New Details on Nationals — MASN Dispute

Oct 27, 2013; St. Louis, MO, USA; MLB commissioner Bud Selig attends a press conference to present the 2013

Award prior to game four of the MLB baseball World Series between the Boston Red Sox and the St. Louis Cardinals at Busch Stadium. Mandatory Credit: Rob Grabowski-USA TODAY Sports

Some very interesting information about the status of the Nationals/MASN dispute about the fair market value of the Nationals’ television rights became public this week.

The Nationals and MASN have been locked in a battle since 2012 regarding the amount of the fair market value of the Nationals’ television rights. This is not an issue about the percentage ownership of the network. The original MASN contract with the Nationals (negotiated by Major League Baseball) gave the Orioles 90% of the network, and the Nationals 10%. After a two year waiting period, the Nationals were to receive an additional 1% per year, with the Nationals ownership interest in the network capped at 33%. Right now the Nationals own 17% of MASN.

The television rights contract stated that the Nationals would be entitled to have a review of the fair market value of their broadcast rights in 2012, and every seven years after that. Prior to 2012, the Nationals payment for their broadcast rights was dictated by MASN and the Orioles. The Nationals received approximately $29 million for their broadcast rights in 2011, the last year before the fair market value re-set was to occur.

The Nationals claimed that their broadcast rights were worth $100-$120 million per year when it came time for the broadcast fees to be reset in 2012. This is not a crazy figure, considering that the Houston Astros get $80 million per year for their broadcast rights and the San Diego Padres receive $120 million per year. Other teams receive much more. MASN offered the Nationals $36 million per year.

Peter Angelos has an incentive to keep the Nationals broadcast rights payments low. Angelos pays the same amount to the Orioles that the Nationals receive for broadcast fees. Broadcast fees are subject to revenue sharing with MLB, and the clubs have to pay 34% of their broadcast fees to MLB as part of the revenue sharing agreement. Those fees are then shared with other baseball teams.

MASN’s other revenues are not subject to revenue sharing. The lower Angelos keeps the broadcast rights payments, the more money he puts into his or the Orioles pocket without having to share any of the revenue with any other teams.

The MASN contract apparently contained an arbitration clause for the parties to take disputes to arbitration on this issue. Since the parties could not agree, MLB convened an arbitration panel to hear the dispute. The panel consisted of the CEO of the New York Mets, the President of the Pittsburgh Pirates and the owner of the Tampa Bay Rays.

What was unknown until this week was that the arbitration panel issued a decision on June 30th, a decision which apparently favored the Nationals. There has been no public statement as to exactly what the number is, but whatever it is the Orioles and MASN don’t like it.

Despite Bud Selig’s attempts to keep the dispute all in the family (reportedly paying the Nationals $25 million in advance on their broadcast rights award to keep the Nationals from suing the Orioles and MASN earlier), and chastising both team owners for failing to reach an agreement, the mess is now in the courts.

The Orioles and MASN have now filed a notice in a New York court to have the arbitration award vacated or modified, claiming that the arbitration panel was biased and self-interested because their teams participate in the revenue sharing, and a higher broadcast rights number for the Nationals means the revenue sharing pot gets bigger, which helps their teams. Bias or self-interest by an arbitrator is a reason for a party to ask a court to vacate an arbitration award.

Cynical folks would point out that the Orioles obviously knew about this issue before the arbitration commenced, and were holding this argument in their hip pocket in the event that the arbitration did not go their way. This gives the Orioles and MASN an excuse to drag the matter into the courts.

The Nationals, for their part, have sent demand letters to MASN claiming that they are owed a $10 million payment for rights fees which is overdue per the arbitration award. They have asked MLB to enforce the arbitration award, which so far hasn’t happened. The Nationals may be asking a court to enforce the arbitration award, which is standard operating procedure when a party wins an arbitration award and the losing party doesn’t pay up. All courts have a procedure by which they can enter a judgment enforcing an arbitration award.

Attorneys for the Nationals are also making noises about terminating the MASN contract entirely if the Orioles don’t pay the arbitration award. If Angelos and the Orioles are in breach of the MASN broadcast contract, then a remedy for breach of contract is cancellation of that contract.

The Nationals would then take the position they are free to negotiate their own broadcast rights contract.

Such a move by the Nationals would force MASN to ask a court to issue an injunction barring the Nationals from entering into a new contract and broadcasting games on any other network until the courts had an opportunity to hear the dispute.

Nats fans should stay tuned for continuing developments. This potentially could get very messy and could cause issues for game broadcasts in the coming weeks. Thank goodness we can still listen to Charlie Slowes and Dave Jaegler on the radio, no matter what happens with the MASN mess. The radio broadcast rights aren’t owned by MASN.