meetings in August.
Originally posted July 19, 2012 at PressBoxonline.com
Friday, July 27, 2012
Thursday, July 12, 2012
The Economic Battle Of The Beltways -- Part II
On July 2, my Sports Business Report at PressBoxonline.com took an initial look at the ongoing dispute between the Mid-Atlantic Sports Network and the Washington Nationals surrounding the allocation of television rights fees from the regional sports network.
According to industry sources, at the center of the debate between the two entities is the interpretation of a long-standing Major League Baseball television formula that was part of the 2005 relocation settlement agreement between the league and the Baltimore Orioles when MLB moved the Montreal Expos to Washington, D.C. The relocation agreement reportedly called for the use of this formula, which MLB has used for more than 15 years.
Bortz Media & Sports Group developed the formula and used it to determine how TV rights fees were derived for the Boston Red Sox and the New England Sports Network, the New York Yankees and Yankees Entertainment and Sports Network, and the Toronto Blue Jays and Rogers SportsNet.
Among the items the formula uses to determine rights fees for clubs that have a stake in their TV partners include local market size, geography and network revenue and expenses.
Representatives for Washington argue that the current open-market conditions in baseball should determine the rights fee, a scenario that favors the Nationals. Many industry sources cite the Texas Rangers' contract with Fox Sports Net as the deal that has now set the standard. The Rangers have a 20-year deal with FSN, worth an estimated $3 billion.
Other teams have also negotiated long-term broadcast deals, including the San Diego Padres, who recently signed a 20-year deal with FSN worth $1.2 billion. Both Texas and San Diego are smaller markets than Washington, D.C.
As part of the current TV agreement with MASN, the Nationals receive $29 million annually. But the deal that was negotiated between MLB and the Orioles entitles the Nationals to a reset, or increase in rights fees, from the network every five years … and that time has come.
According to the Sports Business Journal, MASN is willing to give the Nationals a 20-percent increase, taking their annual payment to $35 million per year. But the Nationals are asking for a deal in which they'd receive more than $100 million annually, a fee that would put the team on par with other franchises in the top 10 media markets.
According to a source close to the negotiations, the Nationals did not agree with MASN officials' assessment, and elected to waive mediation in hopes of reaching a resolution more favorable to the team. As a result, the issue is now before a three-team MLB committee composed of the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays. The group is led by Rob Manfred, MLB's executive vice president for economics and league affairs.
The Nationals have reason to take full advantage of this opportunity to raise their annual rights fee, because the club will soon lose a different source of revenue. By the end of baseball's labor deal in 2016, teams in the 15 largest markets will no longer be allowed to receive revenue-sharing funds, regardless of their TV contracts or attendance. In addition to the Nationals, three of the other four teams in the National League East -- the Braves, Mets and Phillies -- are also among the group of 15 that will be impacted.
According to a source close to the original negotiations between the Orioles and MLB, one key element that makes the situation more complex is a parity clause in MASN's contract stating that the Orioles must receive the same amount in rights fees as the Nationals. Therefore, if the Nationals are awarded a new deal worth $100 million per year, the Orioles also would receive $100 million annually. The source said MASN was not in a position to support such figures, because of its economic limits based on its total revenue.
MASN is the result of MLB infringing on the exclusive and protected TV territory of the Orioles by placing a team in D.C. -- Nationals Park is only 61 miles from Oriole Park at Camden Yards. According to the source close to the 2005 negotiations, the Orioles were entitled to a larger share of the regional sports network in exchange for MLB taking away from the team's value by reducing that TV territory. The Orioles hold the majority stake in MASN, while the Nationals present equity sits at 13 percent. Washington's equity will rise to 33 percent during the next 20 years.
Despite the turmoil about fees, each team's improved play this season has resulted in elevated TV ratings. According to Sports Media Watch, a Web site covering the American sports media, Nationals broadcasts are up 53 percent on MASN, MASN2 and WDCW-TV (CW affiliate in Washington), while Orioles ratings are up 48 percent on MASN, MASN2 and WJZ-TV (Baltimore's CBS affiliate).
