File – A man walks past News Corp headquarters. and Fox News on Wednesday, April 19, 2023, in New York. The difficult agreement of Fox Corp. with Dominion for $787.5 million on defamation charges is unlikely to affect Fox’s operations, analysts say. (AP Photo/Mary Altaffer, File)
By MAE ANDERSON (AP Business Writer)
Fox Corp.’s agreement for $787.5 million with Dominion Voting Systems on defamation charges is impressive, but the ultimate price for the media company is likely to be much lower.
On Tuesday, Fox settled with Dominion over allegations that Fox News falsely accused the company of rigging its voting machines against former President Donald Trump in 2020. It was the most watched media defamation case in decades.
Fox had about $4 billion in cash as of December 2022, and MoffettNathanson analyst Robert Fishman expects the company to pay off the settlement in the current quarter.
How much Fox’s lawsuit will actually cost is unclear, as there are ways to cover some of the costs, mostly through insurance and using tax breaks.
Fox can deduct the Dominion agreement from its income taxes as an expense necessary for the cost of doing business. Fox chief communications officer Brian Nick confirmed the possibility of a settlement deduction.
Large companies often deduct large payouts to help offset some of the cost, but since payout amounts are usually confidential, it’s hard to determine exactly how much they benefit. Payments that are considered restitution 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’s School of Business, estimates that after the tax write-off, Fox will bear about three-quarters of the settlement amount, about $590 million.
“The key is that if the payments are made to private individuals and not at the behest of the government, then you can pretty much conclude without fear of controversy that the payment will be deducted,” he said.
A 2005 Government Accountability Office study found that of 34 settlements totaling more than $1 billion, 20 companies reported deducting some or all of their settlement payments. Major banks such as Bank of America and JPMorgan Chase also reportedly withheld some of their settlement fees related to the 2008 financial crisis.
Also, if Fox is insured, the insurance will likely cover a portion of the settlement. Chad Milton, a partner at Media Risk Consultants, said a major media company like Fox could have between $100 million and $500 million in coverage, including media liability insurance and other types of insurance.
“It’s not hard to raise $100 million, but when you get beyond that, it gets harder and harder,” Milton said.
There is usually a certain amount that a media company must pay, which can be in the millions, before the insurance takes effect. However, the deduction includes attorneys’ fees, which in a high-profile case like Fox-Dominion can be tens of millions of dollars or more, so the deduction can be absorbed by attorneys’ fees alone.
One wrinkle: Even if an insurance company pays a significant portion of the settlement, there may be an annual aggregate liability limit, which may mean insurers won’t cover another big-money settlement.
And media companies and insurers don’t always agree on who should cover what, as there are caveats written into contracts that allow insurers to avoid paying under certain circumstances. In 2017, Disney settled a defamation lawsuit filed in 2012 after ABC aired a segment that questioned the safety of a meat producer’s products, which critics called “pink slime.” But one of its insurers, AIG, ended up suing Disney to avoid having to pay part of the settlement, although AIG ultimately lost.
Fox also said it does not expect the settlement to affect its operations.
“We do not expect significant operational effects or changes to our business given our cash flow, strong balance sheet and the health of our business,” the company said in a statement after the agreement was announced.
MoffettNathanson’s Fishman said all indications are that the company will be able to conduct business as usual.
“It’s unclear whether these lawsuits have had much, if any, impact on Fox News’ viewers and business,” he said.
Fishman said he doesn’t expect the deal to hamper Fox’s ability to return cash to shareholders, including a $1 billion accelerated share buyback 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 trial for several years.
An earlier version of this story said Disney settled a defamation suit in 2012 after ABC aired a segment that questioned the safety of a meat producer’s products. The settlement of the case was announced in 2017.