MASN dispute update

[atomic]

1 hour ago, weams said:

On another note, the Orioles have retained the right to appeal this ruling. 

Yeah until this hits the Supreme court I don't see the Nationals getting anything. 

[Frobby]

3 minutes ago, atomic said:

Yeah until this hits the Supreme court I don't see the Nationals getting anything. 

Zero chance that the US Supreme Court will hear this case.   Slight chance that MASN/the Orioles would ask the Supreme Court to hear the case once the NY appeals are over, just because they're ridiculously pugnacious.    But the Supreme Court would never take the case.

For those who would like to read Justice Cohen's 27-page opinion, here it is: https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=3qoObmdzSa_PLUS_vVExf1Q1mjg==

The most notable part of the opinion is the introduction:
 

Quote

 

In many cases, arbitration is a quick and efficient way to resolve disputes with little or no court involvement. Stolt-Nielsen S.A. v. Animal Feeds International Corp., 559 U.S. 662 (2010). This is not one of those cases.

This is a dispute between the Washington Nationals Baseball Club ("the Nationals") and the Baltimore Orioles Baseball Club ("the Orioles") and related entities regarding the division of television revenues and profits through their jointly owned television network MASN. As required by their contract, the teams submitted the dispute for resolution by Major League Baseball’s Revenue Sharing Definitions Committee ("RSDC") in January 2012.1

The RSDC issued its decision two years later. It was promptly challenged in court by the Orioles. After three years of litigation, the arbitration award was vacated on the ground that the law firm that represented the Nationals in the arbitration concurrently represented Major League Baseball (MLB) and the three arbitrators’ teams in other matters, resulting in "evident partiality." The Orioles’ request to have the second arbitration shifted to a non-MLB tribunal was denied. Then came another year of arbitration with a different RSDC panel, which rendered an award that was nearly identical in dollar terms to the first one five years earlier.

And now, more than seven years after the arbitration process began, the parties are back in litigation. The Nationals (again) ask the Court to confirm the RDSC arbitration award. In response, the Orioles (again) ask the Court to vacate the award on the ground of MLB and RSDC bias and remand for a third arbitration before a non-MLB arbitration panel.  With a nod to Yogi Berra, it’s like déjà vu all over again.

For the reasons that follow, the Court grants the Nationals’ motion, confirms the RSDC’s award, and terminates this proceeding.

 

The court rejected various arguments that the proceeding was biased, finding them to be a rehash of arguments that Justice Marks had rejected in the original court decision.   The court also found that "[t]he 48-page [new RSDC] decision is extraordinarily detailed and thorough."

As to the issue that has been referred to the Special Referee Clerk, I was right that this just relates to interest due on the award.   The interest only begins to run from the date the arbitration award was made (April 15, 2019), so it isn't a huge sum, although New York statutory interest runs at the high rate of 9%.   The interest accrued right now is probably in the ballpark of $3 mm.   Interest will continue to accrue during the time elapsed as MASN/the Orioles appeal the ruling.   

[atomic]

13 minutes ago, Frobby said:

Zero chance that the US Supreme Court will hear this case.   Slight chance that MASN/the Orioles would ask the Supreme Court to hear the case once the NY appeals are over, just because they're ridiculously pugnacious.    But the Supreme Court would never take the case.

 For those who would like to read Justice Cohen's 27-page opinion, here it is: https://iapps.courts.state.ny.us/nyscef/ViewDocument?docIndex=3qoObmdzSa_PLUS_vVExf1Q1mjg==

The most notable part of the opinion is the introduction:
 

The court rejected various arguments that the proceeding was biased, finding them to be a rehash of arguments that Justice Marks had rejected in the original court decision.   The court also found that "[t]he 48-page [new RSDC] decision is extraordinarily detailed and thorough."

As to the issue that has been referred to the Special Referee Clerk, I was right that this just relates to interest due on the award.   The interest only begins to run from the date the arbitration award was made (April 15, 2019), so it isn't a huge sum, although New York statutory interest runs at the high rate of 9%.   The interest accrued right now is probably in the ballpark of $3 mm.   Interest will continue to accrue during the time elapsed as MASN/the Orioles appeal the ruling.   

Yeah that is why I didn't say the Supreme Court hears the case.  I think they will appeal to it.  Can't they appeal on other reasons as well? Like go back to the lower court with another reason to appeal? 

