clock menu more-arrow no yes

Filed under:

MASN court case: Orioles and Nationals suit is a multi-million dollar game of "Did too!" "Did not!"

New, comments

In their dispute with the Nationals over MASN rights fees, the Orioles decided they'd rather sue than accept an MLB panel ruling that they'd make tens of millions of dollars less than they do now. Here's where things stand in the court case.

Christopher Hanewinckel-USA TODAY Sports

The Orioles and the Nationals appeared before MLB's Revenue Sharing Decisions Committee all the way back in April, 2012 to adjudicate their dispute over MASN rights fees. The Nationals were represented at the hearing and in the negotiations prior to the hearing by lawyers from Proskauer Rose LLP, a law firm that had dealings with MLB specifically and teams or people who served on the RSDC at the time the hearing was held.

That representation, according to the O's, created sufficient partiality towards the Nationals that the RSDC ignored its mandate and handed down a decision that was decided incorrectly. Try these on for size:

One member of the panel was Jeff Wilpon, who is the son of the Mets owner and also the Chief Operating Officer of the Mets. Another company on which Wilpon sits on the board - Sterling Equities Associates - was sued in 2012 in connection with the Bernie Madoff scandal. Fred Wilpon, Mets owner and also chairman of Sterling, was named in the suit directly. The firm representing Sterling and Wilpon in the case was Proskauer Rose.

Does that sound a little shady to you?

Here is one more: Another member of the panel was Stuart Sternberg, the principal owner of the Tampa Bay Rays. Two months before the RSDC hearing, the Rays took pitcher Jeff Niemann to a salary arbitration hearing where they were represented by a lawyer from Proskauer Rose. Two years prior to that they used Proskauer Rose in another hearing against B.J. Upton, suggesting this was a regular occurrence to retain this firm for this purpose.

Does that sound a little suspicious to you?

There is still more. In 2012, a lawsuit that is shortened simply to Garber was filed against baseball. That suit seeks to overturn MLB's blackout restrictions that keep a team's games from being broadcast online if that area is deemed within a team's territory.

Also named as a defendant in that case was the Pittsburgh Pirates, the third member of the RSDC panel. Both MLB, under whose auspices the RSDC exists, and the Pirates, were represented in the case not only by the Proskauer Rose firm but by the same lawyer who argued the Nationals case in the April 2012 hearing.

Does anything sound funny about that to you?

The Orioles are hoping it sounds funny enough to Judge Lawrence Marks in New York in their ongoing proceeding against the Nationals. It's been enough so far to convince him to issue an injunction preventing MLB and/or the Nationals from acting against the Orioles to force payment until there can be further proceedings to determine whether the O's deserve a new arbitration hearing.

THE LEGAL MUMBO-JUMBO

For the sake of accuracy, the case is not being litigated by the Orioles themselves, as funny of a picture as it is to imagine Peter Angelos himself arguing a lawsuit for old times' sake. The petitioner in the case is TCR Sports Broadcasting Holding, LLP, known more simply by its business name MASN. The Orioles (actually the Baltimore Orioles Limited Partnership) own 85% of MASN, so of course their will is being done here, if not directly. MASN and the Orioles are used interchangeably here as both MASN and the Orioles were represented at the RSDC hearing and are both involved in the court case.

That initial ruling in favor of MASN took place in August. Since then, there have been two rounds of papers filed with the court. MASN laid out its case in late September, with the Nationals and MLB responding to those arguments in papers filed just on Monday. The trial date is set for December 15.

I have read every document filed in the last two months because the Orioles aren't in the World Series, so what else is there to do? What is going on now is essentially a multi-million dollar game of "Did too!" "Did not!" "Did too!" "Did not!" as if the two sides waiting until they can outsmart the other, like the classic "Wabbit Season" skit with Bugs Bunny and Daffy Duck.

The entire process has descended into something that is absurd to an outsider. In response to the Orioles' claim of possible corrupting influence, the Nationals contend that it is unavoidable that teams will have contact with certain attorneys in the normal course of business, as well as one another.

