By Dave Hughes
The Washington Nationals and the Baltimore Orioles had two interleague series in 2012, and they may also square off in a dispute about television rights fees.
The Nationals, who came to Washington, D.C., from Montreal in 2005, are looking to make upward of $100 million per year from the Baltimore-based Mid-Atlantic Sports Network, starting in 2013. They received $29 million last season.
Under the terms of the current contract, both the Nationals and the Orioles are due equal fees from MASN. But executives at MASN, which won Washington's television rights as part of a relocation deal between Major League Baseball and the Orioles, see the TV rights numbers differently.
MASN representatives have offered an increase from the $29 million per year the Nationals now get to about $35 million next year, said Jim Williams, who writes for the Washington Examiner.
Major League Baseball formed a special committee in April to resolve the dispute. A recommendation was due in June, but so far, there hasn't been a resolution. A final decision is not likely to come until after the 2012 World Series, and maybe not even until early 2013.
Williams said one possible scenario involved the Nationals taking an accelerated ownership percentage in MASN, which is currently primarily owned by Orioles owner Peter Angelos.
MASN charges cable and satellite carriers an average of $2.14 per subscriber per month, 35 cents less than the average for regional sports networks, according to stats from media firm SNL Kagan.
Mike Ozanian, who covers "Sports Money" for Forbes Magazine, wrote that MASN's revenue would likely be less than $200 million this year as a result, which is not enough to support $100 million or higher rights fees for the Nationals and Orioles. Also, MASN would not have any leftover money to invest back into the channel.
Currently, the Nationals own 13 percent of MASN, and that figure could rise to 40 percent much sooner than expected, Williams said. He said industry sources had told him that league officials were working on a number of options to make sure the Nationals were happy with their rights increase.
The deal with the most support, Williams said, would accelerate the speed of how quickly the Nationals could reach a higher ownership stake in MASN.
Although it is unlikely the Nationals will become equal partners with the Orioles, look for the team to get as much as a 45 percent stake in MASN as soon as 2014, Williams said. The report stressed that Major League Baseball officials needed to keep the Nationals happy in order to prevent both sides from going to court.
"Which begs the question -- is MASN mismanaged?" Ozanian said. "After all, Comcast SportsNet [Mid-Atlantic] is getting $4 [per subscriber] per month for Washington's Capitals, Wizards and Redskins for the preseason, which total much fewer games than MASN's slate of Nationals and Orioles contests. And ratings for the Nationals and Orioles are up considerably this year."
Although the Nationals want the rights fee to be as high as possible, the Orioles favor more money being kept within the sports network, because a lower rights fee would reduce their MLB revenue-sharing payments, Ozanian said.
"The outcome of this dispute could have a huge impact on the ability of both teams to continue to be among baseball's elite," Ozanian said. "Both the Orioles and Nationals had Opening Day payrolls of about $81 million, $5 million less than baseball's median. Both teams will likely need to spend more to maintain their surge beyond this season and be a consistent World Series contender."
According to Nielsen ratings, D.C. is the eighth-largest television market, with 2.36 million TV homes, and Baltimore is ranked 27th, with 1.1 million.
Two years ago, the Texas Rangers, who are in the fifth-biggest market (2.57 million), inked a 20-year television deal with Fox Sports Southwest worth an estimated $3 billion, which pays the team an average of $80 million per season (excluding the upfront signing bonus), Ozanian said.
The Houston Astros, in the 10th-largest market (2.19 million), agreed to a deal in 2010 with Comcast SportsNet Houston, which also pays the team an average of $80 million through 20 years.
Williams noted that when the Senators left Washington for Texas in 1972, leaving only the Orioles in the region, baseball awarded the Orioles exclusive rights for much of the mid-Atlantic region. In cable's infancy, few paid attention to the issue. But today, cable TV broadcasts are one of the biggest revenue engines for sports franchises, worth tens, if not hundreds, of millions of dollars.
MASN paid the Nationals $20 million in rights fees during the first two seasons of their initial TV rights deal, increasing the amount about $1 million per year until it hit $29 million at the end of last year, Williams said.
Tom Van Riper wrote in Forbes that the 30 major league teams collectively earned $484 million selling local television rights in 2001. The number jumped to $984 million last year, and it could surpass $1.5 billion by 2015.
Issue 178: October 2012