Major League Baseball and the Baltimore Orioles announced yesterday the creation of a regional sports network that will televise Washington Nationals games, while designating the vast majority of ownership and any profits from the venture to the Orioles.
The deal prompted expressions of concern by groups interested in buying the Nationals from Major League Baseball. They said it raised questions over whether the team would be able to fully take advantage of the Washington media market, the eighth-largest in the country and nearly three times the size of that of metropolitan Baltimore.
"My initial reaction, without knowing all the details, is that this depresses the value of the team," said one interested buyer, who spoke on condition of anonymity. "The amount of equity given to the Orioles and the amount of control they have removes a lot of the economic value of the team."
Under the terms of the deal, which was negotiated over the last six months, the Orioles will own 90 percent of the regional sports network this season, with baseball owning the rest, according to sources with knowledge of the arrangement. Baseball's share of the network would increase over the next 20 years, but it will be capped at 33 percent.
In effect, that leaves Orioles owner Peter G. Angelos's control of the Baltimore-Washington baseball television territory, which he acquired when he bought the team in 1993, largely intact.
The network, called Mid-Atlantic Sports, will pay the Nationals a guaranteed $21 million for the team's television rights this year, whether the network makes money or not, the sources said. That's higher than 17 other baseball teams and several million dollars more than the Orioles currently earn from local television, according to one baseball official.
The Nationals would not assume any of the risk from the network, should it lose money. A three-man committee inside baseball will re-evaluate the Nationals' television rights every five years to align the team's TV revenues to their value in the marketplace.
Baseball President Robert A. DuPuy said the agreement would be good for the Nationals and the Orioles.
"The interests of all the parties have been protected," DuPuy said. "The Orioles and their fans have been assured protection from any harm. Any compensation to the Orioles comes from the industry and not from the Nationals. We protected the Nationals. We didn't hurt them."
But the agreement could have significant implications on the sale price of the Nationals and whether the franchise can be competitive in the National League East, which includes such big-market teams as the New York Mets and Philadelphia Phillies, according to media and sports analysts. Baseball officials said yesterday that it had not been decided whether the league's share of Mid-Atlantic would be sold or transferred to the new owners of the Nationals.
"In the short run, I would say $21 million is a reasonably good figure without taking any of the risk," said sports television consultant Mike Trager. "Having a fixed revenue stream at a reasonable price is an asset in the short run. The issue is whether that equity gets transferred to the new ownership. In the long run, it could put some restraints on the Nationals. "
One person familiar with sports television deals, who asked that his name not be used, said the $21 million rights fee for both cable and over-the-air broadcasts sounded low for the Washington market. The person said the rights fee would not likely increase the value of the team, but it could reduce the amount baseball can earn from the sale.
Baseball is hoping the Nationals, formerly the Montreal Expos, will fetch up to $400 million. Baseball's 29 other franchises bought the Expos for $120 million in February 2002. At least seven bidders have lined up to purchase the Nationals, but the failure of baseball and Angelos to agree on control of the region's television rights had brought the sale process to a halt.
The Orioles have two years remaining on their contract with Comcast SportsNet to produce and televise about 80 Orioles games a season. Starting in 2007, according to the agreement, Orioles games would also be produced by Mid-Atlantic Sports. The eventual plan is for all the Orioles and Nationals games to be produced by Mid-Atlantic Sports and for all the games of both teams to be aired throughout the Baltimore-Washington region.