The Economic Battle Of The Beltways -- Part II
By Tim Richardson
On July 2, the Sports Business Report 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.
Posted July 6, 2012