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The Fix Is In: Angelos vs. Comcast

June 7, 2006

By Ken Denlinger

Tick... Tick... Tick... Tick... Tick... Tick

The countdown goes on in the high-stakes fight between Peter Angelos and Comcast. Both are accustomed to winning, usually in a big way, but neither draws much affection from anyone outside the ring. They are as cuddly as concrete.

At issue is what the trade calls "carriage rights," which in the short term amount to whether -- or more likely how soon -- the Washington Nationals will be seen on Comcast through its area outlet, Comcast SportsNet. That's important to Baltimoreans in lots of ways, the most significant being that if Angelos gets a generous accommodation from Comcast the Orioles will have the financial clout to compete for players with the New York Yankees, Boston Red Sox and other heavy hitters.

"It's the deal of a lifetime" (for Angelos), said an east coast sports broadcast and marketing source who wants to remain anonymous.

But the deal isn't done yet.

Here's the background: When Major League Baseball (MLB) decided to plant a team in Washington some two years ago, it and most neutral observers realized that the Orioles would be hurt both at the gate and in any local television deals.

Baltimore is barely inside the top 25 regional television markets; Washington is solidly inside the top 10. So the Nationals are much more valuable to Comcast and other cable outlets in the region -- and in any ordinary slicing of the television money pie would get the larger piece.

"The value of the combined rights of the teams might put the Baltimore-Washington region in fifth or sixth place," said Philip Hochberg, a DC communications lawyer specializing in sports. Hochberg has sporting ties to both towns. He was the press box announcer for the former Senators from 1962-1968 and the late Rex Barney's backup in a similar capacity with the O's from 1982-1984.

Enter Angelos and his impressive won-lost record in the courtroom. Very likely fearing the possibility of a lawsuit for intruding inside his turf, MLB negotiated a payment of $75 million for a 10-percent stake in his Mid-Atlantic Sports Network (MASN). The Nationals over the next two decades can increase that share in MASN to 33 percent, but no more. In addition, they are guaranteed through MASN about $20 million each year.

Starting next year, MASN also will be able to peddle the Orioles' television rights, because its deal with Comcast for the O's ends after this season. Comcast contends that a clause in its contract with the Orioles allows it to have exclusive bidding rights on future telecasts. It argued that Angelos allowed MASN to obtain the rights to O's games without bidding as a way of denying Comcast's access to those rights. Comcast's original lawsuit was thrown out of court by a Montgomery County judge; Comcast is appealing.

Chicago-based consultant Marc Ganis has been deeply involved with judging the value of sports franchises for years -- and he had this take on the Orioles during a recent interview: Its value as a franchise has dipped since the Nationals have arrived, to around $400 million, and could go close to the $365 million bottom that MLB guaranteed for any selling price. But the value of MASN presently is worth "in the low nine figures."

John Mansell, senior analyst for Kagan Research, said that MASN had the potential to reach $300 million or so "depending on the distribution, as well as the performance (by both teams) on the field, which leads to ratings, which leads to ad revenue."

Angelos just now is losing not only at the gate but also through his deal with the Nats. That's because of that $20 million annual outlay to the Nats and low circulation for Orioles games.

"And Orioles fans are sort of held hostage," said Ganis, meaning that the team's ability to compete for players is hamstrung.

Tick... Tick... Tick... Tick... Tick... Tick.

Cable television has been spreading across the country like melted butter. The Dodgers moved from Brooklyn in 1957, Hochberg said, in large part to take advantage of a proposed pay-television market in Los Angeles. In the 1970s, the Atlanta Braves became a force for two major reasons: shrewd management and huge amounts of money generated by Ted Turner's Superstation penetrating cable households nationwide.

In 1980, 22 teams took part in a one-year deal that fetched MLB less than $500,000. But by January of 1989, Major League Baseball had signed a four-year deal with ESPN worth $400 million. ESPN a few months ago signed a deal that will pay the NFL $8.8 billion for the rights to Monday Night Football over the next eight years. That's $8.8 billion for a total of 128 games.