I own a lot of Chevron stock and they were involved in a big lawsuit after buying Texaco.  The suit took 25 years to finalize with award being thrown out at the end.  

[drjohnnyfeva]

This is a bare knuckle brawl that I don't see us winning or settled fairly for us.

Did/does anyone really see this going in our favor?  Come on.  Once the talk of the Expos being permitted to move started  and the negotiations began to put them in DC, the Expos/Nats owners would have agreed to ANYTHING to get it done.  Shaking hands, signing contracts, relinquishing their first born sons...  All the while with one hand behind their back with their fingers crossed KNOWING they were going to get into this blood-sport to wrestle market share and tv rights from the Orioles.  It was part of the long-range game plan.  Had to have been.

What's going to be interesting is to hear what Frobby has to say about the market share aspect.  With where we are as a rebuilding franchise, slumping attendance, and having an owner who is ailing, we are ripe to be taken advantage of, imo.

The Nats argument:  We are the regional leader in attendance and fan loyalty, we deserve a greater percentage of the market and majority control of any TV deals in the region.

The Orioles argument:  Nuh uh.  (Judge asks why...)  umm, because.  

[Frobby]

5 minutes ago, atomic said:

Yeah that is why I didn't say the Supreme Court hears the case.  I think they will appeal to it.  Can't they appeal on other reasons as well? Like go back to the lower court with another reason to appeal? 

I own a lot of Chevron stock and they were involved in a big lawsuit after buying Texaco.  The suit took 25 years to finalize with award being thrown out at the end.  

I’m aware of the Chevron case; in fact, I was involved in it indirectly for a period of time.   

No, they can’t do anything further in the lower court.    Their best shot is going to be in the New York Court of Appeal.   Remember, the intermediate appellate court was split 3-2 on the question of whether the second arbitration should have gone to a non-RSDC panel.    The NY Court of Appeal declined to hear that issue for procedural reasons, but will be able to take up that issue when the matter comes before them this time.   Since it was a close call on that issue in the Appellate Division, it’s conceivable that the Court of Appeal could go the other way.    But I doubt it, and I really doubt any of the other grounds are going to work.    

One thing the O’s and MASN have to think about now is the 9% interest that’s accruing.    Let’s say they drag this out for another two years — that would mean owing an extra $20 mm or so in interest, at a time when market interest rates are running way lower than 9%.    Up to the second arbitration award, no interest was accruing, so all the delay was working in their favor.    Now it’s not, and they’ll need to think hard about whether the cost of the appeal (in terms of accruing interest) is worth the somewhat unlikely chance of overturning the award.

[Frobby]

1 hour ago, drjohnnyfeva said:

What's going to be interesting is to hear what Frobby has to say about the market share aspect.  With where we are as a rebuilding franchise, slumping attendance, and having an owner who is ailing, we are ripe to be taken advantage of, imo.

The Nats argument:  We are the regional leader in attendance and fan loyalty, we deserve a greater percentage of the market and majority control of any TV deals in the region.

The Orioles argument:  Nuh uh.  (Judge asks why...)  umm, because.  

I don’t think we have anything to worry about there.    The MASN agreement states two things very clearly:

1.   Rights fees for the Nats and O’s have to be equal.

2.   The O’s will always own at least 67% of MASN (their ownership drops by 1% per year until it reaches 67%).

No arbitrator or Judge is going to ignore that.    

Also, while the total dollar amount of the new arbitration award is very similar to the previous award, the methodology for getting there is slightly different and more favorable for MASN/the Orioles going forward.    In the first award, the rights fees were increasing substantially every year; in the second, they were increasing much more slowly.   So, that second trend line favors MASN and the O’s in the years beyond 2016 that haven’t been decided yet.    

Edited August 23, 2019 by Frobby
I misstated that the rights fees were declining in the second award. They are increasing, but at a much slower rate than under the prior award.

[atomic]

36 minutes ago, Frobby said:

I’m aware of the Chevron case; in fact, I was involved in it indirectly for a period of time.   

No, they can’t do anything further in the lower court.    Their best shot is going to be in the New York Court of Appeal.   Remember, the intermediate appellate court was split 3-2 on the question of whether the second arbitration should have gone to a non-RSDC panel.    The NY Court of Appeal declined to hear that issue for procedural reasons, but will be able to take up that issue when the matter comes before them this time.   Since it was a close call on that issue in the Appellate Division, it’s conceivable that the Court of Appeal could go the other way.    But I doubt it, and I really doubt any of the other grounds are going to work.    

