Judge sides with Orioles, dismisses Major League Baseball decision in MASN case – Baltimore Sun

A New York Supreme Court justice today tossed out a Major League Baseball arbitration decision that the Orioles-controlled television network said would unfairly force it to pay tens of millions of dollars more in annual broadcast rights fees to the Washington Nationals.

Justice Lawrence K. Marks vacated the decision and strongly suggested that the parties settle the matter through a “neutral dispute resolution process.”

Marks’ decision was unusual in that courts rarely overturn internal arbitration cases between Major League Baseball and its clubs.

At issue was an arbitration decision to award the Nationals about $60 million in TV rights fees from the Mid-Atlantic Sports Network per year — an amount MASN believes is too high. MASN — which broadcasts both teams’ games — now pays the club $40 million annually.

The judge said, in effect, that MASN did not receive a fair and impartial hearing. He cited MASN’s argument that the same outside counsel — New York-based law firm Proskauer Rose — represented the Nationals, the Major League Baseball and the three teams whose owners were on the arbitration panel.

MASN had likened the circumstance to a lawyer representing a client “before a tribunal wherein the lawyer also represents the judge and jury.”

Marks said MASN’s concerns about Proskauer’s representation were not heeded by Major League Baseball. “MASN and the Orioles have established that their well-documented concerns fell on entirely deaf ears,” he wrote in his 29-page order.

“Had MLB, the arbitrators, the Nationals and/or Proskauer taken some reasonable step to address petitioners’ concerns about the Nationals’ choice of counsel in the arbitration – or indeed any step at all – the court might well have been compelled to uphold the arbitral award,” Marks wrote.

Major League Baseball spokesman Pat Courtney said officials were reviewing the decision and would have no immediate comment. MASN and the Orioles reacted swiftly.

“While we are very pleased that the court vacated the award, and did so for good reason, it is unfortunate that we had to bring this matter to the courts in the first place,” said Alan Rifkin, counsel to the Orioles in his capacity as MASN’s managing partner. “Contracts are meant to be honored, and that includes honoring the integrity of the rights fee-setting process.”

The judge had several options.

He could have affirmed the June 2014 decision of the three arbitrators — the owners of the New York Mets, Pittsburgh Pirates and Tampa Bay Rays. He could have dismissed the panel’s decision and sent it back to Major League Baseball with instructions on starting over with a new decision. Or he could have sent the case to a third party, which is what he suggested. He did not specify which arbitration group might hear the case.

“As we argued, Major League Baseball’s arbitration over the rights fees lacked the fundamental fairness that the Orioles had a right to deserve,” said Arnold Weiner, counsel for the Orioles. “We are hopeful that this fairness will be achieved in a future and independent process.”

Weiner said he had never heard of another case where a Major League Baseball arbitration ruling “was overturned in this manner.”

MASN and the Orioles argued that MLB was biased against the network and that the commissioner’s office improperly influenced the decision of the arbitration panel, which MLB says is independent.

The dispute dates back to 2012, when the Orioles and Nationals were unable to agree on the amount of television rights fees the clubs should receive from MASN, which televises both clubs’ games.

The matter ended up with the arbitration panel which, MASN alleged, applied the wrong standards in deciding that the Nationals should receive about $60 million in rights fees per year. According to Marks’ ruling, the panel valued the Nationals’ television rights at roughly $53 million in 2012, rising more than $3 million in each succeeding year.

The Nationals contended the fair market value was about $109 million.

MASN now pays $40 million annually to both clubs.

MASN attorneys told the court in a filing last year that the decision would leave it with an “economically unsustainable five percent profit margin.” Analysts say regional sports networks typically maintain profit margins of at least 20 percent. MASN’s current profit margin has not been made public.

But the Nationals argue they are not receiving market value, noting in a recent court filing that they occupy “the third-largest designated market area in Major League Baseball (behind New York and Los Angeles).”

The Orioles “seek to deny the Nationals one of the few benefits of the bargain the Nationals were to receive — the fair market value of the rights fees beginning in 2012,” said a May 26 letter to the judge from Nationals attorney Stephen Neuwirth.

The Orioles own 84 percent of the network, while the Nationals own 16 percent, a stake that grows by a percentage point each year until it tops out at 33 percent.

Last August, the judge granted MASN and the Orioles’ request to block the decision while he studied issues raised in the case.

Procedures for determining TV rights fees were brokered by baseball when the Nationals, formerly the Montreal Expos, arrived in 2005.

A 2005 agreement was weighted toward the Orioles — giving the team a bigger ownership stake in MASN and a proportionately larger share of the profits — after the team argued that the Nationals’ arrival into the region deprived Baltimore of a third of its market.

MASN attorneys suggested in court documents that the arbitration panel’s decision was preordained by Major League Baseball.

MASN said MLB telegraphed its intentions by advancing the Nationals $25 million in August 2013 to make up for the difference between what the club was receiving from MASN and what it was expected to get from the arbitration panel.

MLB said the loans “were fully justified, were done with the Orioles’ and MASN’s knowledge and encouragement.”

jebarker@baltsun.com

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