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MASN, Orioles earn preliminary injunction against Nationals, MLB

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In the continuing saga over where revenue and rights fees from the Mid-Atlantic Sports Network should go, a New York supreme court justice ruled earlier this week that the Nationals cannot yet enforce an arbitration award that would grant them a larger portion of rights fees from the network.

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Evan Habeeb-USA TODAY Sports

Doubtless that the stakes are high for teams on the baseball field, but it's also a dose of perspective to realize just how high the stakes are for those clubs off the field. With the rise of regional sports networks, teams are realizing a source of previously untapped (and for some, seemingly unlimited) revenue.

Those RSN deals -- perhaps subject to a bubble -- are worth upwards of $340M a season in rights fees for teams like the Los Angeles Dodgers (currently embroiled in their own sort of T.V. dispute). And cable providers know those shows attract eyeballs; as Maury Brown at Forbes wrote earlier this month, MLB broadcasts on RSNs are owning prime time this year.

The Only Thing Greener Than A Baseball Diamond

All of this is background on a topic you probably already know about.  Before the then-Montreal Expos moved to town ahead of the 2005 season, Peter Angelos did what he is good at doing: objected. In short, the Baltimore Orioles' owner was not happy about the Nats moving to his territory.

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Peter Angelos, via nbchardballtalk.files.wordpress.com

Aggrieved, he convinced MLB to, as the New York Times put it, "midwife[] a network that became the financial vehicle to compensate Angelos [in exchange for the Nats moving to D.C.]." The child here is the Mid-Atlantic Sports Network, or MASN, which you've probably heard of. Watched, even.

While the money wasn't as bonkers in 2005 (hard to believe it was almost ten years ago), Angelos and the Orioles still negotiated a "sweet deal":

The Orioles got 90 percent ownership of the network, a stake that will gradually be pared to two-thirds; total management control; and $75 million from the Nationals.

The Nationals got an immediate outlet for their cable games, a below-market rights fee and a stake in the network that will climb no higher than 33 percent.

And while both teams receive the same annual rights fee, the profits flow much more heavily to the Orioles. Every dollar the Orioles pay to the Nationals reduces the Orioles’ profits.

A quick explanation on some terms. The rights fee is what MASN pays the O's and Nats to broadcast their games.  MASN then charges cable providers a fee to carry their channel. And guess who is at the end of that multi-million dollar game of telephone?

Rsn_fee_medium

That circled charge may or may not be part of your author's fee to watch cable (don't tell the better half), whether he wanted to pay it or not.

Anyway, after MASN gets money from carriers, pays their rights fees to the teams, and covers the cost of broadcasting games from the field rather than the booth, the deal was/is that some money (equity) makes it to the Lerners, and a lot more makes its way further north to Charm City. That's important, not just because some money is good and more money is better, but because the profits from MASN aren't subject to MLB's revenue sharing system.

The deal also permitted the Nationals in 2012 to reset the value of their rights fee, or what MASN has to pay them, to get Washington "fair market value" on their relatively paltry take (reported to be around $34M in 2012, and $40M this year). The teams couldn't agree on that recalculation, though, so the Nationals took the dispute to arbitration.

Nats Prevail in Arbitration, Orioles Request (And Obtain) A TRO

That's where things stood until around June 30 of this year, when the arbitration panel -- made up of executives from the Mets, Pirates, and Rays -- decided that somewhere in the neighborhood of $60M was a proper yearly rights figure. This value was closer to what the Orioles requested than the Nats' $100-$110M proposal.

In response, the Orioles asked for a temporary restraining order from the New York Supreme Court (that's the trial court in the Empire State). A TRO, as it is commonly known, precedes a formal hearing on a preliminary injunction and prevents the restrained party (here, the Nats) from taking specific action. Preliminary injunctions are more permanent versions of TROs.

On August 7, the court granted Baltimore's request. Again, the TRO basically told the Nats to cool their jets on enforcing the arbitration award -- at least until the court could hear argument on the preliminary injunction.

I'm not licensed in the state, but it appears under New York law that a court may order a TRO when a plaintiff (here, the Orioles) shows that "immediate and irreparable injury, loss or damages will result unless the defendant is restrained before a hearing may be had. . . . Upon granting a [TRO], the court shall set the hearing for a preliminary injunction at the earliest possible time."

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via www.lyngsat-logo.com

That hearing came Monday in Manhattan. At the proceeding, the Orioles' attorneys argued that MASN was in a perilous position financially -- having just $3.5M in the bank, according to the New York Times.

This could explain why the court might have been persuaded to enter the TRO in the first place (the assumption being that MASN's spartan financial state was represented to the court in argument for the TRO, of course). If there's not enough money in the bank to pay the arbitration award difference/fees claimed by the Nats such that paying would cripple MASN, that's pretty immediate and irreparable consequence of enforcing the award (at this point).

Back to the Monday hearing. Central to the Orioles' argument was that the arbitration panel ignored the nearly-ubiquitous "Bortz methodology" when determining their award, which same methodology was incorporated into the original deal creating MASN.

This ties into their other argument about the integrity of the arbitration panel.  Specifically, Baltimore argued, the MLB executives who decided that the Nats should receive an increased rights fee stood to gain from the concurrent increase in revenue sharing that they would receive from the larger rights fees.

