Debate: The Nationals, the Orioles, Peter Angelos, and MASN Part 5: The final arguments

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

Oh, I have comments.  I always have comments.

Before we open up final arguments I want to answer a few FAQ or misunderstandings:

“The O’s own the Nats TV rights” not technically true.  MASN owns the rights to broadcast Nats games, the O’s are just the majority shareholder in MASN.  The Nats still own a minority share of their rights.

“The Lerner’s knew about the contract when they bought the team, what right do they have to complain about it now” While technically true, any owner of the team would have to live with the contract; it just so happens that the Lerners are the current owners.  It doesn’t matter who owns the team the contract was put in place by the previous owners.  The fact that the previous owners were Major League Baseball is just a further complication.

Now the final arguments:

1.  Baltimore and Washington are one market, whether you like it or not.  I know you’re from Northern Virginia and don’t think about Baltimore very often, but have you ever been to Columbia, Maryland?  How about Annapolis?  What about the people who live in Baltimore and take the train to DC every day?  What about the thousands of DC residents who still root for the Orioles because they grew up rooting for the Orioles?  These two cities are more connected than you think they are.  I know you want MLB to draw a long red line halfway between Baltimore and DC, but that’s not going to happen.  This war won’t end with a 38th parallel.

I don’t disagree that the markets are close, and some towns are in between both cities and have split allegiances;.  My point is that if it were the same market like New York, Chicago, and the Bay Area then the cities would share media and they don’t.  Baltimore has its own media, and the O’s wear Baltimore on their chest.  They could have moved to DC, the bigger city, like the Bullets did, but they chose crab-cakes and the Inner Harbor over the Nation’s Capitol, hon.  Even if you are more correct, and it is now one big market, it is big enough to support 2 teams, the NFL sure thinks so.  Don’t take my word for it though, in the latest collective bargaining agreement MLB specifically named the big market cities.  The Nationals were on the list the O’s were not.  Every other 2 team city was on the list except Oakland who is exempted until they get their new stadium in San Jose built.  I have more on that list of big market teams and the impact on this MASN deal later.

2.  You seem to be pretty educated on the facts, but maybe you should take off the homer glasses to see the full picture.  The Nationals are trying to destroy the MASN deal by asking for $100 million.  They’re trying to burn down their house because they don’t want to live in it anymore.  Your analysis broke it down pretty well.  By asking for a higher annual annual payout, they’re making MASN less profitable, which hurts the Orioles far more than it hurts the Nationals.  The know Orioles won’t agree to that, because why would they?  And then MLB has to decide what to do, which is a giant conflict of interest because higher annual payouts actually benefits MLB because, as you pointed out, they are subject to revenue sharing.  It’s a disaster within a disaster, kind of like dumping a bunch of sharks inside a tornado.

Of course the Nats are trying to burn down the MASN house; it is a shoddy house for two teams to live in.  It is a bad deal for the Nats and a bad deal for MLB.  More importantly, if the deal is followed as it was intended and the Nats get fair market TV rights then the deal is even worse for the Os.  MASN does not generate enough revenue to pay two teams their market rate. The options are: hurt the Nationals or redraw the contract; there is not a fair solution under the current contract.

3.  Here’s my suggestion, and please tell me if this is too reasonable for the Lerners to consider.  Instead of trying to destroy MASN, maybe they should become partners.  After all, the Nationals are scheduled to eventually own a third of the network.  Maybe the Nationals could exchange lower annual payouts for a higher equity stake.  Then the two teams could work together to maximize profit for the network.  Perhaps that would be easier and far less time consuming than the slash and burn tactics demonstrated thus far.

