12:56pm PT by Eriq Gardner
TV Broadcaster Challenges MLB's Secret $25 Million Deal With Washington Nationals
Normally, the quietest month for Major League Baseball is January. Not this year. Next week, the 2nd U.S. Circuit Court of Appeals will consider the league's attempt to appeal a judge's refusal to stop an antitrust lawsuit that takes aim at the way that games are packaged and distributed for television. And then there's the separate and nasty intraleague war happening between the Baltimore Orioles and the Washington Nationals over TV money.
That dispute has been simmering ever since the Montreal Expos moved to the nation's capital in 2005, upsetting Orioles owner Peter Angelos. The battle exploded into open court last year after a league arbitration panel ruled that the Mid-Atlantic Sports Network (MASN) — controlled by the Orioles — had to pay significantly more money to televise Nationals games. The Orioles have estimated the lost asset value of its network to be $800 million, and last August, the team succeeded in getting a judge to issue a preliminary injunction on enforcement of the arbitration ruling.
By no means, however, is the dispute over, and on Monday, attorneys for the Orioles/MASN side filed scorching new papers in a New York state court.
MASN — which was set up to soothe Angelos' qualms over another team moving into his team's TV market — is attempting to vacate an arbitration ruling that would result in the Nationals getting $20 million more each year as "fair market value" for televised games. Normally, federal judges are loath to upset what happens in private arbitration, but in this instance, the arbitrators were composed of top executives from the New York Mets, the Pittsburgh Pirates and the Tampa Bay Rays. MASN has accused MLB of "corruption" and "fraud" and asserted that the arbitration was tainted.
The motion to vacate the arbitration ruling is largely premised on the role that Proskauer Rose played. The law firm represented the Nationals during the arbitration, but allegedly has conflicts — it has been involved in many MLB matters including the antitrust lawsuit over TV deals that is about to be presented to the 2nd Circuit. It represented the Mets in the Bernie Madoff affair, the Tampa Bay Rays in salary disputes with players, and much more.
In fact, on Monday, MASN told the judge that the law firm was "even more intertwined with MLB than was previously revealed," counting 74 separate engagements, including 49 that occurred during the arbitration. These matters included representing the MLB in the Biogenesis investigation, in the dispute over the league's one-year suspension of Alex Rodriguez and former MLB commissioner Bud Selig in the 2012 extension of his $22 million-per-year employment contract.
The Orioles and its broadcaster only threw up a number of soft objections to Proskauer's involvement during the arbitration, but is now using its legal bat to drive home the point that MLB used the law firm to gain an illicit advantage over the arbitration process. The Nationals argue that MLB's conflict of interest is "irrelevant" because the firm represented the league in unrelated matters, but the Orioles/MASN assert that MLB and Rob Manfred — who becomes the league's new commissioner this month — "maintained almost complete control over the Arbitration and Award."
And why exactly does the MLB care what MASN pays to the Nationals for the right to televise its games? If MLB used Proskauer to sway the arbitrators, what did MLB stand to gain from favoring one team over another?
As detailed in prior stories on this dispute, MLB privately paid $25 million to the Nationals to soothe team owner Ted Lerner's own problems with being forced to license its games at a discount. Now, MASN tells the judge that the arbitration award must be vacated because "MLB had (and still has) a direct financial interest in the outcome."
On Monday, Alan Rifkin, an attorney representing MASN, delivered an extraordinary sworn affidavit (read here in full) in the courtroom battle over TV money. It attempts to explain MLB's stake.
Rifkin says he had discussions with Manfred — then the MLB's chief operating officer — in August 2013. According to Rifkin, Manfred wrote that MLB had "resolved" the Nationals' claim for additional telecast rights fees for 2012 and 2013 and that the league would "fund the entire cost of the resolution."
At the time, Rifkin thought that MLB was going to pay the Nationals $7.5 million and believed this was a mistake because he says it "would only encourage the Nationals to believe that they were entitled to telecast rights fees in excess" of what the team deserved.
Only later, he says, did he learn that MLB had actually paid the Nationals $25 million. Manfred wanted to know if the Orioles would consider allowing the MLB to recoup the money through the proceeds of a sale of MASN, says Rifkin. The entreaty was allegedly rejected.
On June 17, 2014 — two weeks before the arbitration ruling was handed down — Rifkin says he met with Manfred in an MLB conference room. The $25 million came up again because apparently the league was under pressure to repay a third-party lender. Rifkin says he asked Manfred if there was any written documentation of the deal with the Nationals. Manfred said there was, according to the affidavit, and got out a large three-ring binder of communications with the Nationals, which contained a copy of the letter agreement. Manfred slid the binder across the conference room table. Here's how Rifkin describes what happened next:
"As I was reading the agreement between MLB and the Nationals, Mr. Manfred said, 'How bad is it?' I responded by saying 'Pretty bad.' He then asked, 'What can I do about it?' My response was, in words or to the effect, that 'I'm not your lawyer, but if I was, you're MLB. You have instant replay. You need to decide whether you made the right ruling on the field.' I also reiterated to Mr. Manfred, in words or to the effect, what had been said in our meeting on April 24, 2014, that the arrangements between MLB and the Nationals confirmed that the RSDC [arbitration] process was a fraud intended to force a partnership restructuring."
According to MASN's latest court papers in support of a petition to vacate the arbitration award, MLB knew that it could recover the $25 million if the arbitration panel issued an award in the Nationals' favor settling telecast rights high enough to cover the amount it gave the team.
"If the fact of the $25 million payment alone were not enough," say the petitioners, "the secret nature of the agreement and the manner in which MLB expected be repaid provide a clear and objective demonstration of MLB’s partiality — which is no doubt why MLB persists in arguing that MASN and BOLP knew about and embraced a secret side-deal that was obviously prejudicial to them."
A spokesperson for MLB said the league had no comment about yesterday's court filings. In prior papers filed by Manfred in the case, he wrote that MLB only plays a "support role" in the arbitration, that the process was well known by the Orioles, and that during the proceedings no party complained that it hadn't been given an opportunity to present its case nor ever objected to the procedure.