Court Tosses Arbitration Award in MASN Case

For the last three years, the Baltimore Orioles and Washington Nationals have been engaged in a feud over television rights fees. As both Wendy Thurm and I have previously discussed, the origins of the dispute date back to 2005, and Major League Baseball’s resolution of Baltimore’s objections to the Montreal Expos being relocated to Washington, D.C. (territory belonging at the time to the Orioles).

In order to alleviate the Orioles’ concerns, MLB structured a deal in which Baltimore would initially own 87 percent of the newly created Mid-Atlantic Sports Network (MASN), the regional sports network that would air both the Orioles’ and Nationals’ games. In exchange, the Nationals were scheduled to receive an initial broadcast rights fee of $20 million per year from MASN, an amount that would be recalculated every five years.

Jump forward to 2012, when Washington requested that its rights fee be increased to $120 million per year. MASN and the Orioles refused, and as a result the dispute ended up in arbitration, with a panel of MLB team executives – the Mets’ Jeff Wilpon, the Rays’ Stuart Sternberg, and the Pirates’ Frank Coonelly – ultimately awarding the Nationals roughly $60 million per year in broadcast fees.

Still not satisfied, the Orioles and MASN then went to court in 2014, asking a New York judge to overturn the arbitration award on the grounds that the panel was biased. After initially blocking MLB from enforcing the arbitration decision that August, presiding Judge Lawrence Marks gave MASN and the Orioles a more lasting victory on Wednesday, officially vacating the arbitrators’ award.

As a result, the Orioles and Nationals are back to square one in their dispute, potentially impacting both teams’ 2016 offseason plans.

To begin, although courts rarely overturn arbitration decisions, the fact that Judge Marks agreed to take such a drastic step in this case was not entirely surprising. Not only had the judge signaled that he was uneasy with the internal process MLB employed to resolve the dispute when he temporarily stayed the arbitration award in 2014, but the fact that he waited nearly six months after holding a hearing in the case to issue a final decision also boded well for the Orioles and MASN (presumably, a ruling would have been issued much sooner had the judge intended to simply uphold the arbitration decision).

That having been said, the grounds upon which Judge Marks overturned the arbitration outcome were a bit surprising. Originally, MASN and the Orioles had argued that the award should be set aside on the grounds that the arbitrators’ own teams stood to benefit from awarding increased rights fees to the Nationals, insofar as the fees would result in their clubs receiving additional funds under the league’s revenue sharing formula.

Rather than focus on the financial interests of the arbitrators, however, or the manner in which they calculated the Nationals’ rightful broadcast rights fee, Judge Marks instead determined that the award should be thrown out due to the identity of Washington’s legal counsel in the matter.

As I explained earlier this year, MASN contended that the fact that the Nationals’ had retained the Proskauer Rose law firm to represent the team in the arbitration itself warranted reversing the arbitration panel’s decision. The Proskauer firm has served as outside legal counsel to MLB and its teams in a number of matters, ranging from the Biogenesis investigation to the on-going minor league wage lawsuits.

Of particular note, the firm has also represented individual MLB teams in the past, including the Pirates, Mets, and Rays, the franchises whose executives served on the MASN arbitration panel. MASN and the Orioles argued that the arbitrators’ prior relationships with the Proskauer firm may have biased the panel in favor of the Nationals.

Realistically, the fact that the panel members’ teams had some prior relationship with the Nationals’ law firm seems unlikely to have had a significant bearing, in and of itself, on the ultimate arbitration outcome. Nevertheless, the optics of the situation were certainly less than ideal.

Judge Marks seized upon the appearance of potential impropriety in his decision on Wednesday. The judge admonished MLB in particular for allowing the Nationals to be represented by a law firm with such extensive ties to the league and its teams, suggesting that had MLB taken some steps to encourage Washington to retain other counsel for the arbitration, then the panel’s decision would likely have been upheld. Instead, he vacated the arbitration award, sending the dispute back to square one.

How MLB will react to Wednesday’s decision is not yet clear. It is possible that the league will appeal Judge Marks’ decision on the hopes that an appellate court will view Proskauer’s involvement differently and reinstate the arbitration decision. Indeed, fairly or not, some are already interpreting Wednesday’s decision as an early setback for Rob Manfred’s commissionership, a view that MLB may wish to try to reverse on appeal.

Alternatively, MLB could decide that the best course of action is simply to hold a new arbitration in the dispute. Notably, Judge Marks’ decision does not require the league to use external arbitrators to resolve the case going forward. Instead, his decision left open the possibility that so long as the Nationals employ new legal counsel, MLB could in fact utilize the same procedure and once again allow the league’s Revenue Sharing Definitions Committee (RSDC) to resolve the dispute. The league may thus ultimately elect to just go ahead and hold a new arbitration in the dispute, in the hopes of putting this matter behind it as soon as possible.

Either way, though, this is a fight that is unlikely to be put to bed anytime soon. Even if MLB opts to go ahead with a new arbitration, considering the history here it appears likely that the Orioles would once again appeal any outcome in which the Nationals were awarded appreciably more than the $33 million per year the team currently receives from MASN.

As a result, the Nationals’ long-term television revenue picture will likely remain in limbo for the foreseeable future. This uncertainty could very well impact the team’s 2016 budget, potentially altering the club’s offseason plans.

Finally, it is worth noting that although Wednesday’s decision was certainly a victory for MASN and the Orioles in the short-term, the outcome is not without its long-term risk for the network and team. While a new arbitration panel could very well award the Nationals some amount less than the $60 million per year the team had received under the now-vacated decision, it is also entirely possible that a second arbitration will instead result in Washington actually receiving a higher award. Indeed, considering that the Nationals had originally asked for $120 million in broadcast rights fees, the original award could actually be viewed as having been somewhat favorable for Baltimore and the network.

And considering that Judge Marks rejected most of MASN’s arguments regarding the general procedure that MLB employed to resolve the dispute, the network and team would presumably face long odds of persuading the court to overturn a second arbitration award.

So while Wednesday’s ruling is definitely a victory for the Orioles and MASN in the short-term, the ultimate importance of the decision may very well prove to be less significant than it appears at first glance. In fact, it remains entirely possible that despite suffering a setback on Wednesday, the Nationals will ultimately emerge victorious in the dispute.