Debate: The Nationals, the Orioles, Peter Angelos, and MASN Part 4: The numbers few talk about behind the MLB TV money

Mid-Atlantic Sports Network
Mid-Atlantic Sports Network (Photo credit: Wikipedia)

Justin,

Pardon me for forgetting how hard the Orioles had it in the 90s and 00′s during the Yankees / Red Sox bubble.  I was too busy thinking about how MLB gutted the Expos/Nationals farm team, stripped the franchise of all its scouts and spring training facility.  MLB also cut the team’s payroll to the point they would not allow September call ups and not drafting players on talent, but on sign-ability.  The MASN deal was just another indignity heaped on the franchise.  The only problem now is that Mike Rizzo and the team has been able to outrun all those problems, except for maybe Spring Training (that is another post) but this idiotic MASN TV deal.  Allow me to explain:

1.  The whole concept doesn’t make logistical sense.  The network owns the rights to 2 baseball franchises.  These teams play virtually every day for 6 months of the year.  Their games are always in conflict with each other; this necessitated adding MASN 2 to carry the other game.  For the first few years some cable networks didn’t have MASN 2 so games couldn’t be watched.  A viewer has no idea which channel the game is going to be on every day, because in the name of “fairness” the teams are on MASN 1 an equal amount of time.  The rest of the time MASN 2 sits as a blank channel on my cable system.  The Dodgers are on SportsNet LA and the Angels are on FS West; the Cubs are on WGN and White Sox are on CSN Chicago, the Mets are on SNY, the Yankees are YES; the Giants are CSN Bay Area, the A’s are CSN California.  You see how that works, MLB and Angelos don’t.  More on the huge problem later.

2.  The content of the network doesn’t satisfy anyone except those that happen to follow all Baltimore and Washington sports team.  Jim Harbaugh keeps begging for Redskins fans to let the Ravens be their AFC team, but most Skins fans are not interested.  Same with the O’s, I am willing to bet people from Baltimore are even less interested in Nats news than vice-versa.

The game broadcasts are actually very good.  I like the pregame and post game show and the quality of presentation is as good as any in baseball.  I really like the talent on the station and their website.  The problem with the network is everything else.  I can’t watch MASN content because it pretends that I care about anything going on in Baltimore sports.  I am from Washington, I watch Washington teams.  There is plenty of demand for Baltimore Ravens and Orioles news in Baltimore, I don’t care about either team at all, and watching MASN broadcasts requires half the time being spent on those teams.  Don’t even get me started on the shared booth during the battle of the “beltways”.  I can honestly say that TV contract colors my feelings about the O’s.  If I knew the Nats were a partner in the network I would be more forgiving of the content.  MASN really wants to pretend it is the Baltimore/Washington market but these are two distinct cities.

3.  MASN actually creates less revenue the way it is currently constructed.  According to some the stories I have read, MASN gets a carriage deal of $2.28 a subscriber.  This makes sense; the average deal nationwide is $2.28, the Yankees get $3 and the Mets get $2.50, and those teams play in the same market. The problem with the MASN numbers is that 2 bucks is for two teams, so that is about 1 dollar per MLB team, which has to be the lowest rate per team average in baseball.  If the Nats and O’s rights were available separately, like in New York, they could take in more combined individually than the joint MASN package.  The O’s are leaving money on the table by insisting on having their own network.  Sharing revenue from the TV deal with Washington makes more sense.  Here is an idea, start MASN for the O’s games and get the rights to the Wizards; that way the network is guaranteed O’s games in DC during the summer.  It should be simple, 2 sports networks, one with the Nats/Caps, and one with the O’s /Wizards.  Those sport season complement each other, instead there is this mess.  Instead they (MLB and Angelos) opted for the monopoly model of business.  It is OK to make this mistake in the beginning, but to insist on keeping a deeply flawed arrangement is now just arrogance.

In order to better understand the financial situation both teams are dealing with under the 5 year reset, I developed a model to simulate different rights and equity payments.  I based my model on the research I was able to pull from the published reports about the new contact negotiations.  Assuming that MASN will continue to be the platform which delivers games in the Mid-Atlantic region,  It became pretty clear to me that this is an illustration of game theory.  If the O’s and Nats work together they can each make more money as a whole, but if they both work selfishly in their own self-interest they can hurt the other party.  Because right fees are subject to MLB profit-sharing, and channel equity is not, the teams have very separate interests at the negotiation table.  Since the O’s own 86% of MASN they take the lion’s share of the equity payments.  As it stands now, they make more in equity payments than rights fees.  With equity, they keep 100% of the money, with the rights fees they owe one-third back to the league.

If the Nationals get their way and get a fair market price for their broadcast right the O’s are penalized at a greater rate than if they were to simply award the Nats a great share of the network equity.  For example, again due to profit-sharing and the fact that whatever the rate the Nats get the O’s automatically get:

At 40 million each (not a crazy number and about what the O’s are offering) the O’s make 87 million and the Nats 51 after profit-sharing and before national TV rights. If that rights fee were to increase only 20 million to 60 million apiece (again not a crazy number) the O’s only make 66 million and the Nats 58 because the equity stake becomes less of a factor.  In this case about 15 million more go to MLB in the form of revenue sharing. So despite increasing their own rights fee 20 million the O’s loose 21 in the process and the Nats only gain 7.  This is why the O’s are desperate to keep the rights fee well below market rate.

Here is the problem for the O’s, by refusing to negotiate an accelerated equity growth for the Nats, they are in danger of losing significant TV money.  They allowed this to go to arbitration as per the contract. This is now in MLB’s hands, specifically the Mets, Pirates and Rays.  MLB wants higher rights fees because it wants to keep increasing the revenue from the regional sports networks, and the more MASN pays in rights, the more money is kicked into the revenue sharing.  The Nationals are already on the short end of this deal.  The O’s are the only ones with something to lose.  Instead of brokering an agreement that allows the Nats more TV revenue while they maintain their advantage, they are banking on the status quo being affirmed which has them the winner and the Nats the loser.

Remember, one of the key elements of the TV contract was that the Nats get fair market value for their rights, The Nationals have every right to expect that end of the contract be honored.

I know this can be complicated, do you have any further questions or comments.

Advertisements

1 thought on “Debate: The Nationals, the Orioles, Peter Angelos, and MASN Part 4: The numbers few talk about behind the MLB TV money”

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s