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.