Fox Corp’s $787.5m settlement with Dominion Voting Systems over defamation costs is eye-popping, however the final value to the media firm is prone to be a lot decrease.
On Tuesday, Fox settled with Dominion over costs that Fox News baselessly accused the corporate of rigging its voting machines towards former President Donald Trump in 2020. It was the most-watched media libel case in a long time.
Fox had about $4bn of money available as of December 2022, and MoffettNathanson analyst Robert Fishman expects the corporate to pay the settlement throughout the present quarter.
How a lot the lawsuit will truly find yourself costing Fox is unclear as a result of there are methods it will probably defray among the expense, primarily by insurance coverage and using tax deductions.
Fox can deduct the Dominion settlement from its revenue taxes as an expense mandatory for the price of doing enterprise. Fox Chief Communications Officer Brian Nick has confirmed the deductibility of the settlement.
Big firms usually deduct giant settlements to assist offset among the value, however since settlement quantities are often confidential, it is troublesome to pin down precisely how a lot they profit. Payments which are seen as restitution or compensation could be deducted, whereas funds made to the federal government or on the course of a authorities are often not deductible.
Robert Willens, a tax professor on the Columbia University School of Business, estimates that after the tax write-off, Fox will incur about three-fourths of the settlement quantity, about $590m.
“The key is that if the payments are being made to private parties and not at the behest of the government then you can pretty much conclude without any fear of contradiction that the payment will be deductible,” he said.
A study by the Government Accountability Office in 2005 found that of 34 settlements totaling over $1bn, 20 companies reported deducting some portion or all of their settlement payments. Big banks such as Bank of America and JPMorgan Chase reportedly also deducted portions of their settlements of charges tied the financial crisis of 2008.
Also, if Fox is insured, insurance is likely to cover some of the settlement. Chad Milton, a partner at Media Risk Consultants, said a large media company such as Fox could have anywhere between $100m to $500m in coverage, including media liability insurance and other types of insurance.
“It’s not hard to stack up $100m but as you go higher than that, it gets harder and harder,” Mr Milton mentioned.
Usually, there’s a certain quantity a media firm has to pay, which may very well be within the tens of millions, earlier than insurance coverage kicks in. However, the deductible incudes lawyer charges, which in a high-profile case like Fox-Dominion may very well be tens of tens of millions of {dollars} or greater, so the deductible may very well be swallowed up simply by lawyer charges.
One wrinkle: even when an insurance coverage firm pays a considerable a part of the settlement, there may very well be an annual mixture restrict of legal responsibility, which may imply that insurers wouldn’t cowl one other big-money settlement.
And media firms and insurers don’t all the time agree on who ought to cowl what, since there are caveats written into contracts that enable insurers to keep away from paying beneath sure circumstances. In 2012, Disney settled a defamation swimsuit after ABC aired a phase that questioned the security of a meat producer’s merchandise that critics dubbed “pink slime.” But one in every of its insurers, AIG, ended up suing Disney so that they wouldn’t should pay a part of the settlement, though AIG ultimately misplaced.
Fox has additionally mentioned it doesn’t anticipate the settlement to have an effect on its operations.
“We don’t expect significant operational effects or changes to our business given our cash flow, strong balance sheet and the health of our business,” the corporate mentioned in an announcement after the settlement was introduced.
MoffettNathanson’s Mr Fishman mentioned all the pieces signifies the corporate will have the ability to run its enterprise as traditional.
“It isn’t clear there has been much, if any, impact of these lawsuits on Fox News’ viewership and business,” he mentioned.
Mr Fishman mentioned he doesn’t anticipate the settlement to hamper Fox’s capability to return cash to shareholders, together with a $1bn accelerated share repurchase program introduced in February.
Fox has an identical lawsuit looming with one other voting machine firm, Smartmatic, however no date has been set and the case won’t go to court docket for a few years.
Source: www.impartial.co.uk