July 29, 2014 12:33pm PT by Eriq Gardner
Major League Baseball Embroiled in Explosive Legal War Over TV Deals (Exclusive)
On the verge of retirement, Major League Baseball Commissioner Bud Selig probably doesn't want baseball fans to read this story. In fact, he's threatened to "impose the strongest sanctions available" on two team owners for what's about to be detailed.
In 2005, the Montreal Expos relocated to the nation's capital to become the Washington Nationals. The move rankled Baltimore Orioles owner Peter Angelos, who was furious at the prospect of another ball club taking market share in the same geographical region. But he was mollified by a settlement agreement whereby the Mid-Atlantic Sports Network (MASN) — in which the Orioles hold a majority partnership profit interest — got to telecast Nationals games at a substantial discount from 2005 until 2011.
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But what the settlement agreement had to say about the years following 2011 is what's now got professional baseball in open court.
Per the terms of the settlement, beginning in 2012 MASN had to pay the Nationals "fair market value." The TV station balked, and so an arbitration hearing commenced in April before a panel comprising the chief operating officer of the New York Mets, the president of the Pittsburgh Pirates and the owner of the Tampa Bay Rays. Some of this has been previously reported. The Nationals reportedly got $29 million per year under the old TV contract and wanted it bumped up to somewhere between $100 million and $120 million per year.
What's been kept under wraps until now is that on June 30, the MLB committee adjudicating the dispute issued its decision, which favored the Nationals. That prompted attorneys to swing into high gear and Commissioner Selig to attempt to get out in front of the situation.
"I am deeply saddened by the fact that you have not been able to resolve amicably the pending broadcast rights dispute," wrote Selig in a letter to Angelos and Nationals owner Ted Lerner, obtained by The Hollywood Reporter.
The commissioner spoke about devoting extensive time and resources toward preserving the value of the TV network serving both clubs. "Unfortunately, these efforts have come to naught solely due to your unfathomable inability to agree on a fair division of that value," he wrote. "In my view, neither of you has approached this negotiation with the best interest of the game paramount in your mind."
Selig, who owned the Milwaukee Brewers before becoming commissioner and whose efforts to keep this all under wraps has included sending the Nationals money, then turn his attention to the consequences of making the fight public:
"Both the Orioles and the Nationals have at various times made threats to institute litigation in connection with this dispute, despite my office's extended, good-faith efforts to have this matter resolved by agreement. On a personal note, I owned a Club for decades and I can honestly say that under no circumstances would I have threatened, let alone commenced, litigation against Baseball. Please be advised that nothing in the Agreement authorizes the parties to file any lawsuit. … I want there to be no doubt that, if any party initiates any lawsuit, or fails to act in strict compliance with the procedures set forth in the Agreement concerning the [Revenue Sharing
Definitions Committee of Major League Baseball]'s decision, I will not hesitate to impose the strongest sanctions available to me under the Major League Constitution."
Despite Selig's stern warning, and notwithstanding the confidence he projected publicly, the attorneys for the parties began firing shots at each other, with Selig cc'd.
The same day Selig sent his letter, Pamela Marple, an attorney at Chadbourne & Parke representing MASN (and by extension, the Orioles), wrote a letter to the Nationals that slammed the MLB arbitration panel's "lack of procedural fairness," noted that the ruling "does not end this matter," argued that it wasn't binding on the Orioles, and stated, "Please also be reminded that your client's privilege to have its games telecast throughout the Orioles' Television Territory arises solely and exclusively under the Settlement Agreement and related Partnership Agreement. Your client has no right to access the Orioles' Television Territory for the telecast of its games independent of those agreements."
On July 1, Stephen Neuwirth, an attorney at Quinn Emanuel representing the Nationals, responded by telling MASN that thanks to the decision, the club was owed an additional $10 million for rights-fee payments due on April 1 and June 1 and warning of an impending deadline of default.
Two days later, Neuwirth provided formal notice of defaults and warned MASN to cure the defaults lest the team "seek all appropriate remedies for nonpayment, including (without limitation) termination of MASN's license to telecast Nationals games."
His threats didn't achieve the desired result, so on July 7, the Nationals petitioned the MLB Commissioner's Office to confirm and enforce the June 30 decision.
The following day, Thomas Hall, another attorney at Chadbourne & Park representing MASN, responded with a letter describing the petition as doing nothing more than furthering "the illicit arrangements and misconduct undertaken by the Nationals, Major League Baseball and the Commissioner to wrest from MASN and [the Baltimore Orioles] the compensation guaranteed to them."
Hall then accused Selig and the MLB of improper financial motives. "Not only does Baseball have approximately a 34 percent financial interest in every dollar steered toward telecast rights fees and away from MASN's profits under the Revenue Sharing Plan, but also, in 2013 … the Commissioner privately paid $25 million to the Nationals, entering into an agreement with the Club, through which Baseball would recoup those funds from the monies to be paid under the RSDC award at issue here."
This letter challenged Selig's jurisdiction and impartiality and despite Selig's threats of sanctions, spoke about being "entitled to obtain the impartial review afforded by the courts."
By that time, MASN had filed a summons in New York court that provided notice that it was seeking to modify or vacate the arbitration award.
Last Thursday, the Nationals responded in court to what it saw as its adversary's step "in direct contravention of the Commissioner’s instruction, ... for the apparent purpose of further delaying MASN’s payment of the fair market value of the Nationals’ telecast rights fees."
The team noted that Selig hadn't responded to its July 7 letter by confirming the arbitration award or imposing sanctions on MASN. The team stated that it was "clear" that the MLB commissioner didn't intend to follow up on his threats. In short, the Nationals felt it was appropriate to go to open court with its own petition to confirm the arbitration award.
All this means that secrets have been spilled with ramifications to be determined at a moment when the value of TV rights deals is skyrocketing and the league is dealing with a TV carriage impasse involving the Los Angeles Dodgers and Time Warner Cable.
We've asked MLB whether Selig intends to follow up on his "strongest sanctions" threat. According to Article II of the MLB Constitution, the MLB commissioner's powers include "suspension or removal of any owner, officer or employee of a Major League Club." The league once basically forced former Dodgers owner Frank McCourt to sell the team.
In a statement to THR, MLB comments, "Although certain legal maneuvering has taken place, Commissioner Selig remains hopeful that the parties can reach an agreement in an amicable manner."
The Baltimore Orioles gave us this statement:
"As those who follow the Clubs are aware, the Settlement Agreement between Baseball, the Orioles, and the Nationals established MASN to compensate the Orioles for the loss of market share and other damages caused by the relocation of the Nationals to Washington, D.C. Contracts are meant to be honored and the Orioles have every expectation that this contract will also be honored. The Orioles continue to work with the Office of the Commissioner to try and resolve this dispute.”
On behalf of the broadcaster, Hall had this to say:
“MASN has honored the terms of the Settlement Agreement, including the formula in that contract for resetting the Nationals’ telecast rights fees and expects all parties will do the same. That contract specifically includes an agreed upon and historically applied formula for resetting the Clubs’ telecast rights fees that has been applied by Baseball to virtually every other club-owned regional sports network. MASN is confident its contract will be honored and looks forward to further discussions with all parties to try and resolve this matter amicably. Our loyal viewers should understand this is a business dispute and will have no impact on the telecast of the Clubs’ games.”
The last point may be contestable with the Nationals raising the possibility of "termination of MASN's license to telecast Nationals games."