Photo: The Canadian Press
Reporters surround attorneys for Dominion Voting Systems at a press conference outside the New Castle County Courthouse in Wilmington, Del. , after settling a defamation lawsuit that Dominion brought against Fox News on Tuesday, April 18, 2023.
Fox Corporation settled $787.5 million with Dominion Voting Systems for the defamation strike, but the final cost to the media company is likely to be much lower.
On Tuesday, Fox and Dominion settled the unsubstantiated accusations. The company was accused of rigging voting machines against former President Donald Trump in 2020. This was the most watched media defamation case in decades.
Fox had about $4 billion in cash 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 ultimately cost Fox, as there are ways to cover some of the expenses, primarily through insurance and the use of tax cuts.
Fox can deduct the Dominion settlement from its income taxes as a necessary expense for the cost of doing business. Fox communications director Brian Nick confirmed the discount to the settlement.
Big companies often discount large settlements to help offset some of the costs, but because settlement amounts are usually kept secret, it’s difficult to say exactly how much they benefited. Payments considered to be reimbursement or compensation may be deductible, whereas payments made to the government or at the request of the government are generally not deductible.
Robert Willens, a professor of tax at Columbia University Business School, estimates that after the tax write-off, Fox will incur about three-quarters of the settlement amount, or about $590 million.
“The key is that if the payments are made to private parties and not at the request of the government, you can pretty much conclude without any fear of contradiction that the payment will be deductible,” he said.
The study prior to the 2005 Government Accountability Office found that of 34 settlements totaling more than $1 billion, 20 reported that they had deducted some or all of their settlement payments. Major banks such as Bank of America and JPMorgan Chase have reportedly discounted portions of their settlements for fees related to the 2008 financial crisis.
Also, if Fox is insured, the insurance will likely cover some of the settlement. A major media company like Fox could have anywhere from $100 million to $500 million in coverage, including media liability insurance and other types of insurance, said Chad Melton, partner at Media Risk Consultants.
“It’s not hard to raise $100 million, but the higher you go, the harder it is,” Milton said.
Usually there is a certain amount that the media company has to pay, which could be in the millions, before the insurance starts. However, the deductible includes attorneys’ fees, which in a high-profile case like Fox-Dominion can run into the tens of millions of dollars or more, so the deductible can only be deducted by attorney fees.
One point: Even though much of the settlement is paid by the insurance company, there may be an annual total liability limit, which may mean that insurance companies won’t cover another large financial settlement.
And media companies and insurers don’t always agree on who should cover what, because there are disclaimers written into contracts that allow insurers to avoid paying in certain circumstances. In 2012, Disney sued for defamation after ABC aired a segment that questioned the safety of meat producers’ products that critics dubbed “pink slime.” But one of its insurance companies, AIG, ended up suing Disney for not having to pay part of the settlement, though AIG ultimately lost out.
Fox also said it did not expect the settlement to affect its operations.
“We do not anticipate any operational impacts or material changes to our business given our cash position, strong balance sheet and the health of our business,” the company said in a statement after the settlement was announced.
Fishman of Moffett-Nathanson said all indications are that the company will be able to operate as usual.
“It is unclear if there is a significant impact, if any, of these lawsuits on Fox News viewership and its business,” he said.
Fishman said he doesn’t expect the settlement to hinder Fox’s ability to return money to shareholders, including the $1 billion accelerated share buyback program announced in February.
Fox has a similar lawsuit pending with another voting machine company, Smartmatic, but no date has been set and the case may not go to court for two years.
