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Final arguments are scheduled Monday in New York City in a court dispute between the Orioles and Washington Nationals over the division of tens of millions of dollars in rights fees from the regional sports network televising both teams' games.
At issue is how much more money the Orioles-controlled Mid-Atlantic Sports Network must pay the Nationals in annual fees, and the outcome has implications for MASN's bottom line and for the clubs' ability to sign players.
Because national broadcasting revenue is shared among all 30 teams, analysts say local TV money is critical to teams' ability to distinguish themselves through free-agent signings, stadium improvements or other investments.
"There are very few things you can do from a revenue standpoint to really move the needle," said Lee H. Berke, president of LHB Sports, Entertainment & Media, a consulting firm in New York. "You can establish or renovate a new place to play. And you can revamp how you offer up your games on media."
Regional television money flows to teams through rights fees and, in some cases, profits generated by networks from subscriber fees or advertising.
Examples abound of baseball teams cashing in after lucrative TV deals.
"It really goes back to when the Rangers signed a new contract with Fox [Sports Southwest] and signed Alex Rodriguez" to a 10-year, $252 million contract in 2000, said John Mansell, president of a Washington-area sports and media consulting firm.
"In recent years, there have been a lot of other huge deals. Seattle signed Robinson Cano and Nelson Cruz, and that is in no small part due to their deal," Mansell said.
In 2013, the Mariners purchased a reported 71 percent interest in ROOT Sports, a regional network.
At issue in Monday's New York Supreme Court hearing is a June decision of three club owners arbitrating the Orioles-Nationals disagreement over rights fees from MASN. The Orioles hold a majority stake in MASN, which says the decision would force it to distribute excessive rights fees to the Nationals, decimating the network's profit margin.
In court documents last year, MASN said the panel's decision would divert revenue to the higher rights fees, slashing its profit margin to about 5 percent for baseball programming, well below the industry norm. Any decrease in MASN's margin would be a blow to the Orioles, who own most of the network.
MASN contends that the arbitration panel was improperly influenced by Major League Baseball and applied the wrong standards in deciding that the Nationals should receive about $60 million per year, $20 million more than what MASN now pays annually.
MASN is asking the court to vacate the panel's decision. It is uncertain whether Justice Lawrence K. Marks will rule immediately from the bench or withhold his decision.
The Nationals argue that the process was fair and that the current rights fee structure denies the Washington club its due.
"Because the Nationals are not receiving fair market value for the broadcast rights, the Nationals are placed at a competitive disadvantage compared to other teams, and are hamstrung in their ability to invest in efforts to improve the team and the stadium," wrote Nationals attorney Stephen Neuwirth in a Feb. 11 letter to Marks.
In their own February letter to the judge, MASN attorneys countered that the Washington team "has been among the most aggressive clubs in signing new players this offseason and has not been harmed by the preservation of the status quo. In fact, the Nationals recently signed a groundbreaking $210 million contract with pitcher Max Scherzer."
Officials for the Orioles and Nationals said they were unable to comment during the litigation.
MASN was created from strife. In 2005, Major League Baseball owned the Montreal Expos and wanted to move the club to Washington, where it would fetch a lucrative sale price. But first, baseball officials needed to negotiate with Orioles owner Peter Angelos, who had threatened litigation over another team entering what was considered Baltimore's market.
To mollify Angelos, MLB gave the Orioles a large ownership stake in MASN and a proportionately larger share of the profits.
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.
The uneven MASN split foretold trouble between the clubs, Mansell said.
"That was a easy prediction to make when you have one team controlling the network of another team," he said.
The Orioles say the arrangement was a fitting response to the Nationals depriving Baltimore of a third of its market.
The TV rights fee dispute arose in 2012. The agreement creating MASN called for the teams' fees to be reset every five years to reflect fair-market value. When the clubs could not agree on the reset amount, the matter moved to the arbitration panel, and then to court.
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In August, MASN won a ruling temporarily blocking the panel's decision.
Marks' injunction came after MASN argued that the same outside counsel — New York-based law firm Proskauer Rose — represented the Nationals, the MLB and the three teams whose owners were on the arbitration panel — the New York Mets, the Pittsburgh Pirates and the Tampa Bay Rays. MASN likened the circumstance to a lawyer representing a client "before a tribunal wherein the lawyer also represents the judge and jury."
On 74 occasions during the last decade, MASN lawyers have said, Proskauer Rose represented MLB or its entities. "Forty-nine of these engagements occurred during the [MASN] arbitration," the lawyers said in a document earlier this year.
MLB has argued that the arbitration was fair.
"Proskauer in no way corrupted the [arbitration] proceeding," Proskauer attorney Bradley Ruskin said in a court affirmation last year. "The MASN and Orioles' allegations distort and/or ignore the factual record, which actually suggests that MASN and the Orioles chose late in the process to protest Proskauer's involvement as a tactical effort to manufacture a position to challenge any award MASN and/or the Orioles did not like."
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