Sunday, July 17, 2005

Less than three months ago, fear and loathing surrounded the arrival of the Baltimore Orioles-controlled Mid-Atlantic Sports Network (MASN) to the local consciousness.

The channel was not widely available to most Washington-area homes and still isn’t. Comcast Corp. is waging a bitter and well-funded legal fight to challenge its existence. And because of MASN’s 90 percent ownership stake held by the Orioles, most Nationals fans, including the eight bidding groups seeking to buy the club, considered the unprecedented holding of one team’s local TV rights by a rival team to be perverse at best.

But a funny thing happened on the Nationals’ march to a tenuous spot atop the National League East. Those same suitors for the Nationals, after some additional time to digest the situation and monitor a bidding process for the club quickly exceeding $400million, no longer see MASN as a uniformly negative development.

The rise of MASN has not significantly slowed down the auction process for the club, as widely and initially feared. Indeed, Major League Baseball commissioner Bud Selig said last week he still intends to identify the club’s new owner later this summer. And this time, executives around the sports industry actually believe him, with the choice perhaps arriving in as little as a month. The Comcast lawsuit did not stop MASN executives from signing carriage deals with DirecTV and RCN Cable, and negotiations continue to occur with Cox Cable.

On the economic front, the Nationals are getting a guaranteed $20million payment this season from the Orioles for their local TV rights, and that equity stake in MASN slowly rises from 10 percent to 33 percent. The early concern over being limited from the potential fiscal upside of MASN still exists, as well as exactly how that rights fee will be readjusted periodically for market conditions, as promised.

Two other facts also exist about MASN, however. The current deal cannot get any worse for the Nationals. And regional sports networks, particularly ones in major TV markets, have proven themselves quite attractive in terms of both annual revenue and asset value growth.

“Right now is as bad as it gets. It can only get better from here,” one Nationals bidder said. “One of three things is going to happen. Either we all live the current situation and make the best of it. The Comcast lawsuit somehow returns the Nationals’ TV rights back to the club to do as it sees fit, and that control is restored. Or a deal is made with [Orioles owner Peter] Angelos to buy into some [MASN] equity and create a more level situation.”

That final option could be quite expensive, given that MLB earlier this year committed $75million for the junior stake in MASN. But with the Nationals already profitable and expected to stay that way for the foreseeable future, buying into what could be a quickly appreciating asset presents a solid long-term opportunity, providing Angelos would be willing to make such a deal.

One other indicator to measure the concern over MASN among the Nationals bidders is a simple ranking of the network on their lists of worries. And for plenty within the group, MASN is not nearly as big a problem as the development of the Nationals’ new stadium in Southeast. City officials insist the ballpark project is still on target for its March 2008 opening, with formal offers to landowners in the stadium site being sent out shortly.

Quietly, many of the suitors feel differently and have prepared financial models assuming the 2008 season will be played at RFK Stadium, with some even thinking about part or all of 2009 without the new ballpark. The potential for problems with the stadium also form part of the reason why the bidders are forming and strengthening as many local political alliances as possible.

“There’s just so much to do down there. There’s no way it’s done for Opening Day 2008,” another Nationals bidder said. “You have land acquisition issues, environmental remediation issues, political issues, design issues. It’s going to be great when it’s done, but these projects are always so complex that it’s shortsighted to simply assume it will be done [in 2008].”

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