31 March 2005

MLB, O's reach deal

The seemingly endless negotiations between MLB and O's owner Peter Angelos have finally been completed. From the looks of things, here's the deal:

  1. The two teams will form a "joint venture" or rather a regional cable sports network that will broadcast both teams' games.
  2. This network will be owned and operated by the O's, with backing from MLB.
  3. The O's will pay the Nats "fair market value" for yearly broadcast rights, which may be worth $25 million per year.
  4. Angelos and his group will be guaranteed a minimum price of $365 million should they decide to sell the O's.
A Baltimore Sun article also had this note regarding the Expos move to DC:

Angelos bitterly opposed that move, but said he might be persuaded to go along if his franchise was compensated for expected losses in revenue -- about $30 million.

I'm not clear on what this $30 million figure is. Is it a lump sum or an annual loss? This may have something to do with the speculated annual guaranteed revenue the O's were supposed to get as part of the settlement, somewhere in the neighborhood of $130 million a year. If it's in there, it's the most controversial piece of the whole deal because it strikes at the heart of the revenue sharing agreement. There are already major loopholes that have been opened in the agreement over the last several years, namely the ability to write off stadium construction costs as "operating expenses." This only shrinks the revenue sharing pie further.

There are serious ramifications for MLB. Notice how the Red Sox announced all of the changes that are planned for Fenway Park? It's not just John Henry feeling wistful about the old ballyard, it's that they can write off those improvements agaisnt future revenue sharing contributions. The Yanks are offering to fund half of a new Bronx stadium that will cost around $800 million. Once it's built, they'll spend the next 40 years writing off the costs. The new Busch Stadium is also going to be half-funded by the Cardinals. The new bleachers at Wrigley Field? A write-off for the Cubs. The ongoing improvements to Dodger Stadium? Same story.

Since all of those teams named above pay into the system, the ability to withhold a portion of that yearly payment while also receiving huge benefits along the way (tax write-offs, good local PR, increased franchise value) is huge.

On the other side of the ledger, have-not teams like the Twins, A's, Devil Rays, and Marlins would split an ever smaller revenue sharing funds pool. The idea behind this is that it should motivate the have-nots to more aggressively pursue new ballparks, since they'll get the same write-off benefits the haves get. Eventually I think MLB will move further in this direction, choosing to share a limited amount every year until every team either has a new ballpark or becomes a contraction candidate.