Fox Corporation will not sink below the waves to oblivion, even if it has to pay the damages Dominion Voting Systems is seeking in its massive, $1.6 billion lawsuit, according to TheWrap’s review of the company’s financials. But it may well leave Rupert Murdoch’s company open to other mounting financial troubles — any one of which could deal a potentially fatal blow.
Fox, which has a market capitalization of $18 billion, currently has $4.1 billion in cash and cash equivalents and an unused $1 billion credit facility at its disposal, according to its latest 10-Q filing. That means it could weather the worst-case scenario: a five-week trial scheduled to kick off on April 17 and Dominion being awarded full damages.
As one embarrassing revelation after another emerged from the Dominion lawsuit, doubts have swirled about its parent company’s financial future. After Fox Corp. chairman Murdoch’s admission that top Fox News hosts peddled a false narrative that the 2020 election was stolen in a deposition came to light, some suggested the case would threaten the parent company’s very existence.
It’s unlikely, said experts who spoke to TheWrap.
“Fox will be fine if they lose [in court against Dominion],” David Offenberg, an associate professor of finance at Loyola Marymount University, told TheWrap. “Recently, they have been returning about $1.3 billion a year to shareholders through stock buybacks and dividends. They would likely freeze or reduce both for a period to pay Dominion.”
It’s important to remember that Fox News is just one part of a diversified media company that, even after the sale of most of its entertainment assets to Disney, remains sizable and is throwing off cash.
Nicholas Creel, an assistant professor of business law at Georgia College and State University, added that Fox likely carries insurance to protect against outsized judgments. “That will probably absorb the worst of the impact,” he said.
Fox advised shareholders that it doesn’t currently expect the case to be “material” to its financial stability or operations, and it has repeatedly said it believes Dominion’s claims have no merit. Yet observers see financial fallout nonetheless — even if Fox prevails in court. Advertisers and partners could curtail their business with Fox over the revelations in the case, viewers could tune out and shareholders could ultimately decide to sue if they view Fox’s disclosures of its risk insufficient, according to experts.
If the case proceeds to its scheduled trial, the risk is considerable, observers agreed. Dominion has a strong case against Fox because it has developed “multiple arguments around the actual malice standard,” Santa Clara University Journalism and Media Ethics program director Subramaniam Vincent told TheWrap. Actual malice is defined as publishing a statement while either knowing that it’s false or acting with reckless disregard for the statement’s truth or falsity, and it weakens a publisher’s defense against defamation claims.
Fox could potentially appeal a judgment against it all the way to the Supreme Court. But that may not prove a friendly venue, giving it a strong incentive to settle, rather than risk setting a precedent that weakens its future position in defamation cases. Justices Neil Gorsuch and Clarence Thomas have signaled that they “would like to revisit [the actual malice standard] to reduce immunity for the news media,” said Vincent — and the Dominion case would give them just such an opportunity.
Lyrissa Lidsky, a constitutional law professor at the University of Florida who told CNN that the multibillion-dollar defamation lawsuits against Fox could pose an “existential threat,” told TheWrap that even if Dominion doesn’t receive $1.6 billion in compensatory damages it’s seeking, “a jury could still levy additional punitive damages.” She also noted that another voting technology company, Smartmatic, is seeking $2.7 billion in a separate defamation lawsuit against Fox.
Angelo Carusone, president of Media Matters for America, an advocacy group that has frequently criticized Fox News, pointed out that the company’s negotiating leverage with cable distributors who pay fees to carry the channel could be weakened by the Dominion revelations.
“Regardless of whether or not people think it’s a big thing — which it kind of is — the cable companies have every reason to make it a big thing,” he said. “Fox has put a lot of their sort of future prospects not just into these renewals but in getting really, really high renewals this round and that’s because it’s basically the last party… carriage fees and the revenue from carriage fees is gonna look very different in a couple of years.”
Fox CEO Lachlan Murdoch told analysts in November that the company was “extremely pleased” with the outcome of its latest renewals because its distribution partners “do value what we bring to the bundle.” But that was before the latest Dominion revelations started to emerge.
Carusone noted in a lengthy Twitter thread that roughly 60% of Fox’s cable deals are up for renewal over the next couple of years and that there are 87 million cable subscribers who never touch Fox that are forced to pay a premium for it.
“You’re going have a lot of other consumers that are going to easily outnumber Fox’s demand. So the demand score is gonna be diluted,” he added. “When you take it together, it essentially boils down to their negotiating position has been severely weakened, regardless of what the outcome is.”
Thus far, Fox has said that the amounts “paid in settlements of defamation or disparagement claims or reserved for pending or future claims” haven’t resulted in a material impact to the company, according to its most recently quarterly filing.
“The amount of additional liability, if any, that may result from these or related matters cannot be estimated at this time,” the company wrote. “However, the Company does not currently anticipate that the ultimate resolution of any such pending matters will have a material adverse effect on its business, financial condition, results of operations or cash flows.”
That statement is consistent with the company’s view that the claims against it are meritless: Fox could hardly claim innocence in court filings and admit to a financial risk from its actions in SEC filings. But Offenberg warned that the disclosure could open Fox up to potential lawsuits from its own shareholders.
“There is a strong probability that a settlement or verdict will have a material adverse effect on its business,” he said. “They knew Rupert Murdoch’s deposition was coming, they knew what he would say, and they knew it would weaken Fox’s position in the lawsuit and in the court of public opinion. Attorneys pay for their homes with sentences like that.”
Even if the lawsuits don’t end up having a material impact to business operations, Fox’s executives and its board of directors have “a fiduciary obligation towards their shareholders to make sure that no damage was done,” Stefano Bonini, an associate professor of finance at Stevens Institute of Technology, told TheWrap.
“Those independent directors are there because they need to provide checks and balances for the CEO and chairman, who in this case have substantial influence on day-to-day operations,” he explained.
Failing to supervise management means they could be held accountable for the reputational blows that fall on Fox. “Reputation-wise, I think it’s going to be a pretty significant blow and for shareholders that is almost certainly going to have some impact,” Bonini added.
But given the Murdoch family trust controls more than 42% of Fox’s voting power — assuring the reign of Rupert and his son Lachlan — Creel doubted there would be any significant leadership changes.
“Murdoch himself was aware of the company’s decision to peddle lies to try and keep their audience from going to even more extreme competition,” he said. “When the rot goes all the way to the top and the top is entrenched, expecting change seems a bit improbable.”