The Orioles won the most recent court decision in their seemingly endless dispute with the Washington Nationals over television rights fees and profits from the Mid-Atlantic Sports Network.
The decision by a New York Supreme Court justice — which revealed a new tactic in the Orioles’ approach to the neighboring club — allows Baltimore to go to the American Arbitration Association to try to resolve a disagreement over whether the network must immediately distribute its profits to the teams. The Nationals wanted the matter decided by Major League Baseball, which the Orioles contend is not neutral in the dispute.
Tuesday’s order by Justice Barry R. Ostrager concluded that MLB might have had a financial interest in the Nationals, making it “a potentially conflicted party.” That finding could be helpful to the Orioles down the road as they continue to press their case that MLB can’t give them a fair shake.
The issue of when the teams are to receive MASN profits represents a new front in an old war, which dates to 2012.
Each year, MASN must pay the Nationals and the Orioles for the rights to telecast their games — with each team receiving the same amount in rights fees. In addition, MASN owes the franchises a cut of MASN profits. Those are different pots of money.
The Nationals’ desire for higher rights fees is the central issue in the teams’ dispute.
But the issue of profits is still important. Paying tens of millions of dollars per year in rights fees to the Nationals and Orioles is the largest expense item for MASN every year. The more money MASN pays in rights fees, the less it has available for the clubs in profits. That’s why these two disputes are related.
Here some questions and answers about the case.
What did the latest court decision reveal that is new?
The decision, along with earlier briefs, pointed to a new tack by the Orioles as majority owners of MASN, which broadcasts both teams’ games.
For years, MASN has paid out profits to the clubs, weighted heavily to the Orioles.
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 increases by 1 percentage point a year, topping out at 33 percent in 2032. Washington’s stake is currently 20 percent.
But 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, all the way back to 2012 — it doesn’t yet have a true sense of how much profits are available to disburse.
The Nationals challenged MASN’s inaction with MLB. But Washington lost its attempt in court to prevent the Orioles from taking the dispute to the AAA.
What was the judge’s reasoning and how might it be important down the road?
Ostrager concluded MLB might have had a financial interest in the Nationals at the time the dispute arose.
That’s an argument the Orioles have been making for years, citing a $25 million loan MLB made to the Nationals in 2013.
That Ostrager cited it could bolster the position of the Orioles and the network as the case proceeds.
MASN attorneys argued in 2014 that MLB compromised its impartiality in the rights fees dispute when it made the loan, giving it a financial stake in the outcome. The loan was paid back late last year, according to two sources with direct knowledge.
The Orioles’ attorneys mentioned the loan again in a court filing this month about the profits distribution.
The brief said it is the club’s position “that, at the time the dispute arose in July 2018, MLB had financial interests in the Nationals including a loan outstanding to the Nationals in the principal amount of $24,573,138 with accrued interest of $2,035,452.”
The brief was filed by Jonathan Schiller, managing partner at the firm of Boies Schiller Flexner, and New York counsel for the Orioles and MASN. Stephen Neuwirth, an attorney for the Nationals, did not immediately reply to an email seeking comment.
According to earlier court filings, MLB designed the loan to make up the difference between what MASN was paying the Nationals in rights fees and the higher amount that an MLB arbitration panel had privately decided Washington should be getting. The panel began hearing the case in April 2012, but didn’t issue a decision until June 2014. The decision awarded the Nationals about $60 million per year instead of the $40 million they were receiving.
"These advances were fully justified, were done with the Orioles' and MASN's knowledge and encouragement, and were intended to allow additional time for the parties to negotiate a settlement," MLB commissioner Rob Manfred said in a 2014 court statement.
MASN and the Orioles maintain they knew there was to be an advance, but the amount and repayment terms were kept secret from the club and the team.
In court documents, they said they learned the details when the Nationals produced an August 2013 letter from Manfred to Edward L. Cohen, a principal owner of the Nationals.
Could MASN be sold?
Analysts say the continuing case could make it harder to sell MASN or the Orioles, if the owners ever wanted. With so much money in dispute, and future revenues up in the air, it’s difficult to assess the value of either.
But while the litigation could make a sale more complex, “historically there have been any number of network deals that include litigation and — as a part of the deal being made — the litigation goes away,” said Lee H. Berke, head of the New York consulting firm LHB Sports, Entertainment & Media.
At stake in the rights fees disagreement is up to $150 million in accumulated money — the difference between what the Nationals receive from MASN and the higher amount an MLB arbitration panel decided several years ago they ought to be getting. The panel’s decision was tossed out by a New York judge in 2015. A new MLB panel considered the teams’ rights fees arguments in November, but no decision has been made public.
The market for regional sports networks is now being tested across the country.
The Justice Department has said the Walt Disney Co. must sell nearly two dozen regional sports networks it obtained in its deal for assets of 21st Century Fox.
U.S. House members, including Baltimore Democrat Elijah Cummings, wrote to Manfred on Thursday expressing antitrust concerns about MLB’s interest in purchasing control of Disney’s networks.