Orioles Rumors

New York Supreme Court Judge Lawrence Marks has ruled in favor of the Orioles and against the Nationals in a long-running dispute relating to the rights fees owed to the latter team by the jointly-owned Mid-Atlantic Sports Network (MASN). (Hat tip to James Wagner of the Washington Post, on Twitter.) MASN, which is controlled and majority-owned by the Orioles, brought the lawsuit to challenge an arbitration award that purported to settle the annual television broadcast fees owed by the network to the Nationals (who own a minority share of MASN).

Today’s ruling vacates that award. If the decision is upheld on appeal, it would require the parties to renegotiate and/or re-arbitrate the rights fees. Importantly, the decision does not address the underlying substantive dispute, let alone decide that in favor of the Orioles/MASN.

The root of the dispute dates back to the dealmaking that paved the way for the Expos-turned-Nationals organization to move to D.C. The Orioles opposed the intrusion on their market, of course, and the compromise ultimately included a deal in which the O’s would maintain a significant ownership percentage of MASN.

Annual fees for the Nationals’ broadcast rights were also covered in the resulting set of contracts, with the first several seasons’ fees pre-established at fairly low rates. Pursuant to the agreement, the annual rights value was to be re-negotiated after 2011 (and every five years thereafter) to arrive at a fair market value of those rights.

When that negotiation failed, the arbitration was initiated, with the Orioles proposing a $34MM payout for 2012 and the Nationals requesting $109MM. The panel hearing the case was a league committee known as the Revenue Sharing Definitions Committee (RSDC). Its members, at the time, were Rays owner Stuart Sternberg, Pirates president Frank Coonelly, and Mets COO Jeff Wilpon. MLB itself, including now-commissioner Rob Manfred, also played a major role in the arbitration.

The panel ultimately decided upon a $53MM rights fee value for the 2012 season, which would rise steadily to $66MM in 2016 (thus covering the five-year period in question). But it held off on formally issuing its decision for about two years, allowing then-commissioner Bud Selig to attempt to work out a compromise, which (per the ruling) would have involved a $1B+ sale of MASN to Comcast (which obviously never occurred). In the meantime, MLB fronted the Nationals the difference between the fees they were receiving from MASN and the value that the panel had determined.

A formal decision was issued on June 30 of last year, and the Orioles instituted the present litigation shortly thereafter. Baltimore challenged a number of aspects of the arbitration, including the involvement of the league at the time and its decision to advance money to the Nationals.

Though overturning an arbitration award is an exceedingly difficult task, the court sided with MASN and the Orioles. Interestingly, though, none of the above factors played into the decision, which focused on the highly deferential standard of review and noted that the agreement had contemplated an “inside baseball” arbitration panel.

The ultimate basis cited by the court in vacating the award — and the issue that will presumably be tested on appeal — is the involvement of the law firm Proskauer Rose LLP. Not only was Proskauer representing the Nationals in the arbitration, the court explained, it was currently representing Major League Baseball in numerous other matters — with four particular attorneys sharing responsibility for both clients. Though MASN and the Orioles repeatedly raised this issue, the panel didn’t take “any step at all” to deal with the potential bias that resulted.

Applying the relevant standard of “evident partiality,” the court determined there was sufficient cause to overturn the decision of the panel. Judge Marks explained (quoting a prior case): “[T]his complete inaction objectively demonstrates an utter lack of concern for fairness of the proceeding that is ’so inconsistent with basic principles of justice’ that the award must be vacated.” 

The actual basis for the ruling is important in several regards. For one, it narrows the issues to be addressed on appeal, though the Orioles could attempt to challenge the judge’s refusal to offer relief on the other grounds argued. (Notably, the court noted in its ruling that the factual setting it considered was without precedent, making this case ripe for consideration in an appellate proceeding.) And it also leaves open the possibility that the parties could return to the same panel that decided the dispute in the first place in a second arbitration.

All said, the ruling represents a significant victory for the Orioles’ side of things — in large part because of the leverage it gives the organization in negotiations. Continued litigation and re-arbitration will, obviously, be quite expensive. And the Nationals now have no argument to demand immediate payment of a vacated award, keeping the cash in Baltimore’s pocket. It’s notable, also, that the original five-year rights fee period is now almost up, meaning the parties will soon need to sort out fees for the 2017-2021 time frame as well.