An actual item entered in support of a legal proceeding concerns the fact that the Orioles acquired Omar Quintanilla for cash from the Mets in July of 2012, and another item concerns the Orioles acquiring Yamaico Navarro from the Pirates later that year. These baseball operations transactions are presented to advance an idea that, if anything, it would be the Orioles who might have influenced the panel members, as if this is somehow equivalent to the question about the attorneys.

The man whose affidavit makes this claim with a straight face is Edward Cohen, son-in-law of principal Nationals owner Ted Lerner and also a Vice Chairman of the Nats. In the first face-to-face meeting where MASN and the Nationals were supposed to negotiate on the rights fees for the five-year period from 2012 to 2016, Cohen ripped up MASN's proposal and ended the meeting.

The Orioles trading for Omar Quintanilla is an exhibit this court case. Really.

This fact, alleged by the Orioles, is admitted by the Nationals in their recent response. It is fair to say that Cohen has not been negotiating in good faith from the outset.

In response to the Orioles claim that the arbitration was corrupted due to the presence of Proskauer Rose as Nationals counsel, MLB and the Nationals have essentially offered a defense that this notion is absurd and there is no way that such incidental contact could possibly have influenced the panel. But just in case the panel might have been corrupted by Proskauer, they contend that the Orioles did not sufficiently raise an objection before the proceedings got underway, and therefore they have waived their right to ever object to the presence of Proskauer.

This is one of the key questions for the judge to answer: the Orioles did, in fact, communicate in numerous e-mails to Rob Manfred, future commissioner of MLB and day-to-day overseer of the RSDC at present, that they objected to the presence of Proskauer. The Nats/MLB position is that the Orioles did not object enough and in fact that they should have gone to court at this time if they had such a problem, never mind that Commissioner Bud Selig has repeatedly threatened any party that might go to court about this process.

Oh, and just in case the Orioles did object in time, the Nats/MLB say, and even if the presence of Proskauer might have been corrupting to the RSDC panel, it's actually all okay and on the level because Proskauer's ongoing contact with Garber and in the Sterling Equities case all occurred after the RSDC hearing took place, and in fact the RSDC's decision was determined shortly after the hearing and did not change at all in the intervening period of over two years.

You can trust them when they say all this, because they say so. Color me skeptical of the idea that the decision was locked in from April 2012 - the Nationals were threatening MASN with default before the RSDC was even first supposed to make a decision - all the way until June of this year.

The three RSDC panel members at that time all submitted nearly identical affidavits, whole paragraphs word-for-word the same all throughout, attesting to their impartiality. Perhaps this is fairly common in the legal world, but it strikes this outsider as being akin to when the suspects in a crime all give the exact same story, word for word, to the police. You don't know it's true just because they corroborate one another. You just know it's a well-rehearsed story.

THE DISPUTE OVER THE RSDC RULING AND ITS EFFECTS

Tangential to all of this legal jockeying is the question of whether the RSDC made an award fair to both parties. In the ruling they published in June, they levied MASN with a requirement to pay the Nationals about $20 million more than what MASN proposed. The RSDC essentially rejected wholesale the analysis of the Nationals media expert and considered the Orioles' media expert's opinion only in part, calling it "myopic". MASN and the Nationals sparred, and continue to spar, over this sentence from Section 2.J.3 of the Settlement Agreement:

... the fair market value of the Rights shall be determined by the Revenue Sharing Definitions Committee ("RSDC") using the RSDC's established methodology for evaluating all other related party telecast agreements in the industry.

This RSDC number itself - $59,347,843 in rights fees for 2014, with some lesser amounts for 2012 and 2013 retroactively - is actually about $50 million per year less than what the Nationals demanded, well over $100 million per year. The Nationals interpretation of the paragraph is that "fair market value" can only be what they would receive if their rights were subject to an open bidding process. The Orioles believe that "established methodology" can only be the Bortz methodology.

