In 2005, MLB and Angelos worked out a deal allowing the Nationals to operate in D.C. in exchange for a new local TV deal that overwhelmingly favored the Orioles. In July 2006, the Mid-Atlantic Sports Network launched a full-time sports programming slate headlined by O’s and Nats games. The terms dictated that each franchise would receive the same amount in rights fees, but that Baltimore would control a 90 percent share of MASN and any MASN-owned spinoff networks at the start; the Nationals would pick up an additional 1 percent stake each year after an initial two-year wait, until eventually reaching a 33 percent cap. Angelos got his lopsided deal, while the Nationals, who play in the nation’s seventh-biggest market,4 got screwed.
While the Orioles are bringing in quite a bit more than the Nationals, neither team is profiting from MASN as much as it could be. According to SNL Kagan, a group that analyzes cable and broadcast network deals as well as regional sports networks (RSNs), MASN properties generated $167.8 million in total revenue in 2012.5 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 2013,6 and several of the media experts and sports deal makers interviewed for this story said MASN should be getting much more. Comcast SportsNet Mid-Atlantic, which primarily airs Washington Capitals and Wizards regular-season games, got $4.02 per month in 2012, indicating the market would likely support a higher rate for MASN. It’s hard to know whether to blame the network’s low subscriber fee on inept management, the timing of the deal,7 or other factors, but whatever the reason, it’s clear MASN will be leaving tens of millions on the table until it renegotiates with local cable providers.
When that renegotiation might happen is a mystery. 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.
Rights fees are another variable. In 2012, the Orioles and Nationals each got $29 million in rights fees from MASN and its spinoff network, MASN2.8 As part of MLB’s revenue-sharing program, every team must share 34 percent of RSN rights-fees revenue with other clubs. When a team signs a deal with an existing RSN, the network agrees to pay the team a certain amount per year in rights fees, from which that 34 percent stems. If a team owns its RSN, however, it gets to keep a bigger chunk of subscription and advertising revenue. The team must pay itself some amount in rights fees, and while there’s no hard-and-fast rule for what that amount is, MLB tries to ensure that the figure is roughly commensurate with industry averages, adjusted as necessary for market size. Thirty-four percent of that figure then gets thrown into the revenue-sharing pot. After that, the RSN-owning team gets to keep all remaining profit, since MLB considers RSN ownership a separate business venture that’s not subject to the usual revenue-sharing rules.
Baltimore is one of the few teams that owns a majority share in its RSN,9 fostering a strong interest in keeping rights fees as low as possible. Controlling the lion’s share of MASN allows the Orioles to reap most of the network’s profits.
When the Lerner family bought the Nationals in 2006, it was saddled with this lemon of a deal, in which neither it nor the team’s first president, Stan Kasten, had any say. The terms stipulated that the deal could be renegotiated after five full seasons, and the Nats took their first opportunity to challenge the terms after the 2011 season. When that challenge dragged into 2012, those terms looked even more unfair. After spending years rebuilding a franchise that had been decimated by penny-pinching and mismanagement in Montreal, the Nats finally made the playoffs for the first time, winning 98 games and the NL East title. That same year, the Orioles made the postseason for the first time in 15 seasons. MASN viewership skyrocketed, enhancing the network’s already rising economic profile, but the Nats saw just a fraction of the returns.
Since the Nationals couldn’t contest the equity element of the deal, they tried for higher rights fees, asking for $100 million a year. The Orioles countered with a 20 percent raise, to about $35 million. There’s no hope in hell of an easy compromise when the two sides are that far apart, and the Orioles have good reason to dig in their heels. 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.
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.