In other words, the Orioles claimed that had the panel used the Bortz methodology, the Nats' rights fees would be less, and so too would other teams' coffers. In short, Angelos and MASN alleged that it was unfair that the arbitration panel had skin in the game.

New York Supreme Court Grants Preliminary Injunction

As this New York law firm's website states (don't worry, it cites to case law), to get a preliminary injunction in New York, at the Monday hearing the Orioles had to show:

(1) a probability of success on the merits of their case;

(2) danger of irreparable injury absent the injunction; and

(3) a balancing of the equities favors granting the injunction.

The court was satisfied that the Orioles checked all the boxes, because it granted the preliminary injunction.

Factors (2) and (3) were probably pretty easy for the court to decide considering the Orioles' aforementioned statement that MASN had less in the bank than Nate McLouth was making this year, and that the Nats had supposedly threatened to pull the plug on their relationship with MASN entirely.  General notions of fairness within the limits of this information seem to weigh in favor of holding things steady at the moment; burying MASN and going without a network carrier could also hurt the Nats and fans, especially as the pennant chase heats up.

Of course, much of the focus going ahead will be on the first factor -- probability of success on the merits.

To analyze that, we've got to know how to vacate an arbitration award. The floor for doing so, defined in the Federal Arbitration Act, is capably summed up by Aaron Bayer of the National Law Journal. I dare you not to fall asleep:

Overturning an arbitral award on appeal is notoriously difficult because the standards of review under the Federal Arbitration Act (FAA) and analogous statutes are extremely narrow. . . .

FAA § 10(a) provides four limited bases, which have been described as "grudgingly narrow" (Eljer Mfg. Inc. v. Kowin Dev. Corp., 14 F.3d 1250, 1253 (7th Cir. 1994)) for vacating an arbitral award: (1) the award was procured by corruption, fraud or undue means; (2) there was evident partiality or corruption by the arbitrators; (3) there was arbitral misconduct, such as refusal to hear material evidence; or (4) the arbitrators exceeded their powers, or so imperfectly executed their powers that they failed to render a mutual, final and definite award.

The Orioles hit factors two and three pretty hard, from everything I can tell.

Arbitral Misconduct

Regarding the third factor, this appears to be the avenue where the Birds can leverage their Bortz methodology arguments.

My gut analysis is this. Under the language of the FAA, so long as the arbitrators heard and considered the Bortz methodology, there's no misconduct in the form of, as case law suggests, refusing to hear material evidence. In other words, just because the established methodology wasn't used here doesn't mean misconduct follows. Keeping in mind the high standard of review, that's just one avenue the Nats may choose to take to defend against overturning the award.

Evident Partiality

On the second factor, the Orioles have also argued a conflict of interest in the firm representing the Nats, Proskauer Rose. The argument goes that that law firm has also represented MLB, the Mets, Pirates, and Rays in separate proceedings. Apparently, the Orioles raised this conflict as far back as 2012, and they claim that the firm represented both the arb. panel and a litigant before that panel.

James Wagner reported that the court expressed concern about the conflict of interest question today, where Justice Lawrence Marks stated that "the fairness of the process is what concerns the court most of all."

"The fairness of the process is what concerns the court most of all." -N.Y. Supreme Court

Whether Justice Marks made this statement in the vacuum of his preliminary injunction analysis or whether he had larger thoughts on the direction of future litigation is unclear.

In any case, it's a bit surprising to me that, given the heads up time, the Nationals didn't consider removing any appearance of conflict in advance of the hearing. They knew they could get to arbitration. They knew that the panel would be made up of MLB teams. And they should have known of Proskauer Rose's representation connections.  Why not take the Orioles' argument off the table? While the firm's reputation is good, there are plenty of other firms with very well qualified attorneys.

There are likely persuasive reasons in favor of the Nats decision, but it's now an issue they have to deal with. At the same time, it's not like the firm actually made the award. Which, quite likely, is where the Orioles will bring up the panel's impartially through their standing to benefit from increased revenue sharing via MASN's payment of a higher rights fee to the Nats.

I'm not sure about the real world effect of that argument, though.

Some back of the envelope math suggests that the panel members, were the award to hold up, would each stand to gain only ~$234,483 on the difference between the awarded $60M rights fee and the current $40M rights fee.  Granted, the Mets did have the whole Wilpon-Madoff thing, and the Rays run low payrolls all the time, but $234,483 is less than half the minimum MLB salary.

Is that interest significant enough to undermine the high standard for overturning an award? Who knows. But it doesn't appear to be the strongest point in the O's favor.

Going Forward

Wagner reports that the parties are back in court today, likely for future hearing/trial scheduling on whether the award should be overturned. That's going to be a whole thing, of course. More paperwork, more attorneys (hey, the parties couldn't play nice in the first place), more mud-slinging, more vague notions of competition between fan bases who really have no idea whether network gains or losses will be reinvested in their team, as Patrick has pointed out before.

After rattling off nine straight, it's looking like the legal system is the only thing that can stop the Nats these days.  But there are still games to play on the diamond and in the courtroom.  To that end, the best thing for fans of both teams to do now is enjoy the action between the lines through August and September, with the security that Nats and Orioles' games will be broadcast in full -- and hopefully by national networks deep into October.