TV Dispute Might Be Hurting Nationals in Free Agency

In the offseason, teams are frequently characterized as “winners” and “losers” based on the players they’ve acquired relative to the players who have left. Often, the so-called winners are simply the clubs who’ve been most active, bringing in the most players — regardless of cost — while the losers often are those clubs which have been more idle, making smaller moves to improve their rosters. These characterizations do not always translate to the field, as the case of the San Diego Padres illustrates. The Padres followed an active 2014-15 offseason with a poor 2015 campaign.

With that caveat having been made, many have declared the Washington Nationals losers this offseason not simply because Ian Desmond, Drew Storen, and Jordan Zimmermann are gone — replaced by a relatively modest group including Shawn Kelley, Daniel Murphy, Ben Revere — but mainly because they failed to land Yoenis Cespedes, Jason Heyward, or Ben Zobrist in free agency. While the team might be hidden winners of the winter, the Nationals are claiming their failure is due to a tightened budget caused by the Baltimore Orioles’ refusal to pay market value for their television rights.

For those who might not be aware, the Orioles — principally Peter Angelos, through regional sports networks MASN and MASN2 — air the Nationals broadcasts. The Orioles control the Nationals broadcasts as a result of negotiations with the team when the Nationals moved to Washington, D.C., thus encroaching on the Orioles’ television territory. Nathaniel Grow characterized the situation like this after the last major decision in the legal dispute between the teams:

In order to alleviate the Orioles’ concerns, MLB structured a deal in which Baltimore would initially own 87 percent of the newly created Mid-Atlantic Sports Network (MASN), the regional sports network that would air both the Orioles’ and Nationals’ games. In exchange, the Nationals were scheduled to receive an initial broadcast rights fee of $20 million per year from MASN, an amount that would be recalculated every five years.

Jump forward to 2012, when Washington requested that its rights fee be increased to $120 million per year. MASN and the Orioles refused, and as a result the dispute ended up in arbitration, with a panel of MLB team executives – the Mets’ Jeff Wilpon, the Rays’ Stuart Sternberg, and the Pirates’ Frank Coonelly – ultimately awarding the Nationals roughly $60 million per year in broadcast fees.

The Orioles believed they should pay the Nationals roughly half the amount the arbitrators awarded and appealed, getting the decision thrown out due to conflicts with the Nationals’ counsel. (For more on the decision, read Grow’s full piece linked above.) The case is still ongoing without a resolution and the Nationals are pushing the Orioles to head back to arbitration. The Nationals retained new counsel, and have filed a motion to compel the parties to arbitrate the case and set a value for the television rights. In their recent motion, the Nationals indicated that the Orioles’ failure to pay fair-market value for television rights has hamstrung the team in signing free agents to multi-year contracts.

“MASN’s underpayment of rights fees has already required the Nationals to fund payroll and other expenses from its own reserves, and further delay could require the Nationals to seek new financing,” says the team’s memorandum. “This is not only burdensome in its own right, but it places the Nationals at a competitive disadvantage to other baseball clubs, which typically receive fair market value from their regional sports networks for their telecast rights. Without this added income, the Nationals are handicapped in their ability to invest in efforts to improve the team. For instance, without this added and steady income, the Nationals cannot bring full economic confidence to investments in multi-year player contracts to keep up with the fierce competition for top players — especially when such control over finances is in the hands of a neighboring club.”

This might sound a bit like whining coming from a billionaire owner who just one year ago signed Max Scherzer to a seven year, $210 million contract, and reportedly made offers to Jason Heyward for roughly $200 million and Yoenis Cespedes $100 million, but those claims do have some merit.

Consider, first, the Nationals’ payroll history over the last decade. From 2005 to 2011, the team kept payroll at a fairly low $60 million to $70 million range that ranked in the bottom third of teams, while the value of the club’s television deal remained low pursuant to their agreement with the Orioles. In 2011, the team performed fairly well, nearly reaching .500. In 2012, in what was to be the first year of increased television money, the Nationals increased payroll to over $90 million, almost into the top half of major-league clubs. The team won 98 games and payroll continued to rise: to $121 million in 2013, $142 million in 2014, and nearly $170 million last year, fifth among all MLB teams.

Given that payroll, it is difficult to argue that the Orioles’ failure to pay market value for television rights has hampered the team, but a closer look indicates otherwise. First, start with Max Scherzer’s contract. It does indeed pay him $210 million, but Washington structured the contract with deferrals and backloading such that he received just $15 million in 2015, and will receive that same figure this year and every year through 2028 when the deferred money is finally paid down.

When accounting for Scherzer’s actual 2016 cost, the Nationals’ opening-day payroll right now is set at around $135 million, a $25 million drop from last season — this despite a slight increase in attendance in 2015. The team was 11th in attendance with 2.6 million fans. That attendance combined with the fifth-highest average ticket price in MLB means the team is making solid revenue. But without the bump in television money, a payroll commensurate with the Washington D.C. market might not be possible.

The Scherzer-style deal worked last year, but this winter it hasn’t been as successful. The Nationals were able to backload Daniel Murphy’s deal so that he makes just $8 million in 2016 with the remaining $29.5 million of the three-year deal paid out over four years. As Peter Gammons noted in a piece examining the harmful effects of the Nationals’s television deal, all of the free agent offers the club made were paid out over many years, with Cespedes and Heyward’s lasting more than a decade, and Zobrist’s offer heavily deferred. Meanwhile, the Orioles’ payroll has increased about $40 million since 2013 — up to $130 million for opening day this season.

This dispute has been going on for four years now, and does not appear to be reaching a resolution at the moment. Estimates suggest that the Nationals have lost more than $100 million in expected revenue, and as a result, they have attempted to be creative in trying to lure free agents. Those attempts have not worked, as players have chosen to sign deals with more upfront money this winter. They are likely to be a competitive team this year, fighting with the Mets again for the division crown. While we do not know everything in the Nationals’ financial records, based on their actions this winter and last, it would appear that the failure to reach a resolution with the Orioles and MASN regarding an appropriate payment for television rights has indeed hurt them in their bid to be as competitive as possible on the field this season.