MLB seeks creative solution to MASN rights fees dispute between Nationals, Orioles

[Frobby]

If I am Angelos I would do anything to keep MASN together. Fair or not, he cut a deal with MLB giving him Nationals broadcast rights in perpetuity. The owner of the Nationals knew that was the deal when he bought the team. He probably even got the team cheaper because whoever bought the team knew they wouldn't be able to negotiate a better TV deal. It seems as if the Nationals are trying to basically force Angelos to rip up the deal. He should stick to his guns.

It seems like a lot of people around here really don't understand the MASN situation very well. By the contract Angelos negotiated, the Nats have the right to have the amount of the payment they receive for their television rights "reset" once every five years, and if the matter can't be resolved by agreement, the matter is arbitrated. The time to reset the rights fees has arrived. The Nats aren't asking anyone to breach their contract, they are simply asking for a higher rights fee than MASN believes is appopriate.

The market price of rights fees has exploded in the last few years, and the Nats' argument is that they should receive a rights fee in line with what other teams are now getting. MASN is saying that they can't afford to pay what some entity like FOX or Comcast would pay on the open market. So, MLB is saying, "well, if you can't pay the Nats what their rights fees are worth, then maybe you should be sold to an outfit that can afford to pay it."

[TonySoprano]

It seems like a lot of people around here really don't understand the MASN situation very well. By the contract Angelos negotiated, the Nats have the right to have the amount of the payment they receive for their television rights "reset" once every five years, and if the matter can't be resolved by agreement, the matter is arbitrated. The time to reset the rights fees has arrived. The Nats aren't asking anyone to breach their contract, they are simply asking for a higher rights fee than MASN believes is appopriate.

The market price of rights fees has exploded in the last few years, and the Nats' argument is that they should receive a rights fee in line with what other teams are now getting. MASN is saying that they can't afford to pay what some entity like FOX or Comcast would pay on the open market. So, MLB is saying, "well, if you can't pay the Nats what their rights fees are worth, then maybe you should be sold to an outfit that can afford to pay it."

Give me an example of an arbiter forcing a settlement that would knowingly force a company into bankruptcy.

[Frobby]

If the above were true, then clearly the amount wouldn't be fair market value. I understand the comps the Nats are pushing but find it hard to believe that they are realistic for such a young franchise with a fanbase in its infancy.

No, that is wrong. It could be that MASN is poorly run, and isn't as profitable as it should be. "Fair market value" isn't measured by what one company can afford to pay, it's measured by what the asset would be worth on the open market. If Comcast or FOX would be willing to pay $110 mm for rights to the Nats, then that's the fair market value regardless of what MASN can afford.

Now, as I have said before, you would have to know what the MASN contract says to know whether the Nats' rights fees are supposed to be "reset" according to fair market value, or according to the profitability of MASN, or or according to some other standard enitrely. Until we've seen what the contract says are the standards to be used in a "reset," we're just speculating as to what the issue might be.

[DrungoHazewood]

If I am Angelos I would do anything to keep MASN together. Fair or not, he cut a deal with MLB giving him Nationals broadcast rights in perpetuity. The owner of the Nationals knew that was the deal when he bought the team. He probably even got the team cheaper because whoever bought the team knew they wouldn't be able to negotiate a better TV deal. It seems as if the Nationals are trying to basically force Angelos to rip up the deal. He should stick to his guns.

I have a feeling that this invocation of "in perpetuity" will stand up about as well as MLB's other famous use of the phrase in the old standard player contract.

If the above were true, then clearly the amount wouldn't be fair market value. I understand the comps the Nats are pushing but find it hard to believe that they are realistic for such a young franchise with a fanbase in its infancy.

The Padres, in a media market half the size of DC's, with a much less wealth than DC, and with a track record of only sporadic success on the field, have a TV deal worth $60M a year for the next 20 years. If $110M isn't the number then it's not completely unrealistic, either.

[Frobby]

Give me an example of an arbiter forcing a settlement that would knowingly force a company into bankruptcy.

