Deal ensures O's financial compensation

Team guaranteed at least $130 million each year

regional TV network set

October 02, 2004|By Jon Morgan and Ed Waldman | Jon Morgan and Ed Waldman,SUN STAFF

The Orioles will be guaranteed at least $130 million a year in revenue and be assured of a price of at least $360 million should the franchise be sold, under an agreement nearing completion between the team and Major League Baseball.

Orioles owner Peter Angelos demanded a deal to protect the franchise from any adverse financial consequences after Major League Baseball announced this week that it would move the Montreal Expos to Washington for the 2005 season.

The agreement calls for baseball to pay the Orioles in the event their gross revenue falls below a benchmark of about $130 million, millions less than they are expected to earn this year without competition in Washington, but still a valuable safety net. The benchmark is being set by a formula based on attendance.

The sides are expected to continue face-to-face negotiations tomorrow.

If the team's revenue dips below the benchmark while Angelos owns it, baseball will make up the difference, according to sources familiar with the talks.

Angelos had sought to have the guarantee continue beyond his ownership, something that would enhance its resale value, but baseball's negotiators refused, according to one source.

The team's resale value, too, will be protected by another provision of the agreement. The sides are still negotiating the figure, but it is expected to be roughly $360 million. The figure was first reported yesterday by The Washington Post.

The agreement also calls for escalators that would raise guaranteed value as the business of baseball, and the value of other franchises, grows.

If Angelos decides to sell the team, baseball will subsidize the price if it is below the agreed-upon amount. Angelos led a group of investors who paid $173 million for the club in 1993. But a growth in the value of sports franchises has boosted the team's value well beyond that, and experts say the team could command a price of $300 million to $400 million.

By comparison, the small-market Milwaukee Brewers, who are owned by the family of commissioner Bud Selig, this week accepted an offer of $220 million.

To protect baseball, the offer from a potential buyer must represent fair market value and be negotiated fairly. Angelos would not be able to sell the team at a discounted price to a friend or relative, for example.

One high-ranking baseball official, who spoke on the condition of anonymity, said some teams would be surprised with the size of the guarantee being offered, but that the owners would still vote for it.

Major League Baseball has operated the Expos since February 2002, when it paid $120 million to buy the distressed franchise. Each of the 29 other teams has contributed nearly $6 million in the 2 1/2 years that MLB has owned the team, and the owners want to recoup their investment, the official said.

A regional sports network will also be created to produce and market the local on-air and cable broadcasts of the two teams. Such regional networks, owned and operated by teams, are fast replacing the traditional model under which individual stations or cable systems pay a team an up-front fee in exchange for the rights to broadcast games.

Under the deal being negotiated, the Orioles will have control of the new venture, but will split the profits equally. If the network is turned over to a third-party operator - such as Comcast, the area's major cable system - the fees paid to the teams will also be equal.

This could be seen to benefit the Orioles because the Washington franchise will occupy the more populous and wealthy portion of their shared market.

Moreover, the Orioles will own 60 percent of the network's stock, to 40 percent for the Washington franchise. That could prove lucrative in the event all or part of the network is sold. The Orioles would receive 60 percent of the proceeds of any stock sale. This element of the deal will continue beyond Angelos' ownership, providing an enhancement for a potential buyer.

Team and baseball officials declined to comment on the proposed deal, which represents a substantial concession by a sports league for one of its 30 clubs.

However, progress is being made, and "negotiations have been open and candid and have been in a very professional environment," said one source familiar with the deal.

The Orioles had sought to keep a team out of Washington, arguing that nearly a quarter of its fans come from the Capital region and that the new team would siphon off a substantial number of them.

Angelos was prepared to sue the league, possibly joined in the lawsuit by the state of Maryland, which stands to lose some revenue because the team's rent is based on the money it makes each year.

Generally, sports leagues seek to keep their franchises separated, to avoid competition.

In explaining the decision to relocate the Expos to Washington, Selig said he sympathized with the Orioles' plight and wanted to keep both teams healthy.

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