The Orioles and Nationals Are Suing Each Other. Again.

The best rivalry in baseball right now might not be the Yankees versus the Red Sox, or the Dodgers against the Giants. Instead, it might be the one between the Orioles and the Nationals, a feud that has landed in multiple courtrooms and has been literally litigated almost non-stop for over seven years.

The dispute arises from the teams’ joint ownership of the Mid-Atlantic Sports Network (MASN), though it also seems to have been fueled by what appears to be genuine antipathy from Orioles’ owner Peter Angelos for his team’s southern rival. Back in 2004, when the Montreal Expos were about to move to the District of Columbia, Angelos “went on Baltimore radio station WBAL-AM and pronounced that ‘there are no real baseball fans in D.C.'” Angelos was later the sole dissenting vote against the Nationals’ move, and given territorial rights disputes, having the Orioles on board became a matter of some necessity. So the two teams “worked out a deal whereby the Orioles would hold a majority partnership profit interest in MASN and get to telecast Nationals games at a substantial discount from 2005 to 2011. After that, MASN would be obligated to pay the Nationals ‘fair market value.'”

How Orioles-friendly was that deal?

When MASN was created to broadcast Orioles and Nationals games in the regional territory that once solely belonged to the Orioles, the Orioles owned 90 percent of the network and the Nationals’ stake would increase by 1 percent each year until 2032, when it reached 33 percent.

Despite the deal, which the Sports Business Daily called “one of the most lopsided deals in sports TV history,” Angelos still voted against the Expos’ move to Washington, D.C. And since that deal was struck, the Orioles have resisted MASN’s obligation to pay the Nationals anything close to “fair market value” as required by the contract for Washington’s broadcast rights. Remember, the Orioles still own better than 70% of the network, so they control how much the network pays.

But at issue since litigation began in 2014, amid the boom of television rights fees, was how much MASN would pay the Nationals (and the Orioles, as well) for their broadcast rights each year.

The formula the Orioles and MASN used dictated that the Nationals would get approximately $40 million per season for the five-year period beginning in 2012. But the Nationals sought more than double that.

On the one hand, the Nationals have a legitimate grievance here. The Orioles want MASN to pay the Nationals on the same level as the Cincinnati Reds or Atlanta Braves. Yes, the Nationals should be earning more than that, but they want to be paid on a similar rate to the Mariners or Red Sox. So, in that sense, Washington might be overstating its case. In other words, the Orioles were trying to lowball their beltway rivals on what “fair market value” was for broadcasting the contests of the erstwhile Expos, while the Nationals were basically trying to get out from under the agreement entirely and act as if they were the region’s sole team. Per the agreement, the teams went to arbitration.

An MLB arbitration panel, called the Revenue Sharing Definitions Committee (RSDC), convened in 2014 and ruled the Nationals should get approximately $60 million per year from MASN.

The arbitrators thought that the Nationals should be earning annual television revenue somewhere in between the two teams’ figures, on par with the Phillies or Astros. The Orioles and MASN, however, simply ignored the arbitrators’ decision.

The broadcaster refused to pay, though, leading the Nationals to send notice of default, and MLB commissioner Bud Selig to threaten to ‘impose the strongest sanctions available’ if the parties went to court. Despite the warnings, the teams and their broadcasters filed papers in New York state court. The MLB was one of the named respondents. The court action came after the Orioles told MLB they would be seeking no less than $800 million in lost asset value, according to a letter obtained by The Hollywood Reporter.

Ordinarily, this would have gone nowhere. Under Article VI of the MLB Constitution, teams are prohibited from suing each other, and any disputes between them have to go through MLB’s arbitration process. But there was a problem: MLB’s arbitration process, in this case, had a slight wrinkle.

Remember Proskauer Rose? We talked about them before as the law firm that represents MLB in big legal fights. Proskauer Rose represented the Nationals in that arbitration – and that led the Birds to cry foul (pun intended):

But the Orioles challenged the [arbitration] ruling [in court] on the grounds that . . . the Nationals’ legal counsel at the time, Proskauer Rose, had represented both MLB and the clubs on the three-owner panel in other matters.