A decision from the specially appointed MLB committee is expected within the next week. Industry sources say it's unclear as to which direction the committee is leaning, but agree that the fees paid for increasing media rights deals will eventually find their way to the bills of cable and satellite subscribers.
According to industry sources, at the center of the debate between the two entities is the interpretation of a long-standing Major League Baseball television formula that was part of the 2005 relocation settlement agreement between the league and the Baltimore Orioles when MLB moved the Montreal Expos to Washington, D.C. The relocation agreement reportedly called for the use of this formula, which MLB has used for more than 15 years.Bortz Media & Sports Group developed the formula and used it to determine how TV rights fees were derived for the Boston Red Sox and the New England Sports Network, the New York Yankees and Yankees Entertainment and Sports Network, and the Toronto Blue Jays and Rogers SportsNet.
Among the items the formula uses to determine rights fees for clubs that have a stake in their TV partners include local market size, geography and network revenue and expenses.
Representatives for Washington argue that the current open-market conditions in baseball should determine the rights fee, a scenario that favors the Nationals. Many industry sources cite the Texas Rangers' contract with Fox Sports Net as the deal that has now set the standard. The Rangers have a 20-year deal with FSN, worth an estimated $3 billion.
Other teams have also negotiated long-term broadcast deals, including the San Diego Padres, who recently signed a 20-year deal with FSN worth $1.2 billion. Both Texas and San Diego are smaller markets than Washington, D.C.
As part of the current TV agreement with MASN, the Nationals receive $29 million annually. But the deal that was negotiated between MLB and the Orioles entitles the Nationals to a reset, or increase in rights fees, from the network every five years … and that time has come.
According to the Sports Business Journal, MASN is willing to give the Nationals a 20-percent increase, taking their annual payment to $35 million per year. But the Nationals are asking for a deal in which they'd receive more than $100 million annually, a fee that would put the team on par with other franchises in the top 10 media markets.
According to a source close to the negotiations, the Nationals did not agree with MASN officials' assessment, and elected to waive mediation in hopes of reaching a resolution more favorable to the team. As a result, the issue is now before a three-team MLB committee composed of the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays. The group is led by Rob Manfred, MLB's executive vice president for economics and league affairs.
The Nationals have reason to take full advantage of this opportunity to raise their annual rights fee, because the club will soon lose a different source of revenue. By the end of baseball's labor deal in 2016, teams in the 15 largest markets will no longer be allowed to receive revenue-sharing funds, regardless of their TV contracts or attendance. In addition to the Nationals, three of the other four teams in the National League East -- the Braves, Mets and Phillies -- are also among the group of 15 that will be impacted.
According to a source close to the original negotiations between the Orioles and MLB, one key element that makes the situation more complex is a parity clause in MASN's contract stating that the Orioles must receive the same amount in rights fees as the Nationals. Therefore, if the Nationals are awarded a new deal worth $100 million per year, the Orioles also would receive $100 million annually. The source said MASN was not in a position to support such figures, because of its economic limits based on its total revenue.
MASN is the result of MLB infringing on the exclusive and protected TV territory of the Orioles by placing a team in D.C. -- Nationals Park is only 61 miles from Oriole Park at Camden Yards. According to the source close to the 2005 negotiations, the Orioles were entitled to a larger share of the regional sports network in exchange for MLB taking away from the team's value by reducing that TV territory. The Orioles hold the majority stake in MASN, while the Nationals present equity sits at 13 percent. Washington's equity will rise to 33 percent during the next 20 years.
Despite the turmoil about fees, each team's improved play this season has resulted in elevated TV ratings. According to Sports Media Watch, a Web site covering the American sports media, Nationals broadcasts are up 53 percent on MASN, MASN2 and WDCW-TV (CW affiliate in Washington), while Orioles ratings are up 48 percent on MASN, MASN2 and WJZ-TV (Baltimore's CBS affiliate).
A decision from the specially appointed MLB committee is expected within the next week. Industry sources say it's unclear as to which direction the committee is leaning, but agree that the fees paid for increasing media rights deals will eventually find their way to the bills of cable and satellite subscribers.
