Fox Corp.’s $787.5 million settlement with Dominion Voting Methods over defamation prices is eye-popping, however the final price to the media firm is prone to be a lot decrease.
On Tuesday, Fox settled with Dominion over prices that Fox Information baselessly accused the corporate of rigging its voting machines in opposition to former President Donald Trump in 2020. It was the most-watched media libel case in a long time.
Fox had about $4 billion of money readily available as of December 2022, and MoffettNathanson analyst Robert Fishman expects the corporate to pay the settlement in the course of the present quarter.
How a lot the lawsuit will truly find yourself costing Fox is unclear as a result of there are methods it may well defray a few of the expense, primarily by insurance coverage and the usage of tax deductions.
Fox can deduct the Dominion settlement from its revenue taxes as an expense needed for the price of doing enterprise. Fox Chief Communications Officer Brian Nick has confirmed the deductibility of the settlement.
Massive firms typically deduct massive settlements to assist offset a few of the price, however since settlement quantities are often confidential, it is tough to pin down precisely how a lot they profit. Funds which might be seen as restitution or compensation could be deducted, whereas funds made to the federal government or on the route of a authorities are often not deductible.
Robert Willens, a tax professor on the Columbia College College of Enterprise, estimates that after the tax write-off, Fox will incur about three-fourths of the settlement quantity, about $590 million.
“The secret’s that if the funds are being made to personal events and never on the behest of the federal government then you possibly can just about conclude with none worry of contradiction that the fee shall be deductible,” he mentioned.
A research by the Authorities Accountability Workplace in 2005 discovered that of 34 settlements totaling over $1 billion, 20 firms reported deducting some portion or all of their settlement funds. Massive banks corresponding to Financial institution of America and JPMorgan Chase reportedly additionally deducted parts of their settlements of prices tied the monetary disaster of 2008.
Story continues
Additionally, if Fox is insured, insurance coverage is prone to cowl a few of the settlement. Chad Milton, a associate at Media Danger Consultants, mentioned a big media firm corresponding to Fox may have wherever between $100 million to $500 million in protection, together with media legal responsibility insurance coverage and different sorts of insurance coverage.
“It’s not arduous to stack up $100 million however as you go greater than that, it will get more durable and more durable,” Milton mentioned.
Normally, 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. Nonetheless, the deductible incudes legal professional 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 legal professional 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 at all times agree on who ought to cowl what, since there are caveats written into contracts that permit insurers to keep away from paying underneath sure circumstances. In 2012, Disney settled a defamation go well with after ABC aired a phase that questioned the security of a meat producer’s merchandise that critics dubbed “pink slime.” However 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 finally misplaced.
Fox has additionally mentioned it doesn’t anticipate the settlement to have an effect on its operations.
“We don’t anticipate vital operational results or adjustments to our enterprise given our money move, robust stability sheet and the well being of our enterprise,” the corporate mentioned in a press release after the settlement was introduced.
MoffettNathanson’s Fishman mentioned the whole lot signifies the corporate will be capable of run its enterprise as normal.
“It isn’t clear there was a lot, if any, influence of those lawsuits on Fox Information’ viewership and enterprise,” he mentioned.
Fishman mentioned he doesn’t anticipate the settlement to hamper Fox’s potential to return cash to shareholders, together with a $1 billion 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 may not go to courtroom for a few years.