Feb 06

MASN Update

The MASN stalemate continues. Mr. Jonah Keri in a recent column on his web site Grantland gives an update on the subject. Here is the link to his article; http://grantland.com/features/baltimore-orioles-offseason-spending-al-east/

MASN is what is called a Regional Sports Network or RSN. Per Wikipedia; “A regional sports network, or RSN, is a cable television channel that presents sports programming to a local market or geographical region. The most important programming on an RSN consists of live broadcasts of professional and college sporting events, as those games generate an overwhelming percentage of an RSN’s advertising income. During the rest of the day, these channels show other sports and recreation programming. These channels are often the source content for out-of-market packages.”

“Regional sports networks are generally among the most expensive channels on a cable television lineup, due to the expense of rights to the local sports they carry. A typical RSN, as of 2012, carries a monthly retransmission fee of $2 to $3 per subscriber, lower than the rates providers charge to carry ESPN and premium channels but higher than the rates for other cable networks. These high prices are supported by demand for the often popular local sports teams they carry; transmission disputes between distributors and RSNs are often controversial and protracted.”

Wikipedia adds this, “For years, the default RSN for many markets was owned by Fox Sports, but an increasing trend is for the teams whose games make up the lucrative programming to own the RSN themselves. This serves two purposes: first, the teams make more money operating an RSN than they would collecting a licensing fee from, for example, Fox Sports Net. Second, by owning their own RSN, teams that must share revenues with other members of their league can mask its broadcast-related profits. Under the old model, a team collects a large fee for licensing its games to the RSN. That fee would then be disclosed and shared with the other teams in the league. Under the new, team-owned RSN model, the team demands only a nominal fee, so the profits for local broadcasting stay with the team.”

The business side of baseball is discussed in the article, How the Golden Age of Television and Baseball Ends by Eric Bleeker http://www.fool.com/investing/general/2014/01/12/how-the-golden-age-of-television-and-baseball-ends.aspx

Some points from the article by Mr. Bleeker. The business models for the NFL and MLB are different. While the NFL derives nearly $6 Billion in revenue from selling broadcast rights nationally, MLBs share is significantly less at $1.6 Billion. The game changer is the revenue that MLB franchises have the ability to generate revenue through their ownership of RSNs. The Dodgers, Mariners and Rangers, have been making headlines using the revenue to add talent.

While the article by Jonah Keri, on his website Grantland, deals primarily with the Orioles it has a lengthily discussion of the current contract situation regarding MASN.

Per Mr. Keri, “MASN properties generated $167.8 million in total revenue in 2012.” By our estimate the National currently have a 17% stake in the operation. It will reach the prescribed 33% limit in another 16 years.

Mr. Keri writes, “The Orioles and Nationals each got $29 million in rights fees from MASN and its spinoff network, MASN2. As part of MLB’s revenue-sharing program, every team must share 34 percent of RSN rights-fees revenue with other clubs. Since the Peter Angelos franchise controls MASN they get an even better deal.

Mr. Keri continues, “The bulk of that money came from advertising and subscriber fees, with 5.4 million consumers paying $2.14 a month. That’s well below the $2.47 industry average for 2012 and $2.69 projection for 2013, and several of the media experts and sports deal makers interviewed for this story said MASN should be getting much more.”

Even with the low fees you wonder what Angelos is doing with the profits derived from the MASN operation.

More from Mr. Keri, “The ownership may at some point renegotiate the contract. But in doing so the team could face a backlash from its fans. Keri adds, “Nishant Tella of Inner Circle Sports, a New York–based investment bank that advises on the acquisition and sale of sports franchises, said that cable companies have a vested interest in keeping these negotiations — and their revenue figures — as quiet as possible to avoid angering customers over rising bills. The same goes for the RSNs, and it goes double for teams like the Orioles that have controlling interests in their networks: If the public fully understood how much money RSNs can generate, outrage over the team’s low payroll would likely ensue.”

In May 2013 Mark Wagner wrote this, “Last summer, Selig expressed frustration with the slowness of the negotiations, calling the negotiations “very intense discussions.” Michael Weiner, executive director of the MLB Players’ Association, has called for a quick resolution to the issue. The Nationals have asked for between $100 million and $120 million per year, far more than the $29 million they received in the 2011 season. They have sought to enjoy the same skyrocketing size increases in television rights as other teams, particularly those also in the top 10 markets.”

The reason that the Orioles would not accept such a deal is made by Mr. Keri. “Remember that while RSN rights fees are subject to revenue sharing, the money left after those rights fees have been paid out is not. Remember, too, that the O’s and Nats must make the same amount in rights fees every year. So if Washington succeeded in getting $100 million a year in rights fees, Baltimore would have to pay itself $100 million a year, too. That would force the Orioles to pay the 34 percent revenue-sharing tax on $100 million instead of on the current $29 million. It would also leave MASN broke.”

Keri continues, “One potential resolution would be for the Nationals to acquire a big enough chunk of MASN from the Orioles to make the teams 50-50 partners. A 2013 Bloomberg report pegged MASN’s market value at $492 million, so the Nats would need to pay the Orioles slightly more than $167 million to acquire the 34 percent needed to get to 50-50. Other rumors have circulated. A committee of representatives from the Rays, Mets, and Pirates is brainstorming ways to resolve the MASN dispute, and if MLB eventually forces the Orioles to pay out considerably more in rights fees without receiving any financial consideration in return, it would significantly affect the team’s finances. While Angelos and his representatives on Baltimore’s business side declined to comment for this story, that would be the most logical defense to offer critics who say the team is raking in MASN cash but refusing to increase payroll. “That’s the other side,” said Tella. “That [Angelos] has been cautious with his approach to the team, not knowing what could happen given the massive shift that could go against him.”
For now, the MASN status quo remains. The Nationals aren’t completely helpless, though: According to a source close to the Washington franchise, MLB has sent the team an undisclosed sum every year to help bridge the gap, and to prevent the Lerners from taking matters to court, until the deal becomes more balanced.”

So there you have it. We congratulate Mr. Keri on providing some insight into the subject.

  • Bill Simmons

    What a fiasco.