Once again, we put Ted Leonsis into our headlines yesterday as he is still the clear frontrunner to buy the Washington Nationals if the team is sold. Leonsis heads Monumental Sports & Entertainment that owns the Wizards and Capitals as well as the largest local sports TV network (NBC Sports Washington).
Source: The Leonsis side is making some positive progress in their hopes to purchase the Washington Nationals. Notable obstacle is MASN. Final obstacle is agreeing on a price that works for Lerners and for Leonis and partners.
— Talk Nats ⚾ (@TalkNats) November 9, 2022
From what we understand, of the Monumental business model, is that they are led by Leonsis as the managing partner, and he has 19 other partners that includes a name familiar to everyone here: Nats principal owner Mark Lerner. The other 19 partners are some of the wealthiest people in the world. Currently, the oft-mentioned David Rubenstein is not listed as a Monumental partner. Besides Lerner, the other partners are David Blair, Scott Brickman, Neil D. Cohen, Jack Davies, Richard D. Fairbank, Raul Fernandez, Michelle DiFebo Freeman, Laurene Powell Jobs, Sheila Johnson, Richard Kay’s estate, Jeong H. Kim, Roger Mody, Anthony Nader, Dick Patrick, Fredrick D. Schaufeld, Jeff Skoll, Earl W. Stafford, George P. Stamas, and Cliff White. Some names you know, and others you will have to Google. Of note, Kay passed away two years ago. What they all have in common is that they are mega-rich. Some say Jobs is the wealthiest of them all and 127th on the billionaire’s list.
If Monumental’s business structure works like most closely held groups like this — when they want to make a new purchase, they can do it by debt financing to keep everyone’s ownership level the same, or make a capital call, a combination of the two, or they bring in new capital through new partners like Rubenstein to infuse more cash into the group. When you do the new partner route, it dilutes the ownership interests if the other partners do not add in more capital. But if each current partner does not invest any more money into the deal, they would still own the same asset value of a larger pie if the Nationals were folded in. Owning 3 percent of a $10 billion asset is the same value as owning 2.4 percent of a $12.5 billion asset. That ownership interest is still worth $300 million in both scenarios. What we don’t know is how much Leonsis, Lerner, or Rubenstein would own of Monumental.
Monumental owns teams, arenas, and NBC Sports Washington. It is an impressive portfolio. Because cash is easier to raise to buy a new team by just adding new partner(s), there would be no reason to sell the Wizards just to raise cash. By keeping debt off the books, there is no interest expense or the typical cashflow issues that other teams have.
This is very similar to the set-up of other groups out there like Fenway Sports Group. The only difference hanging over the Nats purchase is MASN. No other major sports franchise has a geographical business competitor that owns the majority of their TV rights like the Nats have with the Orioles. That control has been acrimonious with multiple lawsuits that spilled into the public. We reported in August that Leonsis wanted to purchase the Nats portion of MASN, and the same source also said Monumental would be open to purchase all of MASN, but those talks did not advance at all.
Because the lawsuit’s documents became public, we know a lot about MASN, and it’s structure. In 2023, MASN will be owned 24 percent by the Nationals and 76 percent by the Orioles. In 2032, the partnership will set at a final 33 percent to the Nationals and 67 percent to the Orioles unless the two sides workout a way to buyout of this. The following is an actual snapshot of Section 21 of the MASN agreement which gives the partnership and profit percentages:
In just 2015 based on MASN’s reported $60 million profit filed in the lawsuit, the Nats share was just $9.6 million while the Orioles pocketed $50,400,000 that year. There is a reason why we called MASN the Rubik’s Cube in this debacle back in September. Remember, the Nats still have to contractually be paid “fair market value” for their annual rights fees and that is what is the basis for the ongoing lawsuit in defining fair market value. Last we saw it was about $66 million in 2016, and that is far below what the Texas Rangers were getting back in 2010 or the Phillies get today. It has led to an EXTREME competitive disadvantage for the Nats, and the reason the Phillies started spending “stupid” money to acquire free agents. Normally you determine FMV by the value someone is willing to pay for something. In this case, you compare yourself to teams of similar market size.
Since the Nationals will own 24 percent of all of MASN next year, a buyout valuation is very complicated. We can apply a classic private company valuation method for non-capital expenditure heavy businesses and those without extraordinary growth prospects: Earnings Before Interest, Taxes, & Depreciation (EBITDA) times a market multiple. What is MASN’s EBITDA? Some on this blog have generously hypothesized about $30M, and keep in mind that MASN argued in court that they do not even think they can make a profit if they paid an annual rights fee that the Nationals were looking for.
After agreeing on the EBITDA, we now have to find a market multiple. We understand that the multiple for sale of the Fox RSNs was 6x (2019). The crown jewel of RSNs, the YES Network, went for 8.4x (2019). We read that one analyst indicated his 2019 thinking that 4.8 to 6.3 may make sense. More currently, we read a Sep 2022 Forbes piece that noted multiple RSNs are barely breaking even.
But okay, what if we generously assume an EBITDA for MASN of $30M and use an EBITDA multiple of say 7x. This would result in an enterprise value (ie, Debt + Equity) of ~$210M. To get to equity value, we would then look to extraordinary adjustments and then subtract any long-term debt on the MASN books. We would consider monies owed to the Nats as an extraordinary adjustment — really a debt equivalent. The Nats are owed $100 million per the courts award two years ago, and that money is in escrow. Okay, so ~$210M less $ owed to the Nats, less any debt on the books, and you get equity value using this classic valuation method.
But MASN is such a mess, one also should consider a fresh-start valuation – as if there were no MASN and the Nats were to set-up their own RSN. And here one could roll-in the news we read that “MLB clubs were invited to choose up to three foreign markets where they’d like new commercial rights. Revenue generated there will be treated like revenue generated locally.”
Finally, to extricate themselves from the existing MASN deal, the Nats’ side must negotiate against a counterparty themselves in turmoil and known to be very difficult.
The other angle in all of this is when the Orioles might be sold and if that is tied to the estate planning of their patriarch, Peter Angelos. The Angelos brothers have been battling it out in the courts, and their mother is choosing sides per reports. All of this is happening while the patriarch of the family is in failing health per reports.
Georgia Kousouris Angelos has worked directly with the Moore & Van Allen law firm to ensure that the family’s estate planning and the “Orioles near and long-term strategic plans are well put together.”
Ryan Clary at the Locked ōn Nationals pod went off about MASN today. He didn’t yell or scream, but I liked his points.
What has been clear to every potential buyer of the Nats is that MASN is a major issue as well as an obstacle to being as fiscally successful as you want this team to be. But this is also about being on an equal footing with your competition that has free reign of their regional TV rights. The Nats have to rely on attendance and corporate partnership more than the other teams. So when attendance is down, this team is going to suffer financially until MASN is solved.