I was mostly just kidding when I said that. But it happens every day in the outside world that legal decisions get made that force a company to go into bankrupcy. An arbitrator is bound to follow the terms of the contract that provided for the arbitration. If the contract said (and I don't know if it does), "the rights fees will be reset once every five years according to fair market value under prevailing market conditions at the time," the arbitrator would be bound to apply that standard whether it bankrupted MASN or not. If the contract said "the rights fees will be reset once every five years, taking into account market conditions and the overall profitability of MASN," that would be a different thing entirely. If the contract just said "the rights fees will be reset once every five year" without stating any standard at all for the reset, that would be a third thing. I strongly suspect, knowing what was at stake when this deal was put together, that there are a detailed set of criteria set out in the contract that the arbitrators are supposed to consider in setting the rights fees. But I have no idea what they are you'd have to see the contract to know.

Let's keep in mind that the panel looking at this isn't three retired judges with no stake in the outcome. The panel is three other MLB owners and they have a huge stake in the outcome, because they want the market for rights fees to be robust. It doesn't help them to have MASN paying the Nats and Orioles a below-market rights fee.

[Rene88]

Hopefully creative in a "move the Nationals back to Canada" way.

Yes, hatred for the Nats runs deep..oh wait...are you being serious?

[crissfan172]

Yes, hatred for the Nats runs deep..oh wait...are you being serious?

It really depends how you define serious. Do I really want the Nats to move back to Canada? Sure. Do I actually think that has any chance of happening? Uh...no.

[Frobby]

I have a feeling that this invocation of "in perpetuity" will stand up about as well as MLB's other famous use of the phrase in the old standard player contract.

The old standard player contract never said "in perpetuity," that was merely how the owners had interpreted it. The clause actually said that if the player didn't come to terms on a new contract, “the Club shall have the right by written notice to the Player to renew this contract for the period of one year on the same terms . . .” It was the owner's position that they could renew a player's contract for a year, and then at the end of that year, if the player didn't come to terms, simply do it again under the terms of the "renewed" contract, which included that same clause. The players' position was that when the contract said it could be renewed "for one year," that meant it could only be renewed once. The arbitrator sided with the players.

If you'd really like a detailed blow-by-blow, here's a Law Review article about how it all went down: http://www.law.berkeley.edu/sugarman/Sports_Stories_Messersmith_McNally_Arbitration.pdf

As to how long MASN has exclusive rights to the Nats, I'm sure it says very specifically in the contract how long the term is. If it's supposed to be in perpetuity, I'm sure the contract leaves no room for doubt about that, unlike baseball's old reserve clause.

[DrungoHazewood]

The old standard player contract never said "in perpetuity," that was merely how the owners had interpreted it. The clause actually said that if the player didn't come to terms on a new contract, “the Club shall have the right by written notice to the Player to renew this contract for the period of one year on the same terms . . .” It was the owner's position that they could renew a player's contract for a year, and then at the end of that year, if the player didn't come to terms, simply do it again under the terms of the "renewed" contract, which included that same clause. The players' position was that when the contract said it could be renewed "for one year," that meant it could only be renewed once. The arbitrator sided with the players.

If you'd really like a detailed blow-by-blow, here's a Law Review article about how it all went down: http://www.law.berkeley.edu/sugarman/Sports_Stories_Messersmith_McNally_Arbitration.pdf

As to how long MASN has exclusive rights to the Nats, I'm sure it says very specifically in the contract how long the term is. If it's supposed to be in perpetuity, I'm sure the contract leaves no room for doubt about that, unlike baseball's old reserve clause.

I should have known that trying to talk baseball law with Frobby around would be like someone expounding on the 1894 Orioles with me around.

[mcgraw238]

It seems like a lot of people around here really don't understand the MASN situation very well. By the contract Angelos negotiated, the Nats have the right to have the amount of the payment they receive for their television rights "reset" once every five years, and if the matter can't be resolved by agreement, the matter is arbitrated. The time to reset the rights fees has arrived. The Nats aren't asking anyone to breach their contract, they are simply asking for a higher rights fee than MASN believes is appopriate.

