Some Questions for The Baltimore Orioles

1) What is the annual revenue provided by MASN? With increased on-field performance, it seems logical that viewership would increase, and in-turn you could charge increased advertising rates.

http://baltimore.bizjournals.com/bal…ml?t=printable
Friday, April 4, 2008
Getting in the game

Baseball anchors the Mid-Atlantic Sports Network’s fortunes
Nicholas Griner

Staff A fledgling network, MASN is making a name for itself as the home of two Major League Baseball franchises. Created for Orioles owner Peter G. Angelos after Major League Baseball relocated the Montreal Expos to Washington, both the Orioles and Nationals have a stake in the network — Angelos owning the lion’s share. Still finding its financial footing, MASN could hold the key to the on-field fortune of the Baltimore Orioles, Angelos said. “Combined with the general revenue of a baseball operation it would give the Orioles every opportunity to compete with every other franchise,” he said.

Cash cows Regional sports networks have proven to be a financial boon to some of baseball’s most successful franchises. When the Boston Red Sox were sold for $700 million in 2002, which included an 80 percent stake in the team’s cable network, the New England Sports Network, experts pegged NESN to be worth more than the team. In New York, the Yankees own 38 percent of the YES Network, worth in excess of $3 billion. Regional sports networks are transforming the sports television landscape by providing viewers inside access to the franchises in which it has stakes and by adding a slew of new sports programming.

Currently, MASN is carried by 20 cable and satellite providers spanning the network’s territorial rights in seven states from Harrisburg, Pa., to Charlotte, N.C. The network is carried in around 5.2 million homes, but can top out at 7 million. MASN has been caught up in a lengthy arbitration with cable giant Time Warner for carriage on the provider’s basic cable tier in North Carolina. Time Warner argues that the majority of North Carolinians are fans of the Atlanta Braves, not the Orioles or Nationals. Time Warner has proposed putting MASN on its digital sports tier. As an upstart in a hotly competitive industry, MASN keeps its financials closely held, not disclosing revenue. Angelos said the network has not yet turned a profit but he expects it will by the end of this year. “It will be moving in that direction,” he added, especially once the network reached full distribution to the 7 million homes in its television territory. “It’s quite an involved effort.”

“The ultimate goal is to be a fully-carried RSN as soon as possible,” CFO Michael J. Haley said. “Along with that comes full advertisements.” ‘Advertising will follow’ A new regional sports network generates just under 20 percent of its revenue from advertising, said Mansell, who is president of Great Falls, Va.-based John Mansell Associates. The bulk of the revenue comes from subscriber fees, he said. MASN could take in excess of $2 per subscriber within 50 miles of Baltimore and Washington, and half of that in outer markets, Mansell said. It can take regional sports networks as many as seven years to generate more than 30 percent of revenue from ads, he said. “In the early years, I think the critical thing is to get carriage deals and the advertising will follow,” he said. John McGuinness, MASN’s senior vice president and general sales manager, said as the network ages, more advertisers are beginning to turn the page. Some of the network’s advertisers include PNC Financial Services Group, Geico, Koons Automotive and CareFirst BlueCross BlueShield.

“A lot of people locally will take a wait-and-see approach,” said McGuinness, a former executive with the YES Network. “They want to see the network, they want to feel it, they want to touch it. A lot of advertisers who sat on the sidelines last year are jumping on board.” He is expecting the network’s ad revenue to grow nearly 45 percent this year. McGuinness said the Orioles and Nationals’ affiliation with MASN creates bargaining opportunities for advertisers to sponsor both the teams games and on other team properties, such as the two stadiums. Mansell said professional baseball teams are the “real prize” for regional sports networks because of the lengthy season, programming that faces little competition in the summer.