The Settlement Agreement that allowed the Expos to move into Orioles territory requires that the Orioles get the same rights fee as the Nationals each year. The rights fee is taxed by baseball for its revenue sharing program, hence the Orioles incentive to not have higher rights fees as that results in more money to the Nationals at the expense of the MASN profit margin.

The Orioles contend that the Nationals are trying to bankrupt MASN with their request in order to get out from under the disadvantageous agreement. While the RSDC decision does not address this motive directly, they do accept that the Committee could not rule at the Nationals number because it could potentially bankrupt the network.

For their part, MASN still pleads doom and gloom in court filings in response to the RSDC ruling, offering the claim that, by having a low profit margin (8%), they will not have as much leverage in future negotiations with TV providers like Comcast and Verizon as they set carriage fees for the future. MASN further contends that this 8% number is without precedent as the RSDC has never imposed a number lower than a 20% margin on a club. Of course, the Orioles and Nationals MASN situation is itself unprecedented.

MASN argues that the 20% profit margin is necessary to insulate the network against a provider threatening to stop carrying the network. Hypothetically, if MASN is desperate for the money it gets as carriage fees from Verizon FiOS customers and Verizon is aware of this, Verizon has the upper hand in what they will pay to MASN for each subscriber.

If it is in fact the case that MASN needs some liquid cash for leverage to get better carriage fees, I have to figure the Orioles will make sure they have that cash, although this is pure speculation. Perhaps this claim is on the level.

The Nationals argued that MASN intentionally set its agreements so none would be re-negotiated from 2012-2016, although the RSDC's ruling says that most of MASN's affiliate agreements will come up for re-negotiation - and thus increase their revenue from conservative estimates - in these years. Some of this may have already happened. If this information is in the court documents anywhere, it is redacted, so you or I can't offer an informed opinion on the question even if we wanted to be objective about it. The judge will see this, presumably, but that kind of specific information is not in the public record at this time.

Court documents with finance specifics are heavily redacted. We can't know who is right.

Both the Nationals and Orioles have made the playoffs twice in three years since the RSDC held its hearing on this question, something that probably could not have been contemplated by either team as they negotiated over the fees.

Each team's attendance has boomed. Forbes writes that Orioles games are the highest rated program in the Baltimore market, which was never the case before. Nationals ratings exploded 74 percent in 2012, according to Sports Business Daily; they dipped slightly from 2013 to 2014 but remain far higher than when the rights fee reset process was getting underway.

Did these considerations affect the final decision of the RSDC at all? Their decision does reference the "recent on-field performance of both clubs." If the teams' performance in 2012 through June of this year influenced their decision, it's tougher to accept the various claims that the RSDC couldn't have possibly been influenced by the presence of Proskauer in the process subsequent to the April 2012 hearing because the result had already been decided.

SHOW ME THE MONEY

The net effect of the RSDC decision on the Orioles is that they will make about $24 million per year less than they would have under their own proposal. They lose out on 85% of the $20 million extra that MASN would pay to the Nationals, and 34% of the $20 million shifted from MASN profit to Orioles rights fees - the revenue sharing tax by MLB.

No one who is talking seems to know what the effect of a loss in court on this case might have on the baseball operations budget. If the Orioles have been budgeting as if this money might already be lost for the last two years - which would explain why some media people think they were being cheap on the payroll, and would have been the wise thing to do - then they would not be materially affected by Judge Marks ruling against them. On the other hand, if they prevail in the case, that could be an unexpected windfall.

The Orioles could be right to a layman's sense of fairness but legally wrong and lose. They could be pissing into the wind with this court case, scorching the earth for reasons unknown as a rear guard action against what could be relatively fair compromise in the form of the RSDC ruling. Maybe it will turn out that the law and facts are both on their side and they will get a favorable outcome, either in the form of a better settlement than the RSDC decision offers or even by winning outright in court.

Each side is due to reply at the end of November in advance of the next court date in December. MLB has tried for two years to get the two parties to settle and it hasn't worked yet. Maybe the impending deadline of the court case will motivate them in ways we have yet to see previously. If not, then it's all in Judge Marks' hands.