On Tuesday, the New York Court of Appeals—the state’s highest court—affirmed an arbitration decision ordering that the Mid-Atlantic Sports Network (MASN), an RSN for Baltimore Orioles and Washington Nationals games, must pay the Nationals an additional $99 million to resolve a dispute over telecast rights fees from 2012 to 2016.
The ruling is the latest development in a dispute that originated with MLB’s relocation of the Montreal Expos to D.C. in 2004 to become the Nationals. The Orioles, about 40 miles away, objected to the relocation, stressing that its territorial broadcast rights and ability to attract fans would be hurt by another MLB team. MLB negotiated a settlement wherein the Orioles’ RSN, TCR Sports Broadcasting, was converted into the Mid-Atlantic Sports Network (MASN) for both Orioles and Nationals games.
Under the settlement, the Orioles initially had 90% ownership of MASN and the Nationals just 10%, but the Orioles stake would drop to 67% and the Nationals would climb to 33% in gradual increments until 2032, when the deal expires. The settlement also calls for MASN to pay the teams the same amount in telecast rights.
The deal could have implications in the long-considered sale of the Nationals. In early 2022 the Lerner family hired investment bank Allen & Co. to explore its options, and talks got serious with Washington Capitals/Wizards owner Ted Leonsis. The hang-up: the MASN agreement. Leonsis owns NBC Sports Washington, a rival RSN, and reportedly wanted to buy the Nationals out of their MASN obligations. Other prospective buyers also struggled to square the team’s local media revenue and its RSN future, according to multiple people with direct knowledge of the process. The sale process was eventually paused until at least the end of the 2023 season.
This settlement doesn’t free the Nationals from that MASN arrangement, which reportedly lasts “in perpetuity” and its end would require the Orioles and Nationals to mutually agree upon a resolution. The settlement may, however, improve the team’s economics over the rest of the deal, setting a precedent that the RSDC will have authority to set future payments made to the Nationals. A representative for Allen & Co. didn’t immediately respond to a question about what this might mean for the paused sale process.
The structural problem with that settlement is incentives. Because the Orioles own much more of MASN, the team stands to profit more as rights fees, which are the MASN’s largest expense, decline.
The Orioles and Nationals repeatedly disagreed about how much money the teams should get in telecast rights fees, with each arguing for different accounting and evaluation methods. For the litigation, the relevant period is 2012 to 2016, when the Nationals received $198 million but argued they should have received $475 million. The settlement contained a dispute resolution process that called for negotiation, non-binding mediation and, if necessary, arbitration before MLB’s Revenue Sharing Definitions Committee (RSDC), which has three representatives from MLB teams and charged with determining the fair market value of the telecast rights fees.
The first arbitration, held in 2012, featured a panel of representatives from the Tampa Bay Rays, Pittsburgh Pirates and the New York Mets, as appointed by then-commissioner Bud Selig. Current commissioner Rob Manfred, who at the time was MLB’s executive vice president, also played a role in providing legal and analytical support. The panel determined the Nationals should have received an additional $100 million, but the panel to have its own design defect. The Orioles challenged it in a New York trial court, successfully arguing the panel was partial because both the Nationals and MLB (which oversaw the arbitration) had retained the same law firm, Proskauer Rose.
The second arbitration, held a few years later, involved executives from the Milwaukee Brewers, Seattle Mariners, and Toronto Blue Jays as selected by Manfred. The RSDC hired its own legal counsel. The panel determined that the Nationals should have received $297 million, meaning $99 million more than they received.
The Orioles and Nationals then litigated the arbitration decision, with the Orioles demanding it be vacated and the Nationals arguing it should be confirmed. Among other arguments, the Orioles (and MASN) insisted that Manfred was biased in favor of the Nationals, that MLB was biased because it advanced $25 million to the Nationals in anticipation of the team obtaining more money through RSDC, and that a neutral party should handle a third arbitration. The Orioles noted that Manfred was quoted by media as saying, “the RSDC was empowered to set rights fees. That’s what they did, and I think sooner or later MASN is going to be required to pay those rights fees.”
Writing for herself and five other judges, Judge Madeline Singas found the Orioles’ argument came up short. She emphasized that the Orioles and Nationals explicitly agreed to the arbitration process and that an arbitration award can only be vacated if extraordinary circumstances, such as when there is fraud or corruption. Courts, she wrote, “will not rewrite the contract or impose additional terms.”
Citing Tom Brady’s unsuccessful case against the NFL over the Deflategate controversy—where, per a collective bargaining agreement, commissioner Roger Goodell handled appeals of his own punishments—Singas wrote parties can agree to “select industry insiders” to serve as arbitrators if they so wish.
She also emphasized that neither MLB advancing money nor Manfred publicly opining about the process established partiality. “There is no evidence,” she wrote, “that MLB or Manfred had any undisclosed influence on the panel members beyond that which the parties bargained for in the settlement agreement.”