One thing the O’s and MASN have to think about now is the 9% interest that’s accruing.    Let’s say they drag this out for another two years — that would mean owing an extra $20 mm or so in interest, at a time when market interest rates are running way lower than 9%.    Up to the second arbitration award, no interest was accruing, so all the delay was working in their favor.    Now it’s not, and they’ll need to think hard about whether the cost of the appeal (in terms of accruing interest) is worth the somewhat unlikely chance of overturning the award.

Maybe they could settle the suit with the Nationals now.  

[Satyr3206]

3 hours ago, atomic said:

Maybe they could settle the suit with the Nationals now.  

That would probably be the best solution for a number of reasons. We'll see what they do.

[spiritof66]

I haven't read the decision, but here are a couple of thoughts:

1. Sure, the Orioles can appeal the decision to the Appellate Division, First Department (which is obligated to the hear the appeal), and then to the New York Court of Appeals (which will be obligated to hear the appeal only under certain circumstances that are unlikely to occur), and then to the U. S. Supreme Court (if the Orioles want to waste some money).

But there's a critical difference from the last round of appeals. The Nats now have obtained (it appears, though again I haven't read the decision) the New York Supreme Court's confirmation  -- that is, its approval -- of the second arbitration award. They didn't have that before; all the previous court decisions contemplated further arbitration proceedings.

Now, or possibly after waiting for pre-judgment interest to be calculated and added to the amount owed, the Nats have the right to obtain a judgment of a court in New York and then elsewhere compelling MASN (and/or the Orioles) to pay to the Nats the specific amount stated in the judgment (plus interest on that amount). MASN's and the Orioles' appeals will not affect their obligation to pay that amount, unless MASN and the Orioles either (a) provide security in that full amount, plus interest (by obtaining an "undertaking," which is like a bail bond, in which an insurance company or other deep pocket would promise to pay the judgment if MASN and the Orioles don't after they have finished appealing, or putting funds in the amount of the judgment aside in a manner that ensures the Nats they will be readily available to them when the appeals are over), or (b) get the Supreme Court or the First Department to say that payment need not be made while the appeals are pursued. Undertakings of this magnitude are hard to come by and very expensive, and I think MASN and the Orioles would have a tough time prevailing on an argument that their obligation to pay should be deferred after it's been determined in two arbitrations that they have very substantial payment obligations. 

So while MASN and the Orioles can appeal, I think it's likely that pretty soon this arbitration award is going to start costing them real dollars, and lots of them.

2. Insofar as the result of the arbitration is deemed to be unfair or surprising to the Orioles, I believe the blame lies principally with themselves or their lawyers (and it's possible that Peter Angelos or lawyers in his firm played both roles). I prepared a long comment on this topic, which I never posted because it seemed too negative. What follows is, believe it or not, a summary of the two aspects in which it appears the Orioles or their lawyers laid the groundwork for these arbitration decisions. 

First, when the Orioles agreed to the rights fee dispute resolution provision in the 2005 MASN Agreement, they didn't understand, or did understand but chose to ignore, what the RSDC does, and failed to insist on a definition of "[t]he fair market value of the rights" that would have clarified what the RSDC was supposed to decide. While "fair market value" has a standard meaning and therefore ordinarily doesn't require a definition, that standard meaning doesn't logically fit in with the rest of this provision, including the reference to the RSDC's "established methodology." As a result, the rights fee dispute resolution provision, rather than being clear and direct about what the RSDC is supposed to do, is subject to differing interpretations. (Even though I believe that under an exacting legal analysis, only one interpretation works, I understand that others disagree.) Moreover, prescribing a determination of "fair market value" gives the decision-maker wide latitude as to both methodology and result. There is no single "correct" value, and it's hard to say most values are "wrong." So the RSDC was given wide scope in deciding future rights fees.

Second, practically any practitioner or handbook about arbitrations will say that when you agree to have important issues decided by arbitration your most important decision is the selection of the arbitrator(s), since it's virtually certain you'll have to live with their decision even if it's unfair, incompetent, or just plain wrong. There are various recognized methods in which to optimize the likelihood that  arbitrators will have the expertise to decide the issues before them, unbiased and fair. None of them was used here. Instead, the MASN agreement provides what I'd call a "pig in a poke" method: future rights fees would be decided by the three MLB owners who would be the members of the RSDC (which changes membership on a regular basis) at unidentified future times. Those future members might or might not be competent to understand and apply the rights fee provision, and might or might not favor, as a personal or business matter, MLB or the Nats. (Given Angelos's status among MLB owners, I doubt there was much possibility of bias in his favor among RSDC members.) 

