Fox Corp. ’s $787.5 million settlement Allegations of defamation with Dominion voting systems Eye-popping, but the final cost to the media company is much lower.
On Tuesday, Fox settled with Dominion over allegations Fox News falsely accused the company of rigging its voting machines. Against former President Donald Trump in 2020. It is the most watched media defamation case in decades.
Fox had about $4 billion in cash on hand as of December 2022, and Moffett Nathanson analyst Robert Fishman expects the company to pay the settlement in the current quarter.
It’s unclear how much the lawsuit will actually cost Fox, as it has ways to cover some of the costs, primarily using insurance and tax deductions.
Fox Dominion can deduct the settlement from its income taxes as a necessary expense for the cost of doing business. Fox chief communications officer Brian Nick confirmed the settlement’s exclusion.
Larger companies are taking out larger settlements to cover some of the cost, but because settlement amounts are usually confidential, it’s hard to say how much they’re benefiting. Payments that are considered reimbursement or compensation may be deductible, while payments made to the government or at the direction of the government are generally not deductible.
Robert Willans, a tax professor at Columbia University School of Business, estimates that after the tax repeal, the settlement would cost about three-quarters of the amount, about $590 million.
“Importantly, if the payment is made to a private party and not at the behest of the government, you can decide that the fee will be deducted without fear of any conflict,” he said.
A study Government Accounts Office in 2005 Of the 34 settlements over $1 billion, 20 companies reported deducting some or all of the settlement payments. Big banks such as Bank of America and JPMorgan Chase are also said to have deducted portions of the fees in the build-up to the 2008 financial crisis.
Also, if the Fox is insured, the insurance will cover some of the settlement. Chad Milton, a partner at Media Risk Consultants, said a large media company like Fox might have $100 million to $500 million in coverage, including media liability insurance and other types of insurance.
“It’s not hard to raise $100 million, but when you go beyond that, it gets harder and harder,” Milton said.
Usually, a certain amount that a media company has to pay can be in the millions before the insurance kicks in. However, the settlement includes attorney fees, which in a high-profile case like Fox-Dominion’s can run into the millions. dollars or more, so getting a waiver can be swallowed up by attorney fees alone.
A summary: Even if an insurance company pays a significant portion of the settlement, there may be an annual aggregate liability limit, meaning insurers won’t cover another large cash settlement.
Media companies and insurers don’t always agree on who should insure what, as caveats are written into contracts that allow insurers to avoid paying out in certain circumstances. In 2012, Disney filed a defamation lawsuit after ABC aired what critics called “pink slime,” questioning the safety of the meat producer’s products. But one of its insurers, AIG, sued Disney so they wouldn’t have to pay part of the settlement, though AIG ultimately lost.
Fox also said it does not expect the settlement to affect its operations.
“We do not anticipate any significant operational effects or changes to our business given our liquidity, strong balance sheet and the health of our business,” the company said in a statement.
MoffettNathanson’s Fishman said everything indicates the company will be able to conduct business as usual.
“If the impact of these lawsuits on Fox News’ audience and business is large, it’s unclear,” he said.
Fishman said he does not expect the settlement to hinder Fox’s ability to return cash to shareholders, including a $1 billion accelerated share repurchase program announced in February.
Fox has a similar lawsuit with another voting machine company, Smartmatic, but no date has been set and the case may not go to court for two years.