The Orioles went so far as to call this proof of “corruption” and “fraud,” and compared the league to organized crime. The court wasn’t impressed with the hyperbole, but did find that Proskauer Rose couldn’t represent both the Nationals and MLB without a conflict of interest, and the Judge hearing the case vacated the arbitration award.

“Here, there are objective facts that are unquestionably inconsistent with impartiality,” writes [Judge Lawrence] Marks. “Had MLB, the arbitrators, the Nationals and/or Proskauer taken some reasonable step to address petitioners’ concerns about the Nationals’ choice of counsel in the arbitration — or indeed any step at all — the Court might well have been compelled to uphold the arbitral award under the FAA [Federal Arbitration Act]. But MASN and the Orioles have established that their well-documented concerns fell on entirely deaf ears. Under the circumstances, the Court concludes that this complete inaction objectively demonstrates an utter lack of concern for fairness of the proceeding that is ‘so inconsistent with basic principles of justice’ that the award must be vacated.”

On this, Judge Marks was almost certainly right on the law; Proskauer should never have represented the Nationals in the arbitration, and the Nationals almost certainly knew that. So even though the final decision of the arbitrators was likely legally correct, Judge Marks had no choice but to send the case back to MLB’s arbitration panel to do it all over again, at which point everyone – the Orioles, Nationals, and MLB – appealed.

The Nationals appealed because they lost. The Orioles appealed because they wanted Judge Marks to decide the case, rather than MLB arbitrators, irrespective of what the MLB Constitution said. MLB appealed to protect the sanctity of their arbitration process, as they don’t want the precedent of their arbitrations being set aside in court proceedings. (The appeals were heard in late 2015.) And in the meantime, the Nationals wanted the Orioles to do what Judge Marks said and go back to MLB arbitration to do it all again.

Again, the Orioles said no. So the Nationals filed a motion to force their beltway rivals back into arbitration, and said that the cost of the dispute, and the lack of fees being paid by MASN, was impeding their ability to pursue free agents:

MASN’s underpayment of rights fees has already required the Nationals to fund payroll and other expenses from its own reserves, and further delay could require the Nationals to seek new financing,” says the team’s memorandum. “This is not only burdensome in its own right, but it places the Nationals at a competitive disadvantage to other baseball clubs, which typically receive fair market value from their regional sports networks for their telecast rights. Without this added income, the Nationals are handicapped in their ability to invest in efforts to improve the team. For instance, without this added and steady income, the Nationals cannot bring full economic confidence to investments in multi-year player contracts to keep up with the fierce competition for top players — especially when such control over finances is in the hands of a neighboring club.”

This may have been overstated; after all, according to Forbes, the Nationals generate $336 million in annual revenue even with their rivals paying them a relative pittance in broadcast fees. At this point, the Orioles finally began making settlement offers. But because hyperbole is the name of the game in this mid-Atlantic monstrosity, the Nationals rejected those offers – even when the Orioles offered to settle the dispute for the amount of the Nationals’ earlier demands. As a result, the teams had a second arbitration in Atlanta earlier this year.

But before that decision could be rendered, the Orioles took the Nationals and MLB to court again. This time, it was over a dividend that the Orioles had directed MASN to not distribute. You see, the Orioles, based on the pending litigation, decided to withhold dividends in the event the network was directed to pay back monies to the Nationals. But the Nationals wanted that money now, and wanted another arbitrator to decide it. The Orioles didn’t want this new issue decided by that same MLB arbitration panel that had ruled against them before, so they sought an order allowing them to arbitrate the dispute in a different venue.

According to reports from the Hollywood Reporter and The Washington Post, the Orioles cited a $25 million loan MLB made to the Nationals earlier this decade as the reason the latest dispute needs to be seen by an independent arbiter.

Justice Barry R. Ostrager wrote in his decision that “it would be illogical to allow MLB — a potentially interested party — to determine whether MLB itself had a financial interest in one of the parties to the dispute at the relevant time.”

It would seem that the Orioles’ lawyers have a much better batting average than their first basemen. And yes, this is now the second time the Orioles have gone around the clause in the MLB Constitution that says that teams aren’t allowed to sue each other or the league. 