How's that possible? Baltimore broadcaster Tom Davis is among those who have done the math. ESPN gets an average of about $2.70 per month from each cable subscriber. ESPN is in about 100 million homes. That's $3.24 billion a year, before Tony Kornheiser's salary of course. And also before whatever advertising fees ESPN is able to generate.

So small sums from you and me -- call 'em Pennies for Peter in this case -- quickly become astronomical.

Angelos bought the Orioles for $173 million in 1993. In that deal, his television "territory" was defined as the entire states of Maryland, Virginia and Delaware, plus the District of Columbia and several counties in West Virginia, central Pennsylvania and eastern North Carolina. That's about Harrisburg to Charlotte if you're keeping score.

In 1996, Angelos ventured into cable television by signing a 10-year agreement with Home Team Sports (HTS), which was owned by Westinghouse. Comcast subsequently made a deal with Westinghouse that allowed it take over HTS and its contracts, including the 10-year deal with the O's that ends after this season. Had Angelos been prescient about the possibilities of cable, he might have bought HTS. But he didn't.

He's a major player now.

Tick... Tick... Tick... Tick... Tick... Tick
   
Nobody expects either Angelos or Comcast to score a get-out-of-business knockout.

"Generally, these things (resolve) themselves," analyst Bruce Leichtman has said, suggesting some sort of compromise that would get both the O's and Nats on Comcast.

Each has what the other needs. Let's imagine Angelos actually going into cable full time with MASN, as he's threatened. What would he have for all those hours each day when the O's and Nats were not playing? Even goliath ESPN repeats its SportsCenter hour for the entire morning most days.

But MASN spokesman Todd Webster insists: "There is no shortage of high-caliber athletic competition in the mid-Atlantic region."

Since the Nats began play, MASN has struck seven-year deals with several area cable outlets estimated to have a total of about 2 million customers. With an estimated 1.3 million subscribers, however, Comcast is the largest single area provider.

As the leading cable operator in 22 of the top 25 markets, Philadelphia-based Comcast would survive without the O's and Nats. But without any of their total of 324 games, its presence in the Baltimore-Washington area, through Comcast SportsNet, would be greatly diminished. After all, how many Jim Larranaga "Looks at Life" specials can a region tolerate?

So far, Comcast has played the waiting game, refusing to televise Nats' games in the team's debut season and so far this season. Now, the politicians have joined the public in loud protests. Congressional hearings have been held, with Montgomery County Executive Doug Duncan testifying: "Thousands of Nationals fans are near tears." More than two weeks ago, D. C. Mayor Anthony Williams signed into law a bill requiring Comcast to begin broadcasting Nats games or face the possibility of losing its license to operate in the city.

Comcast hasn't budged, although its officials have met with MASN and MLB representatives. Executive vice president David L. Cohen has called Angelos's deal with MLB "original sin."

(It's possible, of course, that the new ownership of the Nationals, combining Theodore Lerner's money and Stan Kasten's savvy, will twist MLB into changing its arrangement with Angelos. If so, not even Preakness winner Bernardini could beat Angelos to wherever the appropriate lawsuit would be filed.)

Those trying to forecast an end game suggest looking at, of all teams, the Yankees. Once more, George Steinbrenner and his staff have beaten Angelos to something important, in this case creating a cable network (YES) around the baseball team some four years ago.

For quite some time, mighty Cablevision (an estimated 3 million subscribers) refused to carry the Yankees. Like MASN now, YES arranged deals with several other area outlets. Legislatures in New York and New Jersey pressured Cablevision; YES took out ads in the papers aimed at Cablevision. In early May of 2003, slightly more than a year after the fuss began, Cablevision gave 1.9 million subscribers the option of YES as a premium channel.

At last, in mid March of 2004, came a resolution. An arbitration panel decided that Cablevision must carry the YES network on its expanded basic tier for six years. So a precedent seems to have been set. Could this be the eventual outcome here?

"If Comcast is trying to outwait Angelos," Ganis said, "it would be like waiting for the Rock of Gibraltar to melt."
 
Issue 1.7: June 8, 2006

Illustration by M.P. Scholz