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Orioles-controlled MASN TV network must pay millions to Washington Nationals under sealed decision

The Orioles-controlled Mid-Atlantic Sports Network must pay the Washington Nationals tens of millions of dollars more in broadcast rights fees from previous years — a hit to the Baltimore team — under an arbitration panel’s sealed ruling, according to sources familiar with the document.

The long-awaited Major League Baseball committee decision awards the Nationals nearly $100 million — about $20 million a year — in additional fees for 2012 through 2016, said the sources, who spoke on condition of anonymity because the document has not been made public.

The decision effectively slashes the profit margin of MASN, which is largely owned by the Orioles but broadcasts both teams’ games.

The Washington team won’t actually receive almost $100 million. That’s because MASN must restate its financial results for those five years, reducing its profit in order to pay the higher TV rights fees. The more money MASN pays in rights fees, the less it has available for profits.

After those and other adjustments are made, the Nationals would net somewhere between $60 million and $70 million from the decision, according to people familiar with the case.

It was uncertain Friday whether MASN — which is owned 79 percent by the Orioles and 21 percent by the Nationals — would appeal the arbitration panel’s decision to the courts. The club also might consider an action with the American Arbitration Association.

The club declined to comment, spokesman Greg Bader said.

Orioles attorneys have long contended in court documents that Major League Baseball has been trying to unravel a 2005 agreement under which it agreed to let the Baltimore franchise receive the lion’s share of MASN profits in perpetuity to make up for surrendering the lucrative Washington market when the Nationals — the former Montreal Expos — arrived that year.

Major league 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 Nationals, television revenue is particularly important to the franchise.

The MASN dispute has implications beyond the network and the team.

“As this dispute enters its sixth year, the issue of MASN TV rights is of great concern to me for its potential negative impact on the Orioles, the City of Baltimore, and the State of Maryland,” Gov. Larry Hogan wrote to Rob Manfred, the baseball commissioner, in a letter Aug. 31 obtained by The Baltimore Sun.

Hogan’s letter referenced the lease with the state for Oriole Park at Camden Yards that expires in 2021.

“It is clear to me that serious discussions of a new lease, or an extension of the current lease, will remain at an impasse until this matter is resolved,” the governor wrote.

There was no immediate comment from Major League Baseball on Hogan’s letter or the arbitration decision.

The arbitration panel met in November. Its decision was sealed after Stephen R. Neuwirth, an attorney for the Nationals, argued in an April court filing to the New York Supreme Court that certain documents — including a motion to confirm the arbitration award — fell under a nondisclosure agreement between the parties.

The nondisclosure agreement is to prevent “public disclosure of confidential information provided” during the panel’s proceedings, Neuwirth’s filing said.

Neuwirth did not respond to emails Friday about the case, and neither did the Nationals.

It marked the second time a panel composed of club owners or executives had ruled on how much MASN must pay the Nationals in rights fees. In June 2014, the first panel awarded the Nationals about $60 million per year in TV rights fees from MASN.

The network was then paying the Nationals $40 million annually and contended the panel did not use the standard financial formula when increasing the fee.

This time, the panel did use the formula — it was developed by Bortz Media & Sports Group, a Colorado consulting firm — that MASN embraced and which has been used in many other teams’ cases, the sources said.

But the outcome was nearly identical, leading MASN to question whether the proper revenue and expense numbers were used, the sources said.

MASN attorneys told the court after the initial panel’s decision that it would leave the network with an "economically unsustainable 5 percent profit margin."

A New York Supreme Court justice ruled in 2015 that MASN did not receive an impartial hearing with the Major League Baseball panel and tossed out the initial 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.

An appeals court affirmed that dismissal in 2017 and ordered the case remanded to a second arbitration panel composed of a new group of major league club officials. That was the panel that just ruled.

That’s not the outcome the Orioles had proposed. The club wanted the case heard by a panel outside MLB, which the Orioles believe is not truly neutral.

The dispute dates to 2012, when the Orioles and Nationals could not agree on TV rights fees, which MASN pays equally to both clubs.

The Nationals, who occupy one of the largest and most lucrative markets in baseball, initially contended that their rights were worth more than $100 million. The club has called the MASN structure “heavily lopsided” in the Orioles’ favor.

It was designed that way by Orioles owner Peter Angelos, who negotiated the procedures for determining TV rights fees and structuring MASN with MLB when the Nationals moved to Washington.

The 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 the Nationals' arrival in the region deprived Baltimore of a third of its market.

In recent months, the clubs have argued not only about rights fees but also about MASN profits.

MASN recently declined to pay out the 2018 profits to the teams. The network’s rationale was that — since it hasn’t been decided what it will owe the clubs in rights fees — it doesn’t have a true sense of how much in profits are available to disburse.

The Nationals have contested that decision, which the Orioles have taken to the American Arbitration Association.

jebarker@baltsun.com

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