What’s next? Probably more litigation. The dividend dispute will be heard before the American Arbitration Association. Any decision by MLB’s arbitration panel will almost certainly be appealed. And the MASN dispute has grown so heated that whispers have begun that Angelos would rather move the team than lose the fight, though it is unclear how credible those whispers are. Portland has been mentioned among several cities as a potential destination, along with – ironically enough – Montreal.

We hoped you liked reading The Orioles and Nationals Are Suing Each Other. Again. by Sheryl Ring!

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Sheryl Ring is a litigation attorney and General Counsel at Open Communities, a non-profit legal aid agency in the Chicago suburbs. You can reach her on twitter at @Ring_Sheryl. The opinions expressed here are solely the author's. This post is intended for informational purposes only and is not intended as legal advice.

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CamdenWarehouse
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CamdenWarehouse

Isn’t the formula used by the Orioles to determine the “fair market value” specified in the deal? Saying the Orioles are lowballing the Nationals, while true, is a bit misleading because they are using the method agreed to by all parties.

averagejoe15
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averagejoe15

“The formula the Orioles and MASN used dictated that the Nationals would get approximately $40 million per season for the five-year period beginning in 2012. But the Nationals sought more than double that.”

It’s not stated that the Nationals agreed to a formula or that such a formula was in the contact. If the formula used by the Orioles and MASN was specified and agreed to by all parties there wouldn’t be a controversy.

I do wonder what the actual language around “fair market value” was in the contract and why it wasn’t more specific. Maybe there was pressure to get a contract signed and the parties would deal with the “fair market value” issue at a later date.

Jetsy Extrano
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Jetsy Extrano

This contract sounds from the summary — and the parties’ actions don’t contradict it — like a guaranteed lawsuit festival. I’m amazed MLB lets them get into such a mess.

JCCfromDC
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JCCfromDC

No, it is not. As Judge Marks pointed out in his ruling, the so-called “Bortz Methodology” for computing FMV is not mentioned at all in the MASN agreement. The contract calls for fair market value but does not define how that value is to be determined. This misconception that the O’s are simply trying to apply an agreed upon method seems rampant among O’s fans; it is repeated to often that it has taken on a life of its own. In fact, the Orioles are trying to import their idea of FMV calculation to keep the rights fees (which are shared equally) artificially low so that MASN’s profits (which overwhelmingly go to the O’s) are as high as possible.

The flaw in the agreement that Angelos did not anticipate was the explosion of rights fees, which has defied all predictions of bursting.

CamdenWarehouse
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CamdenWarehouse

Obviously, I haven’t read the agreement, but it has been reported to be in there by the Sun “The agreement says the rights fees — which are to be equal for both clubs — should be reset every five years using a formula developed by Bortz Media & Sports Group, a Colorado consulting firm.” and alluded to in the WaPo “rights fees commensurate with the formula in the contract.”.

Can you link to the Marks ruling where he says the methodology is not in the agreement? I haven’t been able to find it.

https://www.baltimoresun.com/sports/orioles/bs-sp-orioles-masn-0714-20120713-story.html
https://www.washingtonpost.com/sports/nationals/in-debate-over-masn-rights-mlb-rules-for-washington-nationals-but-fight-continues/2014/07/29/65a3af4e-1774-11e4-9e3b-7f2f110c6265_story.html

geneticlyperfct
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geneticlyperfct

Angelos claimed that the arbitrators exceeded the scope of their authority, largely because they did not rely on the “Bortz methodology” – in particular MASN’s interpretation of the Bortz Methodology. The court tossed this out in its entirety, pointing out that the MASN agreement does not specifically define the methodology to be used at all – and that the RSDC’s methodology was “reasonable on its face.” Reading between the lines a bit, to me the Judge seemed to go out of his way to praise the work of the panel without formally endorsing their award. At any rate, Angelos loses. This is actually a big deal, because the use of the “Bortz methodology” was THE lynchpin of Angelos’s low-balling of the rights fees.

Source: https://www.federalbaseball.com/2015/11/4/9672978/masn-decision-justice-delayed-not-justice-denied

CamdenWarehouse
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CamdenWarehouse

Thanks! I hadn’t seen the full text of his opinion before. Certainly looks like the Orioles have little to stand on.