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Friday, April 01, 2005

Orioles and MLB Strike a Deal

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Maury Brown Posted: April 01, 2005 at 08:34 PM | 13 comment(s) Login to Bookmark
  Tags: business

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   1. Chris Needham Posted: April 01, 2005 at 10:51 PM (#1227164)
One correction, one addition.

First, if I read it correctly this morning, there was NO guarantee on annual revenue. They took that out at the last minute, apparently.

And the terrible thing about the cable network is that Angelos' stake in it is 90%. Literally ninety percent.

The Nats' stake can grow to 1/3 over the next 20 years. But that still doubles the assets that Angelos could draw. They are, however, shielded from any losses. That's a big price to pay though.
   2. Maury Brown Posted: April 01, 2005 at 11:07 PM (#1227184)
Hi Chris,
You read it correctly this morning. The one thing Angelos did not receive was the guaranty on the annual revenue. The article was submitted last night, and if you’ve been following the deal, has been shifting rapidly.

The owner equity stake by Angelos was reported by Ed Waldman of the Baltimore Sun as possibly 2/3 over a period of time. Recall that many leaks had Angelos holding 60% control -- a vast increase.

One thing to mention that caught my eye in the press release from MLB yesterday was this paragraph:

“This resolution is consistent in purpose with MLB Executive Council decisions in other areas where MLB clubs are separated by distances similar to that which separates the Orioles from the Nationals."

The wording in the paragraph above stood out when I read it. One of the concerns that many sports business analysts have had with the concept of indemnifying an owner over television territories is that it could set a precedent for further relocation or expansion by MLB in the future.

I contacted sports economist Andrew Zimbalist,today and asked him if the wording, “This resolution is consistent in purpose with MLB Executive Council decisions in other areas where MLB clubs are separated by distances similar to that which separates the Orioles from the Nationals,” was a case of MLB trying to send a message that this type of an agreement would not hold true in all cases of relocation or expansion.

“I think that's the message they'd like to send,” Zimbalist said. “It's not to say that if relocation to say, Portland, were to occur that Seattle couldn't threaten legal action. But, I think that Major League Baseball is trying to send the message that the agreement has, in some manner, to do with the proximity of the Baltimore franchise to the DC franchise."

Maury Brown
   3. Chris Needham Posted: April 01, 2005 at 11:15 PM (#1227191)
That's interesting!

When I wrote about this this morning, I had a list of about 100 questions. The one that really sticks in my mind is about the future revenue determination.

The accounts said a three-person panel meets every five years to set the rates. Obviously who's on that panel makes a difference. I'd assume the Nats and Orioles get one vote each. Who gets the other say? (Not that I expect this to be a completely adversarial committee, but there are clearly competing interests and some shared gain involved)
   4. Maury Brown Posted: April 01, 2005 at 11:37 PM (#1227220)
That's a good question, Chris. You could assume that a representative from the Orioles and Nationals would be on the panel. Maybe the third party serves as an arbitor in some regard... maybe the third party is from League headquarters... it's an interesting question.

I expect acrimony over this arrangement. Imagine if the Mets and Yankees or White Sox and Cubs were in the same position.

I simply see conflict written all over it.
   5. Dr. Vaux Posted: April 02, 2005 at 12:42 AM (#1227283)
This is really terrible for the Nationals' future revenues. $25 million/yr might be reasonable for their local TV rights right now, but it looks like this deal is perpetual. Five or seven years from now, that rights fee is going to be smaller than they could get on the open market; remember the Mets' disasterous deal with SportsChannel/FOX Sports Net that they signed sometime in the late '80s and which ran through 1999 or so? By the time that was over, they'd been getting revenues more in line with teams like Houston and St Louis for their local TV broadcasts for years. This is going to be just the same for Washington.

In the meantime, it's a terrible thing for Orioles fans, also, because Angelos has no incentive to field a contending team. So, not only are the O's stuck with Boston and New York in their division, rendering it pretty much unwinable anyway, there's now no reason to even try. In the end, I guess what Angelos said would happen if a club moved to DC really is going to: there's just going to be two mediocre teams instead of one that might have been good. At least the Nats will be on TV, because I prefer watching NL games (much as I'll miss the Red Sox).
   6. Chris Needham Posted: April 02, 2005 at 01:26 AM (#1227339)
I agree with your point about Angelos' motives, but I'll make two points in his case. *Shudder*

1. The removal of the yearly revenue guarantee is a pretty strong incentive to compete. As the Orioles have stunk the last 6 years or so, their attendance has fallen too. If he makes NO effort to field a competitive team, then attendance will plummet and revenues will continue to fall.

