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
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