The Nationals are proposing the only solution that they can under the current agreement.  Angelos does not want a partner, he wants to own the Nats broadcast rights.  They are allowed to renegotiate their rights fee, plain and simple.  If the O’s can’t afford to give them their market rate for their rights fee (which they can’t) the original contract needs to be ripped up and a new one put in place.  MLB doesn’t want to force that to happen, they want the O’s to start the process, that is why MLB went to FOX and Comcast to develop a buyout of MASN, giving Angelos a graceful exit from this MASN experiment.  The O’s and MASN roundly rejected the proposal and refused to engage in negotiation.  Remember, one of the crucial elements of the contract is that the O’s assumed the risk of the deal that was one of the selling points.  An increased equity for the Nats would be a better short term solution to the current negotiation, but it doesn’t solve the problem of the inherent flaws and inefficiencies in MASN that limit its total revenue. If the teams were to split the equity 50/50 the most the teams would make is around 70 million.  The Nats are the victims until the side of the agreement which allows them to renegotiate a fair market value of their rights is upheld by MLB and they are not forced to take whatever MASN give them.

4.  MASN can work.  Like you mentioned, it’s a pretty good product.  I like your idea of growing the network’s footprint by bidding on the Capitals and Wizards.  That would only make the network more valuable throughout the entire market, leading to a higher subscriber fees.  These are all common sense improvements to the business that can’t happen while the Nationals, Orioles and MLB all stare each other down like they’re in a terrible Western movie.

Here is the problem, the Nats are demanding change and the O’s are demanding statuesque.   As long as the Os insist on the old contract, but only the part they like , nothing is going to happen. MLB has to force the types of changes you are talking about.

5.  In any case, the current setup won’t work.  It makes ZERO sense to set up a regional sports network (where profit isn’t subject to revenue sharing) and then turn all the profit over as a rights-fee (which is subect to revenue sharing).  Essentially, the Nationals are proposing a solution that would blow up the whole network, which is probably their intention.  You portray the Nationals are poor little victims, but they’re really just maximizing their leverage to increase their profits.  That’s their right as a business, but don’t pretend the Orioles are trying to out-muscle them.  They’re both trying to out-muscle each other.  MLB needs to get them in a room and work out a new deal that makes sense.

Here is the problem with your “why can’t they get along routine,” The most recent CBA has forced the Nationals into a corner where the current contact no longer is good enough.  In the new CBA there is a new tier of revenue sharing called supplemental revenue sharing.  An additional 14% of team revenue is reallocated.  The catch is that large market teams are exempt from receiving this revenue sharing.  The Nats, Blue Jays, and Braves are the 3 large market teams that earn less than league average revenue.  The Nats and O’s make roughly the same revenue for accounting purposes, because MLB virtually mandated that through the MASN contact.  Because the O’s are considered a small market, they get extra draft picks (which the O’s used to trade for Bud Norris this year) and revenue sharing.  The Nats are -4.1% the league average compared to the O’s at -4.3%, I can only guess this is due to more club seats at Nats Park.  Bottom line, MLB lumps the Nats in the same category as NY, LA, Chicago, Boston and Philly, but does not allow the club the same revenue streams.  The irony in all this is that that the O’s are making a huge amount of money off the revenue sharing books in the form of their equity ownership in MASN that all the other big market teams are making,. By combining the new CBA and the MASN contract the O’s are treated as a small market team, but make the revenue of a large market team.   I am sure in the back of Angelos’ mind he justifies this, just like you have, because the O’s need to compete against the Yankees and Red Sox the two most profitable teams in baseball.  What he doesn’t consider is that the Mets and Phillies are 4 and 5 on the list.  

The best answer to this problem is for Angelos to sell the team to the Ripkens and a new more equitable contract is worked out that allows both teams to compete in the Baltimore/Washington market.  You are correct; if MASN is to stay, the teams need to solve the problem of the equity in the broadcast company.  If the Nats were allowed to either buy or accelerate their share of MASN, then one of the most pressing problems of this conflict is solved. AT 33% ownership of MASN and 37 million rights fee the Nats would make 60 million to the O’s 80 and both teams would still get TV revenue sharing from the other big market clubs.  Is that a good compromise…maybe, but it doesn’t solve the CBA penalty the Nats face as a “large market” club.  Also, is there anything you have seen from Peter Angelos that leads you to believe he is open to any compromise that would in his mind cost millions?

I guess that was a clown question bro.

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