Baseball counts for 75 percent of viewership on regional sports networks, he added, and MASN’s also at an advantage because of its rights to broadcast two teams that occupy two stations on cable providers’ lineups.

http://www.multichannel.com/article/CA6469981.html
HITTING HOME

Cash flow, however, is the main benchmark used when valuing regional sports networks. And on that measure, the networks’ growth is healthy. Using revenue data from Kagan and assuming a 40% margin, Multichannel News research shows that cash flow at YES grew 2.3% in 2006. The network with the most dramatic rise in cash flow was MASN, the Mid-Atlantic Sports Network, majority-owned by MLB’s Baltimore Orioles. That network — which launched carrying games involving its minority owner, the Washington Nationals — nearly quadrupled its cash flow in 2006 to $11.07 million from $2.81 million in 2005. However, that increase was largely due to a huge increase in subscribers — from 425,000 in 2005 to 1.8 million in 2006 — and the inclusion of Orioles games on the channel.

“MASN has grown tremendously,” Mansell said. “They have both of the baseball teams; they really have two networks now on most cable systems.”

– So in 2006, with 1.8M subscribers, the cash-flow was $11M… a huge increase from 2005 due to a large increase in subscribers.

To start 2008, MASN was in 5.2M homes, with expectation that it could grow to 7M. 1.8M is 35% of 5.2M

How many subscribers of that 5.2M are within 50 miles? If you assumed 25% (which is likely low) that would be 1.3M.

(1.3m @ $2 = $2.6m) + (3.9m * $1 = $3.9) = $6.5M from subscribership only.

Now take that $6.5M * 12 months = $78 million is MASN revenues from ONLY subscribership.

I’m not sure how much of that is divvied up between the Nat’s and O’s, but it is substantial.

http://baltimore.bizjournals.com/bal…21/daily6.html

http:/www.forbes.com/lists/2008/33/…es_336064.html

Forbes estimated the O’s worth as $398M to start 2008, which is non-inclusive of their ownership share of MASN.

In 2007, the Orioles had $166M in revenue, including $49M in gate receipts, which again was non-inclusive of MASN. They also had $103M in player expenses, and of course additional costs… It would seem realistic that the O’s made at least $30M+ on MASN in 2008… and can expect that to increase.

2) Depending on which link you use (CBS, ESPN, FOX) there were either 8 or 9 teams in 2008 that had salaries at $113M and above. To me the O’s should be capable of being one of the 10 teams with annual salary at that or above that threshold. Do you agree or not?

CBShttp://www.sportsline.com/mlb/salaries
ESPN http://sports.espn.go.com/mlb/teams/salaries?team=bos
FOX http://msn.foxsports.com/mlb/teamSal…tegoryId=71587

3) $90M was spent on player salaries in 2007, and $70M in 2008… you took $26M off the books with the Tejada deal prior to the 2008 season… MASN guarantees a certain amount of revenue.. At the end of the 2009 season, you will lose Mora, Huff, Hernandez, Walker, Baez, Gibbons and Roberts (if not resigned) off the books…. How would you characterize the payroll flexibility to the franchise?

4) You are approaching Nick Markakis now on an extension, with 3 arbitration years remaining. A 6-8 year-deal for around Rios’ type money seems fair to both-sides. Nick gives up 3 years of Free Agency for the benefit of a guaranteed long-term contract. The contract you are forced to offer now is more expensive then the contract you could have offered last off-season… when you knew you wanted to build around him. Similarly, you know you want to build around Jones, and Wieters… why not offer Longoria-esque extensions to them now, when you can sign them cheaper?

5) Nolan Reimold turned 25 in October, and can be a productive Oriole, at a bargain price for several years.

In 693 AA at-bats, he has produced 201 hits, 44 doubles, 3 triples, 36 homers, 118 rbi, 117 runs, 80 walks, 129 k’s, 290 baa, 880ish OPS

In a year where you can not contend, you have the opportunity to give him everyday playing time at the Major league level…. What is the point of sending him to Norfolk?
Him and Scott can split DH and LF, with Huff at 1st.

6) Formal ownership of the Yankees was recently transitioned.. What is the succession plan for the ownership of the Orioles? What is the succession plan for MacPhail? Does Peter Angelos turning 80 this July have any impact on organizational philosophy?

7) Orioles Reach was widely successful in 2008, how will that program be increased during 2009?