Fox Corp.’s $787.5 million settlement with Dominion Voting Systems over defamation charges is eye-popping, but the ultimate cost to the media company is likely to be much lower.
On Tuesday, Fox settled with Dominion over charges that Fox News baselessly accused the company of rigging its voting machines against former President Donald Trump in 2020. It was the most-watched media libel case in decades.
Fox had about $4 billion of cash on hand as of December 2022, and MoffettNathanson analyst Robert Fishman expects the company to pay the settlement during the current quarter.
How much the lawsuit will actually end up costing Fox is unclear because there are ways it can defray some of the expense, primarily through insurance and the use of tax deductions.
Fox can deduct the Dominion settlement from its income taxes as an expense necessary for the cost of doing business.
Big companies often deduct large settlements to help offset some of the cost, but since settlement amounts are usually confidential, it’s difficult to pin down exactly how much they benefit. Payments that are seen as restitution or compensation can be deducted, while payments made to the government or at the direction of a government are usually not deductible.
Robert Willens, a tax professor at the Columbia University School of Business, estimates that after the tax write-off, Fox will incur about three-fourths of the settlement amount, about $590 million.
“The key is that if the payments are being made to private parties and not at the behest of the government then you can pretty much conclude without any fear of contradiction that the payment will be deductible,” he said.
A study by the Government Accountability Office in 2005 found that of 34 settlements totaling over $1 billion, 20 companies reported deducting some portion or all of their settlement payments.
Big banks such as Bank of America and JPMorgan Chase reportedly also deducted portions of their settlements of charges tied the financial crisis of 2008.
Also, if Fox is insured, insurance is likely to cover some of the settlement.