2. Angelos is a very proud man. I don't want to generalize ethnically, but I'm sure his heritage is part of it. But, he's also a person who loves Baltimore very much. When he bought the Orioles, he blew everyone away with his bid, in part, because he wanted to ensure that ownership was retained locally.

Now, he might not know how to run a team. And he's certainly shown little indication that he knows how to organize his club, or to put people in the right spots to succeed, but the man wants to win. Both for ego, but also for civic pride. I can't see him tanking a season completely for either of those reasons.
   7. Golfing Great Mitch Cumstein Posted: April 02, 2005 at 04:01 AM (#1227460)
MLB gave up all of this because they’ve been spooked of what Angelos could bring up in the discovery phase of litigation. Angelos felt he purchased the television rights to a large section of Mid-Atlantic in 1993. MLB claims, quite correctly, that that television territory was provincially awarded – it was on loan only.

Can you flesh out these statements? I am interested in the what may lay behind them.

Also, the franchise value gaurantee is outrageous. According to theForbe's 2004 MLB franchise value estimates, Baltimore is valued at $296 million. (And I think that Forbes is usually generous in the estimates of value and revenue of sports team.) The guarantee would represent a 20% increase in value. Is there some time frame in which this guarantee applies?
   8. Maury Posted: April 02, 2005 at 05:02 AM (#1227532)
Can you flesh out these statements? I am interested in the what may lay behind them.

There are two different areas in which "territories" comes into play. The first is outlined as to how one franchise is geographically placed in relationship to another. It used to be a 35-mile radius around the franchise, but that has changed to the use of counties.

For the Orioles, this territory includes Baltimore, Anne Arundel, Howard, Carroll and Harford Counties in Maryland.

As an additional territorial protection, Rule 52 allows a major league club to block any other major or minor league clubs from playing within 15 miles of its territory without permission. That adds a buffer around the counties outlined.

But, RFK, and the Navy Yard site do not fall within those territories, so Angelos went after another...

There are television territories for every team. There are "exclusive" areas, and there are "shared" areas. MLB awards these territories, and the entire country is sliced up. Someone, I'm sure, controls Butte, Montana.

Where the negotiations came into play was that Angelos thought he "owned" the Orioles television territory.

The difference between the territory I've outlined above, and the television territory is strikingly different.

Angelos assumed the broadcast rights to the Baltimore-Washington region, extending from the Pennsylvania border to North Carolina and from West Virginia to Delaware -- a massive swath covering the Mid-Atlantic. He threatened to sue because, in his mind, that was part of the deal when he purchased the Orioles in '93 for $173 million.

The problem is, MLB controls those television territories. They have the ability to remove areas, just as they giveth.

In other words, MLB never said, "You own this and can keep it forever," hence my comment that the territory was "on loan."

Hope that helps,

Maury Brown
SABR Business of Baseball committee
   9. Maury Brown Posted: April 02, 2005 at 08:12 PM (#1228241)
By the way...

I should be starting to Blog the business side of baseball here as soon as it's setup.

I look forward to reporting on matters such as the sale of the A's, the continued naming issue in Anaheim, the continued renovation of Fenway and Wrigley, as well as a host of other issues.

Maury Brown
SABR Business of Baseball committee
   10. Rough Carrigan Posted: April 02, 2005 at 09:51 PM (#1228362)
Sounds like exhibit #497 in the case for removing baseball's antitrust exemption. Once that's gone, nobody has "territorial" rights.
   11. Golfing Great Mitch Cumstein Posted: April 04, 2005 at 03:33 PM (#1231277)
Mr. Brwon,
What do you see as the explosive information that could be revealed in discovery?


   12. Maury Brown Posted: April 04, 2005 at 07:30 PM (#1231753)
Hello Rick,

The possibility that any and all documentation on the entire relocation process could have been requested. There is the possibility that within those documents, the true nature of the process could be unearthed. That is to say, if MLB had DC locked in from the get-go, it makes MLB look bad to all the other relo candidates, as well as solidify to Angelos that Selig was disingenuous in his assertion that he, "would not harm [the Baltimore franchise."

One could speculate that claims made by Jeffery Kessler during the RICO suit could resurface.

But, mostly the act of getting in the courtroom would be another negative issue in a long list of negative issues that MLB is in the midst of. Certainly the use of territories, and awarding them is something a monopoly can only do in business, and I think it's very possible that the idea of a high visibility lawsuit would dredge up discussions as to MLB's anti-trust exemption as well.

That is certainly a place MLB doesn't want to go.

Maury Brown
SABR Business of Baseball committee
   13. scareduck Posted: April 09, 2005 at 06:35 PM (#1243425)
MLB claims, quite correctly, that that television territory was provincially awarded – it was on loan only.

Am I the only one who thinks this should read "provisionally" and not "provincially"?

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