The market price of rights fees has exploded in the last few years, and the Nats' argument is that they should receive a rights fee in line with what other teams are now getting. MASN is saying that they can't afford to pay what some entity like FOX or Comcast would pay on the open market. So, MLB is saying, "well, if you can't pay the Nats what their rights fees are worth, then maybe you should be sold to an outfit that can afford to pay it."

There had been a handful of articles claiming the rights fee is determined in reference to a formula outlined in the governing contract. As I understand things, the formula provides a number much closer to that which MASN is offering. It is the Nats wanting to throw out the formula and point to these other deals. If the panel goes the route your suggesting, they are likely exceeding the scope of thier authority and setting things up for litigation. We essentially have each side dug in with MASN comfortable pointing to the contract (and claiming everything else is parol evidence) and the Nats wanting out a deal that they didn't broker. Seems to me this will end in litigation or a creative solution.

[Frobby]

I should have known that trying to talk baseball law with Frobby around would be like someone expounding on the 1894 Orioles with me around.

The article I linked actually discusses the state of baseball contracts in the 1800's at some length, so you'll probably love it.

[Frobby]

There have been a handful of articles claiming the rights fee is determined in reference to a formula outlined in the governing contract. As I understand things, the formula provides a number much closer to that which MASN is offering. It is the Nats wanting to throw out the formula and point to these other deals. If the panel goes the route your suggesting, they are likely exceeding the scope of thier authority and setting things up for litigation. We essentially have each side dug in with MASN comfortable pointing to the contract (and claiming everything else is parol evidence) and the Nats wanting out a deal that they didn't broker. Seems to me this will end in litigation or a creative solution.

Again, while I am talking without seeing the contract, one thing I can tell you is that courts are extremely deferential to arbitrators' decisions. The grounds for a court to overturn an arbitrators' decision are much more limited than the grounds for an appellate court to overturn a decision of a lower court, for example. I actually had a case where an arbitrator totally ignored a compensation formula in a contract, and the court upheld the decision as being within the arbitrator's discretion.

I think the efforts to "shop" MASN may be a back door way of trying to see what the rights fees are really worth, instead of relying on tesimony of "experts" as to how the DC market compares with other markets where lucrative deals have been struck.

[NATTYBO's]

Again, while I am talking without seeing the contract, one thing I can tell you is that courts are extremely deferential to arbitrators' decisions. The grounds for a court to overturn an arbitrators' decision are much more limited than the grounds for an appellate court to overturn a decision of a lower court, for example. I actually had a case where an arbitrator totally ignored a compensation formula in a contract, and the court upheld the decision as being within the arbitrator's discretion.

I think the efforts to "shop" MASN may be a back door way of trying to see what the rights fees are really worth, instead of relying on tesimony of "experts" as to how the DC market compares with other markets where lucrative deals have been struck.

I believe tha the O's TV ratings are still higher then the Nats which will make it very difficult to determine where the Nats TV boudries are. There are still plenty of people around DC that want to view O's games.

[DrungoHazewood]

I believe tha the O's TV ratings are still higher then the Nats which will make it very difficult to determine where the Nats TV boudries are. There are still plenty of people around DC that want to view O's games.

Sure, but the Nats' market is twice the size of the O's. So, if I understand correctly, a 3.0 share for the Nats results in more eyes on TVs than a 5.0 share for the O's.

[mcgraw238]

Again, while I am talking without seeing the contract, one thing I can tell you is that courts are extremely deferential to arbitrators' decisions. The grounds for a court to overturn an arbitrators' decision are much more limited than the grounds for an appellate court to overturn a decision of a lower court, for example. I actually had a case where an arbitrator totally ignored a compensation formula in a contract, and the court upheld the decision as being within the arbitrator's discretion.

I think the efforts to "shop" MASN may be a back door way of trying to see what the rights fees are really worth, instead of relying on tesimony of "experts" as to how the DC market compares with other markets where lucrative deals have been struck.

All good points. Plus, I think it was you who pointed out the "arbitrator's" in this case are from other teams rather than independant types in the classic arbitration sense.