Sunday, July 8, 2012
MASN, Nationals Differ On TV Rights Deal
PART I IN A TWO-PART SERIES
"The Battle of the Beltways" is the phrase used to describe the on-field interleague matchups between the Washington Nationals and Baltimore Orioles. That phrase can also describe the ongoing dispute between the Mid-Atlantic Sports Network and the Nationals as it relates to the distribution of television rights fees.
The sports landscape along the Baltimore-Washington corridor changed dramatically in 2005 when Major League Baseball elected to relocate the Montreal Expos to the nation's capital to become the Washington Nationals. MLB purchased the struggling Expos in 2002 and its decision following the 2004 season marked the first time a MLB franchise moved since 1971, when the second Senators franchise left Washington for Arlington, Texas. In May 2006, MLB sold the Nationals to Bethesda developer Theodore N. Lerner and his family for an estimated $450 million.
Under the settlement agreement that was negotiated between MLB and the Orioles when the league announced the relocation of the Expos, the Nationals hold the right to seek a reset, an increase in rights fees, every five years from MASN. The regional sports network and the Nationals have been negotiating for months, even missing an expected June 1 settlement date.
According to a source close to the negotiations, representatives from MLB were in Baltimore June 28, presumably to speak with the Orioles' principal owner, Peter Angelos, about a resolution. The inability to reach a solution about the distribution of TV rights fees will not impact fans' abilities to view Nationals games on MASN or MASN2.
When contacted about the negotiations, MLB spokesman Jeff Heckelman said the league did not have any comment on the MASN situation at this time. Chris Bevilacqua, founder and CEO of Bevilacqua Media Company, represents the Nationals in the negotiations with MASN. In a reply to an email seeking comment, Bevilacqua said he was not able to comment on this matter.
According to the Sports Business Journal, MASN officials think the Nationals should receive $35 million per year, a 20-percent increase from the $29 million the team receives annually. But the Nationals are arguing for a deal that would pay them in excess of $100 million each year.
Several industry sources with knowledge of the negotiations say that the number the Nationals are proposing is unrealistic given the limitations of MASN's revenues. MASN receives distribution fees that cable companies and satellite providers pay as well as advertising revenue. From that amount, MASN must pay expenses for items that include producing Orioles and Nationals broadcasts, acquiring other programming for the network, day-to-day overhead, etc.
The original contract stated that each team should receive an equal amount from MASN in the payment of rights fees. But a source close to the original negotiations between the Orioles and MLB said the settlement for the Expos moving to D.C. allowed for Baltimore to receive a disproportionate stake in MASN in exchange for the franchise value the Orioles lost when its MLB-delineated TV territory was diminished. As a result, Baltimore currently has the majority stake in MASN, with the Nationals holding 13-percent equity in the regional sports network. Washington's percentage will increase up to 33 percent during the next two decades.
Those same industry experts also said the current percentage split was high, and unfairly compensates the Nationals. Nonetheless, they said, the MASN arrangement was included in the deal when the Lerners purchased the team from MLB, so the family was fully aware of the TV situation before agreeing to buy the team. At the same time, the Orioles should not be surprised the Nationals are attempting to get more money in rights fees now that the reset has kicked in.
A key element in the negotiations dates back to MLB's decision to award a franchise to D.C. and the subsequent agreement MLB negotiated with the Orioles.
The MLB commissioner's office is the governing body for the game of baseball, both on the field and in matters related to business aspects of the sport. Because the Nationals are part of the National League, MLB did not violate its own rule that precludes two teams in the same division from being located within a certain number of miles from one another. But the source close to the original negotiations between the Orioles and MLB said the move did infringe upon the television territory that MLB itself clearly defined as belonging to the Orioles.
MLB rules specify that each team has exclusive and protected defined TV territories, according to this source. In the case of the Orioles, that territory -- as MLB defined it -- spanned from Harrisburg, Pa., to Charlotte, N.C. Therefore, placing a team in D.C. violated the geographically protected area that MLB defined as belonging to the Orioles.
