August 18, 2014 2:00pm PT by Eriq Gardner
Judge Blocks MLB from Ordering TV Broadcaster to Pay Washington Nationals
With the specter that the first-place Washington Nationals might terminate a broadcaster's rights to its games as soon as Tuesday, Major League Baseball was in a New York courtroom on Monday at a hearing that repeatedly invoked the name of Bernie Madoff and had the judge questioning whether the Nationals were engaged in "blackmail." By the end of the hearing, the judge agreed with the broadcaster that a preliminary injunction was warranted.
The dispute dates back to 2005, when the team formerly known as the Montreal Expos moved to the U.S. capital. The prospect of another team in the region upset Baltimore Orioles' owner Peter Angelos, so in order to appease him a settlement agreement was worked out. Under the terms of that deal, the Orioles got a $75 million up-front payment as well as control of and a percentage of profit (now about 85%) from the Mid-Atlantic Sports Network (MASN), which in turn was able to telecast Nationals games at a substantial discount from 2005 to 2011. After that, MASN would be obligated to pay the Nationals "fair market value."
But the Orioles/MASN and the Nationals haven't been able to see eye-to-eye on the definition of "fair market value," so for the past couple of years, the parties have been presenting their cases to a private MLB committee composed of top executives from the New York Mets, the Pittsburgh Pirates and the Tampa Bay Rays in an effort to determine what the Nationals should be paid.
MASN has argued that the traditional formula used to determine fair market value means that the Nationals shouldn't be getting much more than $40 million. The Nationals pointed to TV rights fee comparables and demanded the rate be bumped up to somewhere between $100 million and $120 million per year. In June, the so-called "Revenue Sharing Definitions Committee" (RSDC) decided that the Nationals were entitled to about $60 million per year.
Over MLB commissioner Bud Selig's stern warning, the Orioles/MASN then went to court to vacate or modify the RSDC award while the Nationals raised the prospect that MASN was in default for not paying its new bill. Once litigation got underway, Selig's office attempted to cool heads by ordering that MASN turn over payment, that the Nationals withdraw a default notice and that the dispute be adjudicated in further arbitration.
But at Monday's hearing, Arnold Weiner, an attorney for the broadcaster, argued his client simply couldn't pay $20 million at the moment.
MASN has $3.5 million in the bank right now, said the attorney, and while more receivables will be coming later this year, the $20 million payment would potentially force the company into debt. Weiner also warned that long term, the RSDC decision would reduce MASN's operating margin to 5 percent, which he said was "not sustainable" because "if any affiliate cancels a contract, it throws the whole company into jeopardy."
Addressing the prospect that the Nationals might pull telecast rights, the attorney added, "We think it's grossly improper to say, 'Give us your money or we will shoot you.' "
Stephen Neuwirth, an attorney for the Nationals, argued that the "suggestion that they don't have money to pay is outlandish," also referencing the Orioles' wealth. He presented MASN's business plan to the judge and took issue with a $60 million profit distribution the broadcaster had made earlier in the year. "We don't understand the cash flow problem," said Neuwirth.
Asked by New York Supreme Court Justice Lawrence Marks whether the Nationals' attempt to coerce MASN into paying amounted to "blackmail," Neuwirth said that it wasn't a "reasonable spin," given that the contract gave the team protection by entitling it to invoke a termination clause.
On the other hand, the Orioles/MASN believe that the spirit of the 2005 agreement allowing the Nationals into its geographic region is being violated. In court papers, they have accused MLB of "corruption" and "fraud." As far as evidence of an allegedly tainted arbitration process that resulted in the Nationals getting $20 million more each year, the Orioles/MASN are pointing to conflicts of interest.
Specifically, the chief operating officer of the New York Mets was on the three-member RSDC panel, but what the Orioles/MASN say they didn't know was that MLB's law firm Proskauer Rose was also representing the Mets in defense of a class action connected to the Bernie Madoff affair. (Mets owner Fred Wilpon was a Madoff investor who allegedly received favorable treatment from the convicted fraudster.) At the hearing, Weiner pressed the point that MLB officials including incoming MLB commissioner Rob Manfred failed to make proper disclosures. He compared the RSDC ruling to Bush v. Gore, a "made-up decision," he said.
In turn, Neuwirth ridiculed the supposed nondisclosures, pointing to the fact that Angelos was on an executive committee at MLB, that the Orioles/MASN continued with arbitration despite allegedly knowing of conflicts, and that the Madoff litigation was hardly secret. "It was all over the front page," he said.
An attorney for the MLB Commissioner's Office also appeared at today's court hearing and argued that the league's constitution meant that the dispute should be handled internally and that Selig had taken steps to alleviate any potential for irreparable harm that might come to MASN. Although the broadcaster has been ordered to pay the money for 2014 games, Selig has directed the Nationals to reimburse with interest if the Orioles/MASN ultimately prevail.
The parties spent all day in court, and ultimately, Judge Marks decided that MLB and the Washington Nationals should be blocked from their attempts to get the broadcaster to turn over tens of millions of dollars. In coming to the decision, the judge questioned the impartiality of MLB's arbitrators. The dispute proceeds.