A regional sports channel is calling foul on an arbitration award issued by a three-member committee of Major League Baseball team owners that requires the network to pay an additional $20 million a year in telecast rights fees to the Washington Nationals team franchise.
The Mid-Atlantic Sports Network, known as MASN, filed an Article 75 petition in New York County’s Commercial Division two weeks ago to vacate the award, calling the arbitration proceeding “a sham” and “a corrupted and biased process.”
On Thursday, in TCR Sports Broadcasting v. WN Partner, 652044/14, Justice Lawrence Marks granted a temporary restraining order, which bars enforcement of the award or further action by the parties until at least an August 18 injunction hearing.
The Washington Nationals has sought to terminate MASN’s license to telecast games based on the network’s default on paying additional telecast rights fees per the arbitration outcome.
The dispute between the sports cable network, which broadcasts both Baltimore Orioles and Washington Nationals game, dates back to 2012. That year, the five-year arrangement that allowed MASN to pay below-market fees to the Nationals expired.
After Major League Baseball relocated the Montreal Expos to Washington, D.C. and renamed the team the Washington Nationals, a settlement agreement was reached in 2005 between the channel, the Orioles and the MLB to mollify the Baltimore team’s concerns that the entry of a new team in its television-viewing territory would snap up its market rights. The agreement locked in the reduced fees for the Nationals’ game telecasts from 2006 to 2011.
With MASN and the Nationals unable to agree on the fair market value for telecast rights fees for the 2012-2016 time period, the parties went to arbitrate before the Revenue Sharing Definitions Committee, a panel convened by the MLB.
While the sports network argued the fair market value for the telecast rights fees should start at $34 million per year and rise no higher than $46 million by 2016, the Nationals claimed the rights were valued at an average of $118 million a year.
The channel currently pays about $40 million a year in television rights fees to the team.
The arbitration panel, consisting of owners for MLB teams the Pittsburgh Pirates, Tampa Bay Rays and New York Mets, concluded the network should pay an additional $20 million starting this year. A hearing was held April 2012 at MLB headquarters at 245 Park Ave., and the decision was rendered on June 30, 2014.
In its court petition, the sports network, represented by Chadbourne & Parke, led by partner Thomas Hall, argued the decision “either ignored or manipulated every component of the established methodology for the illicit purpose of justifying inflated telecast rights fees for the Nationals” and that it would deprive the network of hundreds of millions of dollars in asset value to put it close to the brink of insolvency.
Additionally, MASN argued it was not permitted to cross-examine any party or witness at the hearing; that outside counsel for MLB—Proskauer Rose—also served as counsel to the Nationals and each member of the panel, creating a conflict of interest; and that the amount they settled upon was “predetermined” since the MLB and its teams had a financial incentive in the matter as the fees are taxable under the league’s revenue sharing plan.
On July 3, the Washington Nationals, which is represented by Quinn Emanuel Urquhart & Sullivan, notified MASN of its failure to cure the default of additional payments and reserved its right to terminate the licensing agreement, per the 2005 settlement agreement.
Attorneys said the arbitration committee’s methodology in determining the increase in fair market value was appropriate.
“At best, MASN can be disappointed with how the [arbitration committee] interpreted the formula, but MASN cannot legitimately claim that the wrong formula was applied,” Stephen Neuwirth, a partner at Quinn Emanuel, argued in court papers.
The Article 75 petition seeks a vacatur of the arbitration award in its entirety and for the court to refer the dispute back for a new arbitration before a fair and impartial panel.
Pending that determination, the network wants the judge to toll the period under which MASN is allowed to cure its alleged default of payment and enjoin the Nationals from terminating the licensing agreement.
The channel argues that an injunction is necessary since it’s likely to prevail on the merits of its claims, that it would be irreparably harmed without injunctive relief and that the equities weigh in its favor, since termination of its licensing rights would translate to breaching dozens of affiliate agreements with advertisers and sponsors and the loss of goodwill among its viewership.