When you put these two things together, the Orioles agreed in 2005 that disputes over the amounts of post-2011 rights fees -- an issue of importance to the franchise's long-term financial health -- would be decided by three not-yet-identified MLB owners, who might like or dislike the Orioles or the Nats, and might simply do MLB's bidding. Those three owners would be asked to determine the rights fees by applying their interpretation of a provision whose meaning was  internally incoherent, and the Orioles/MASN would be stuck with their decision. It wouldn't matter what the dispute provision "really" meant, or what the Orioles thought it meant, if the arbitrators -- or their puppet-masters in MLB -- had a different interpretation. That's what the Orioles agreed to, either because they and their lawyers didn't bother to clarify what the rights fee dispute provision meant, or because they decided to sign on to a crapshoot as to how future rights fees would be decided. They are now stuck with the consequences. It could have been worse.   

3.  I don't know enough about the Orioles' finances or financial resources to know how much this determination of rights fees, and those to come if they follow the same methodology and formula, will affect the team. Even without a good handle on those facts, I continue to believe that the obligations of Peter Angelos's estate to pay federal estate taxes and Maryland taxes upon his death (which can be deferred insofar as he leaves his interest in the Orioles and his other assets to his wife) will weaken the franchise financially such that (a) MLB may not approve a transfer, for example one to Angelos's sons, that triggers those tax obligations, and (b) Angelos's sons would need additional investors in the franchise, and might sell the team.  

 

 

[Beetlejuice]

On 8/23/2019 at 9:54 AM, atomic said:

Maybe they could settle the suit with the Nationals now.  

Why would the Nationals be inclined to do so?  I don’t know how bitter the Lerners are, but if they want to stick it to Angelos they’ve got the means to do so by simply pushing for higher broadcast fees to both teams in order to crush MASN.

[Frobby]

47 minutes ago, Beetlejuice said:

Why would the Nationals be inclined to do so?  I don’t know how bitter the Lerners are, but if they want to stick it to Angelos they’ve got the means to do so by simply pushing for higher broadcast fees to both teams in order to crush MASN.

I think if this award survives all appeals, future debates will be limited to nibbling at the edges.    The award sets the methodology for determining rights fees and any future adjustments in that methodology will be minor.    

To me the big misconception is that “the Nats won.”    No they didn’t.   They had an arbitration, the panel made a compromise award, and the Nats decided to accept it while the Orioles didn’t.    I doubt the Nats liked the initial decision any more than the Orioles did.   But they made the strategic decision to live with it and align itself with MLB.    

[Can_of_corn]

1 minute ago, Frobby said:

I think if this award survives all appeals, future debates will be limited to nibbling at the edges.    The award sets the methodology for determining rights fees and any future adjustments in that methodology will be minor.    

To me the big misconception is that “the Nats won.”    No they didn’t.   They had an arbitration, the panel made a compromise award, and the Nats decided to accept it while the Orioles didn’t.    I doubt the Nats liked the initial decision any more than the Orioles did.   But they made the strategic decision to live with it and align itself with MLB.    

Realistically how fast can the appeals get shut down and this judgement finalized?

[Frobby]

2 minutes ago, Can_of_corn said:

Realistically how fast can the appeals get shut down and this judgement finalized?

The appeals will take time, assuming the Orioles pursue them.   Realistically, a minimum of 18 months, a maximum of 3 years (but probably not that long).

[TonySoprano]

10 minutes ago, Can_of_corn said:

Realistically how fast can the appeals get shut down and this judgement finalized?

Call Ah-nuld 

6 minutes ago, Frobby said:

The appeals will take time, assuming the Orioles pursue them.   Realistically, a minimum of 18 months, a maximum of 3 years (but probably not that long).

Either way, 2012-16 gets settled when the next phase 2017-21 was also supposed to end.

[atomic]

1 hour ago, Beetlejuice said:

Why would the Nationals be inclined to do so?  I don’t know how bitter the Lerners are, but if they want to stick it to Angelos they’ve got the means to do so by simply pushing for higher broadcast fees to both teams in order to crush MASN.

So they dont have to deal with further appeals and risk losing in court