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.

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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. 

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.

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

Debate: The Nationals, the Orioles, Peter Angelos, and MASN Part 3: The O’s reason for insisting on MASN

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

This is part 3 of the debate over the MASN contract MLB and the O’s negotiated before the Nats moved to DC.

Jason, I’ll get to your questions in a minute, but I want to make one point.

The Orioles/Nationals MASN deal was made in 2004-05.  Since then, the Sports Television landscape has completely changed.  In many ways, this was a terrible business deal for the Orioles, because they committed themselves to a long-term contract, with no safeguards if the marketplace shifted.

I’ll explain.  Back in in 2004, MLB was dominated by the Yankees and the Red Sox, who both had their own cable TV networks, YES and NESN respectively.  By selling their networks to local cable distributors, these two teams brought in hundreds of millions of dollars per year, dwarfing every MLB team in terms of revenue.  In 2004, there were two leagues: the Yankees and Red Sox, and then the other 28 teams.  Oh, also, the Yankees and Red Sox were in the Orioles division.

I lived in Baltimore in 2004-05.  Things looked hopeless for the Orioles franchise back then.  Their two biggest division rivals had cash cow TV networks, two back-to-back ALCS appearances, a rolodex of bankable stars, and 20 times a year, the home team would get their brains beat in at a half-empty Camden Yard (the other half was filled with Red Sox or Yankee fans).  In 2005, the Orioles were entering their 8th straight losing season.  They probably felt closer to relegation than pennant contention.

Then, MLB decides to move the Expos into the Orioles backyard.  This probably felt like somebody twisting the knife after getting stabbed.

This was the landscape in 2005 when the MASN deal negotiated. Peter Angelos probably thought he NEEDED MASN to survive.  But then things started to change.  For reasons too complicated to explain here, the TV rights to live sporting events exploded in value.  The Rangers, Angles, Dodgers, and even the damn Padres signed multi-BILLION dollar deals.  Everyone was catching up to the Yankees and Red Sox.  More importantly, these teams were foregoing the team-owned TV network model and selling their rights directly to regional cable networks.

The Orioles thought the future was YES/NESN/MASN.  They were wrong.  And now the new marketplace threatens to blow up the MASN deal before its even 10 years old.

Now, your questions:

1.  Is there anything wrong with MASN?

I think MASN if fine.  The games are on TV and they’re in HD.  That’s all I care about.

It’s important to note the second reason MASN was created.  The first reason we’ve already addressed: keeping Nationals TV profits in Baltimore.  The second reason: keeping the Orioles on TV in DC.  The Orioles know how many fans they have in Washington DC and the surrounding suburbs.  The Orioles were the HOME TEAM for Washington DC for decades.  There are more DC baseball fans than you think who grew up watching Cal Ripken and will never switch allegiances.  It’s important to the Orioles to keep their games televised in DC.

Even if you hate the Orioles, as a baseball fan you have to enjoy having two games every night.  Not many markets have that.

Continue reading “Debate: The Nationals, the Orioles, Peter Angelos, and MASN Part 3: The O’s reason for insisting on MASN”