Nationals’ negotiations with MASN will have huge impact on franchise
By Adam Kilgore,
When the Lerner family bought the Washington Nationals from Major League Baseball in 2006, the team came with a unique television contract, one that intertwined them with Baltimore Orioles owner Peter Angelos and the Mid-Atlantic Sports Network. To persuade Angelos to drop his firm stance against a team in Washington, the league struck a TV deal in which Angelos held the advantage.
Television contracts and the money generated from media rights fees have become a crucial factor in how baseball teams are run. Along with ticket sales, they are a team’s primary form of income, and in recent years the fees across sports have skyrocketed. The Lerners have never had a say on their arrangement with MASN.
This winter brought the first “reset period” in the Nationals’ contract with MASN, a window for the Nationals to renegotiate the rights fees they receive from MASN. To maximize their take, the Nationals hired a high-powered media consultant to argue for what constitutes fair-market value fees. If the Nationals and MASN cannot reach an agreement, the negotiation will be decided in an arbitration hearing.
The results could fundamentally change the scope of how the Nationals do business and spend to acquire players. One person familiar with the Nationals’ situation and the dynamics of baseball rights fees said the Nationals could hope to double or triple the $29 million they received from MASN in 2011.
The private nature of the negotiation means there are still more questions than definitive answers. Telephone messages left with three MASN executives and with Angelos were not returned. Nationals COO Andy Feffer said, through a team spokesperson, “We don’t comment about business negotiations.”
‘Impossible to overstate’
There is one certainty: It will have a profound impact on the Nationals’ business operations and, ultimately, their on-field success.
“It’s impossible to overstate just how important it is for a franchise to gets its media deal right,” former Texas Rangers managing partner Chuck Greenberg said. “The difference is material, and affects every element of a franchise operation.”
Greenberg knows from first-hand experience, as an architect of one of deals that will presumably color the Nationals’ case. In 2010, the Rangers reached a 20-year deal with Fox Sports worth $3 billion, according to a report in USA Today that cited two baseball officials who had seen the contract. The deal allowed the Rangers to operate with a financial assurance unrivaled in baseball outside of New York and Boston.
“It was transformational,” Greenberg said. “Media is one of the most essential [components] of the financial infrastructure of a franchise. To lock in a favorable deal, which also represents a significant competitive advantage against your peers, is one of the most favorable things a franchise can experience.”
The Nationals’ contract with MASN allows for the franchise to argue for rights fees in line with what they could receive in an open process. But “you wouldn’t necessarily be expecting them to get a fair market value for their fees,” said Andrew Zimbalist, an economics professor at Smith College and a sports business expert.
The contract also obligates the Nationals to sell their rights fees to MASN, which could limit their negotiating power. In order to appease Angelos, MLB designed a contract that gave him 90 percent ownership of MASN, with the Nationals holding 10 percent. The Nationals’ stake grows every year — it currently stands at 13 percent — and will stop growing when it reaches 33 percent.
In the current “reset” negotiations, the Nationals are not arguing to increase their ownership. Rather, they are aiming to convince MASN that their media rights are currently valued below fair-market value.
The Nationals will point to the sharp increase in rights fees across sports, highlighted by the Rangers’ deal and the contract the Houston Astros reached, in tandem with the NBA’s Houston Rockets, for 77.5 percent ownership of a regional sports network started by cable giant Comcast.
A sports TV boom
Sports rights fees have increased in value for several reasons. As television audiences have grown more fractionalized, sports still delivers a consistently mass audience – and with baseball the audience watches 162 times a year. Live sports is the programming most immune to digital video recording, a boon to advertisers weary of having their commercials fast-forwarded through.
“There’s no question that throughout the industry, the value of media rights has grown dramatically since the MASN deal was put together,” Greenberg said. “There’s a whole host of factors that defy assigning a simple number to it. Certainly, when you look at all the relevant considerations, whatever the rights were worth at the inception of the Nationals’ franchise, they’re worth considerably more today.”
The Nationals’ case, experts said, will hinge on several factors. They will likely try to compare the Washington market to Dallas — in a fall study by Arbitron, Washington was ranked the eighth-largest media market, Dallas the fifth-largest. They will argue the Nationals are an up-and-coming team led by Stephen Strasburg, one of the hottest attractions in baseball.
The Orioles and MASN will likely counter with the Nationals’ lackluster ratings, an MLB-worst 29,000, according to Sports Business Journal. Also, while the Nationals have improved their record by 10 wins in consecutive years, the Rangers were in the middle of winning the American League pennant when they reached their watershed TV deal.
One potential development, though, could add to the Nationals’ argument. The Nationals have been in talks with free agent first baseman Prince Fielder, a power hitter who would make the Nationals a contender. If the Nationals added Fielder, it could boost their desirability as a television entity.
“I think it would,” Zimbalist said. “Somebody like Fielder offers the possibility of not only the team being more competitive, but generating excitement in his own right.”
The Nationals will have a powerful negotiator in their corner. This fall, they hired consultant and former television executive Chris Bevilacqua to help them renegotiate the MASN deal. Bevilacqua declined to comment about his role with the Nationals.
“I’m just not comfortable talking about the subject matter,” he said when reached in his New York office.
Bevilacqua helped create the Pacific-12’s television network and assisted in the Rangers’ contract with Fox Sports. The Lerners have not negotiated for rights fees before, but they hired a man with as much experience as anyone.
“He’s as good as there is,” one person familiar with Bevilacqua and the sports television business said. “He’s done every deal. These deals are a critical component of the revenue stream. This will have a very positive impact on the Nationals.”