What would a deal between Comcast and Leonsis mean for the Nationals, Orioles, and MASN?

The five-year old MASN dispute between the Nationals and Peter Angelos made news last week when the Orioles won a victory in the New York Supreme Court vacating the previous MLB arbitration decision awarding the Nats $60 million a year in TV rights fees. The victory was a temporary one for the O’s with only one major implication: this dispute is guaranteed to linger even longer than we originally thought. Fans hoping for a resolution to this mess will only have to wait.

In the aftermath of this decision came news this morning in the Washington Post Ted Leonsis’ Monumental Sports is negotiating a deal with ComcastSportsNet to own a piece of the Regional Sports Network (RSN). This development, if it comes to fruition, is notable to Nats fans for many reasons, and it raises some obvious questions.

First, Leonsis is now making a deal the Lerner family can only dream of making. Leonsis is following the industry trend in sports, where teams gain an equity share in a local RSN, a mutually beneficial arrangement for both parties. For the RSN, an equity partnership guarantees long-term rights to televise the team’s games, locking in live, local, and daily content, which is especially valuable in the DVR and “cord-cutting” era. For the team, an equity partnership ensures lucrative annual equity payments from the RSN and a protection against “carriage battles” (like MASN faced in 2005) since the RSN is owned by the cable provider.

By locking in Capitals and Wizards games long-term, CSN would make itself a valuable property in the foreseeable future. Were Leonsis to take his Capitals and Wizards broadcasts elsewhere, the network would likely shrivel up and die. It’s hard to imagine CSN surviving on DC United and Washington Kastles broadcast alone; they would need a flagship property among the four major sports to justify it’s carriage fee to cable subscribers. In return, Leonsis will see what promises to be high equity payments equal to a third of CSN’s revenue. This is huge for not only Leonsis’ personal wealth, it largely secures the financial security of his two teams.

Meanwhile, the Lerners are stuck in neutral in the middle of a nightmare scenario. The owners of the Nats lack to autonomy to strike a deal like the one Leonsis is making. Instead of getting equity in a large RSN like CSN, they have to settle for a smaller equity stake in MASN, plus a rights-fee which is currently the subject of litigation between the O’s and Nats. The biggest problem here, and one of the biggest complaints about MASN in general (besides Bob Carpenter), is that MASN leaves far too much money on the table with the way it is structured. The monthly per-subscriber carriage fee is generally believed to be much lower than what you would expect for a network carrying two valuable properties like the Orioles and Nationals. Put simply, baseball is the most valuable local television property simply because it’s live and it’s every day. Comparatively speaking, local baseball games rate very well in the right demographic advertisers are trying to reach. This isn’t my opinion, it’s fact reflected in the huge deals being struck around the country by baseball teams with local television providers.

The Orioles are fine with the fact MASN brings in less money than it otherwise could because they’re keeping the largest piece of the pie. They’d rather have the majority of smaller pot than risk a new financial arrangement where they would most assuredly be given a smaller piece considering how much smaller a market Baltimore is than Washington D.C. So the Orioles will fight and defend an outdated cable TV deal struck in 2004 before the Expos even moved to DC. The Nats can only sit and watch Leonsis take advantage of a new lucrative industry trend while Peter Angelos litigates in state court the right continue the trend of 10 years ago.

Prior to Leonsis striking a deal with Comcast, CSN likely represented the best compromise between the O’s and the Nats. CSN is carried in both Baltimore and Washington and they likely would have jumped at the chance to carry the Orioles and Nats, a move that would have instantly doubled the network’s value and made it a giant in the mid-Atlantic region. Now it’s fair to wonder if Leonsis has crowded the O’s and Nats out of the market place. It’s really hard to imagine CSN forming an equity partnership with Monumental, the O’s AND the Nats. Leonis got the table first, and now there’s no other RSN with the clout of Comcast to take its place. The O’s and Nats missed their opportunity back in 2014 when MLB tried to negotiate a sale of MASN to Comcast.

So Ted Leonsis is the winner. He not only secured his own financial future, he stuck it to a local competitor. For the Nats, it’s likely MASN today, MASN tomorrow, and MASN forever. Even if the Nats Houdini themselves out of the MASN deal, or Peter Angelos has an out-of-body experience and decides to compromise, there is one less option on the table. Comcast two years ago provided the Nats the easiest and most profitable way out of this MASN thicket. Now, as they watch the slow wheels of justice turn in the New York state court, the Lerners get to see the Comcast option taken by Ted Leonsis, a fellow sports owner lucky enough to never be forced to do business with Peter Angelos.

Explaining the MASN court decision in non-legal terms 

You’re probably confused about the MASN court decision, which is totally fine. If I wasn’t a lawyer, and I hadn’t read the decision myself, I’d be confused too. The reporting on the MASN issue has been particularly sparse. Reporters who cover baseball are not business reporters, nor are they lawyers (most of the reporting I’ve seen looks more like spin, leaked from one of the parties). To save you time, here’s my very brief analysis of today’s decision in non-legal terms so anyone can understand it. 

Background

The MASN contract requires the network (majority owned by the Orioles) to pay the Nationals the right to broadcast their games. Every five years, the parties renegotiate these fees and go to arbitration if they don’t agree, which is exactly what happened here. The arbitration panel ruledin 2014, attempting to forge a compromise between the Nats and the O’s. The O’s didn’t want a compromise, they wanted to win, so they appealed the arbitration decision in court. 

The Court Case

To win, the Orioles had to prove there was something wrong with the arbitration. Like most lawyers do, the attorneys representing the O’s threw as much as they could against the wall, hoping something would stick. Among other things, they argued: fraud on the part of MLB when drafting the MASN contract, collusion between MLB and the Nats during the arbitration process, a conflict of interest for the arbitration panel members, and a conflict of interest for the attorneys representing the Nationals. In short, the O’s were hoping to get the arbitration award thrown out, so they could get another hearing and an award that required MASN to pay the Nats less money. 

The Decision

The Orioles won. The arbitration award was thrown out. However, the court rejected most of their arguments. The only argument they agreed with: there was a conflict of interest for the attorneys representing the Nationals. 

Analysis

It’s a hollow victory for the Orioles. The arbitration award is thrown out, but on relatively narrow grounds. If there’s no appeal, or if this decision is upheld on appeal, there will still be another arbitration hearing, this time without the conflict of interest. The Nationals might get an even bigger award next time. TV rights fees have only risen since the last hearing. The biggest impact for the Nats, however, is in the short term. The have more uncertainty about their TV rights, and they’ll continue to wait for more TV money. This isn’t good news for Nats fans, but today’s “win” isn’t exactly a windfall for the Orioles either. The main battle is still to be fought. Either side could win.