Orioles pitched settlement offers to eliminate cloud of MASN dispute with Nats

The Orioles have proposed a series of settlements to Major League Baseball in hopes of finally resolving the television rights fee dispute with the Washington Nationals that hovers over both teams like a cloud, according to multiple sources familiar with the proposals.

Orioles executives met with Baseball Commissioner Rob Manfred before the current season in an effort to break a years-long impasse. The team has offered to increase the Nationals’ ownership stake in the Mid-Atlantic Sports Network ahead of schedule.

The Orioles are majority owners of MASN, but the network broadcasts both teams’ games. The marriage has been uncomfortable from the beginning, and the dispute over fees is now mired in court.

Sources say the Orioles have grown weary of battling Major League Baseball over the network. The league can exert influence over the team in ways small and large, from regular-season scheduling and awarding All-Star games to approving the transfer of its ownership from Peter Angelos to one of his sons or an outright sale of the team.

Angelos, 88, has health problems, and sons John and Louis are increasingly overseeing the club.

Under the 2005 agreement that brought the former Montreal Expos to Washington, the Nationals’ stake in MASN — and their share in its profits — started at 10 percent and was to increase by 1 percent a year, topping out at 33 percent in 2032. The Orioles get the rest.

Under the latest proposal, the Nats’ stake would be boosted to 33 percent almost immediately. Sources say the Orioles have proposed variations of the offer for years. None have been accepted.

Representatives for the Orioles, Nationals and Major League Baseball did not comment for this story.

An industry source familiar with the situation said the teams remain far apart, and the offer Baltimore made several months ago wasn’t substantially different from a prior proposal that Nationals’ ownership rejected.

The source said that Manfred would like to broker a deal, but “he can’t force parties to settle a dispute when they don’t have a meeting of the minds.”

The 2005 deal, which was signed by both teams and MLB, was weighted toward the Orioles after the team argued that the addition of a new franchise in the Baltimore-Washington market would cut into its fan base, attendance and television audience.

The Orioles ceded their territorial rights to allow the Expos to come to Washington, and MLB publicly lauded the deal as good for both teams. But the clubs soon fell out over television rights, and by 2014, the dispute was in a New York state court.

The Orioles’ offers were intended to settle the six-year-old dispute that has been a lingering embarrassment to MLB.

At its core is a disagreement over the telecast rights fees MASN owes the Nats. The Orioles currently own 81 percent of the network, but it broadcasts both teams’ games.

At stake is up to $150 million in accumulated fees, and hundreds of millions more in future fees. MLB plans to convene an arbitration panel in November to determine the fee structure.

MLB teams rely much more than their NFL counterparts on local revenues such as television money to pay their star players and attract new free agents.

Because the Orioles draw fewer fans and charge less for admission than the Nats, television fees are particularly important to the franchise.

“It’s more important to a small-market team because it represents a huge part of the revenue,” said John Mansell, a sports and media consultant based in Northern Virginia. “Look at ticket prices and compare the Orioles to the Nats. That means TV revenue is all the more important.”

The Nationals have the fourth-priciest tickets among baseball’s 30 teams, with an average cost of $42.02, according to teammarketing.com. The Orioles are 17th at $29.95.

Analysts say the dispute would make it harder to sell MASN or the Orioles, if the owners wanted. With so much money in dispute, and future revenues up in the air, it’s difficult to assess the value of either.

“It makes it more complex,” said Lee H. Berke, head of the New York consulting firm LHB Sports, Entertainment & Media.

Nevertheless, he said, there are “potentially any number of buyers out there” for MASN, and that “I’ve seen in other instances where litigation is quite often packaged together [with a sale].”

There has been no indication that the Orioles or MASN are for sale.

In pitching a settlement, the Orioles are anxious to maintain the framework of the 2005 agreement, which they see as essential to ensuring the club’s viability amid its competition with the Nationals. The team long commanded a television territory that stretched from Pennsylvania to North Carolina. With the arrival of the Nationals, they now share the market.

The deal was unusual.

“This is the only regional sports network remaining where there are two teams on one channel, and it’s very difficult,” Berke said. “The idea ultimately is that everybody gets along — they beat each other up on the field, but are business partners off it.

“This is the exception to the rule.”

In filings in New York Supreme Court — actually a trial-level tribunal, not the state’s highest court — attorneys for the Orioles and MASN have argued that MLB officials and individual owners were immediately unhappy with the arrangement, and have sought to sweeten the terms in favor of the Nationals.

“Baseball suffered from buyer's remorse after the settlement agreement," MASN said in a 2014 petition with the court.

Even before MLB approved the deal, the minutes of a conference call among owners show that owners expressed deep misgivings.

Chicago White Sox owner Jerry Reinsdorf “spoke in extremely negative terms about the agreement,” according to the minutes of the March 2005 call, released as an exhibit in the court case.

Kansas City Royals owner David Glass “noted that he also has significant problems with the deal, in particular its length, and stated that he believed [Major League] Baseball is being taken advantage of.”

At least three other owners also expressed reservations, according to the minutes.

But MLB says it has abided by the agreement, which called for the teams' telecast rights fees to be reset every five years to reflect fair-market value. When the clubs could not agree on the reset amount for 2012 to 2016, the matter moved to an arbitration panel of baseball club owners

The panel decided that the Nationals should receive about $60 million per year. MASN alleged that the panel didn’t use the established method; the Nats countered that the committee "applied the exact methodology required by the parties' agreement.”

MASN and the Orioles challenged the panel's decision in court. They said the $60 million is about $20 million too high, and would leave the network with an "economically unsustainable” 5 percent profit margin.

MASN's current profit margin has not been made public.

The Nationals, who occupy one of the largest and most lucrative markets in baseball, contended that their rights were worth $109 million. The club has called the 2005 agreement “heavily lopsided” in Baltimore’s favor.

The Orioles and Nationals split the rights fees evenly. Raising the rights fees reduces the amount of profits.

A New York judge found in 2015 that MASN did not receive an impartial hearing and tossed out the arbitration ruling.

The justice cited the network’s argument that the same outside counsel — New York-based law firm Proskauer Rose — represented the Nationals, MLB and the three teams whose owners were on the panel during the years when the case was being decided.

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

An appeals court affirmed that dismissal last year and ordered the case remanded to a second arbitration panel composed of a new group of major league club owners.

That’s not the outcome the Orioles proposed. The club wanted the case heard by a panel outside of baseball.

If the Orioles don’t like the baseball panel’s conclusions, they will have the option of appealing to New York’s top court.

Or the teams could settle. Sources say the parties have made offers over the years to no avail. Details of the offers were not made public.

The longer the case continues, the greater the pool of contested rights fees grows.

“At $100 million to $150 million, that’s basically a club’s payroll for the season for a lot of markets,” Mansell said. “It might even be half the salary for [upcoming free agent] Manny Machado.”

Baltimore Sun reporter Eduardo A. Encina contributed to this article.

jebarker@baltsun.com

twitter.com/sunjeffbarker

Copyright © 2018, The Baltimore Sun, a Baltimore Sun Media Group publication | Place an Ad

Orioles

 

90°