Because local TV rights are factored into MLB's overall revenue sharing, an industry source said teams that own regional sports networks artificially lowered the revenue-sharing dollars. In an effort to reach a resolution, MLB has organized a committee composed of owners of several teams. A decision is now expected early this month.
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The sports landscape along the Baltimore-Washington corridor changed dramatically in 2005 when Major League Baseball elected to relocate the Montreal Expos to the nation's capital to become the Washington Nationals. MLB purchased the struggling Expos in 2002 and its decision following the 2004 season marked the first time a MLB franchise moved since 1971, when the second Senators franchise left Washington for Arlington, Texas. In May 2006, MLB sold the Nationals to Bethesda developer Theodore N. Lerner and his family for an estimated $450 million.
Under the settlement agreement that was negotiated between MLB and the Orioles when the league announced the relocation of the Expos, the Nationals hold the right to seek a reset, an increase in rights fees, every five years from MASN. The regional sports network and the Nationals have been negotiating for months, even missing an expected June 1 settlement date.
According to a source close to the negotiations, representatives from MLB were in Baltimore June 28, presumably to speak with the Orioles' principal owner, Peter Angelos, about a resolution. The inability to reach a solution about the distribution of TV rights fees will not impact fans' abilities to view Nationals games on MASN or MASN2.
When contacted about the negotiations, MLB spokesman Jeff Heckelman said the league did not have any comment on the MASN situation at this time. Chris Bevilacqua, founder and CEO of Bevilacqua Media Company, represents the Nationals in the negotiations with MASN. In a reply to an email seeking comment, Bevilacqua said he was not able to comment on this matter.
According to the Sports Business Journal, MASN officials think the Nationals should receive $35 million per year, a 20-percent increase from the $29 million the team receives annually. But the Nationals are arguing for a deal that would pay them in excess of $100 million each year.
Several industry sources with knowledge of the negotiations say that the number the Nationals are proposing is unrealistic given the limitations of MASN's revenues. MASN receives distribution fees that cable companies and satellite providers pay as well as advertising revenue. From that amount, MASN must pay expenses for items that include producing Orioles and Nationals broadcasts, acquiring other programming for the network, day-to-day overhead, etc.
The original contract stated that each team should receive an equal amount from MASN in the payment of rights fees. But a source close to the original negotiations between the Orioles and MLB said the settlement for the Expos moving to D.C. allowed for Baltimore to receive a disproportionate stake in MASN in exchange for the franchise value the Orioles lost when its MLB-delineated TV territory was diminished. As a result, Baltimore currently has the majority stake in MASN, with the Nationals holding 13-percent equity in the regional sports network. Washington's percentage will increase up to 33 percent during the next two decades.
Those same industry experts also said the current percentage split was high, and unfairly compensates the Nationals. Nonetheless, they said, the MASN arrangement was included in the deal when the Lerners purchased the team from MLB, so the family was fully aware of the TV situation before agreeing to buy the team. At the same time, the Orioles should not be surprised the Nationals are attempting to get more money in rights fees now that the reset has kicked in.
A key element in the negotiations dates back to MLB's decision to award a franchise to D.C. and the subsequent agreement MLB negotiated with the Orioles.
The MLB commissioner's office is the governing body for the game of baseball, both on the field and in matters related to business aspects of the sport. Because the Nationals are part of the National League, MLB did not violate its own rule that precludes two teams in the same division from being located within a certain number of miles from one another. But the source close to the original negotiations between the Orioles and MLB said the move did infringe upon the television territory that MLB itself clearly defined as belonging to the Orioles.
MLB rules specify that each team has exclusive and protected defined TV territories, according to this source. In the case of the Orioles, that territory -- as MLB defined it -- spanned from Harrisburg, Pa., to Charlotte, N.C. Therefore, placing a team in D.C. violated the geographically protected area that MLB defined as belonging to the Orioles.
Because local TV rights are factored into MLB's overall revenue sharing, an industry source said teams that own regional sports networks artificially lowered the revenue-sharing dollars. In an effort to reach a resolution, MLB has organized a committee composed of owners of several teams. A decision is now expected early this month.
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