Samson R. Nabozny*
On August 22, 2019, New York Supreme Court Judge Joel Cohen issued a ruling denying the Baltimore Orioles latest request to vacate an arbitration award to the Washington Nationals over the Mid-Atlantic Sports Network (MASN) television rights fees dispute. TCR Sports Broad. Holding, LLP v. WN Partner LLC, No. 652044/2014 2019 WL 3973873, at *12–13 (N.Y. Sup. Ct. Aug. 22, 2019). In accordance with the ruling, MASN and the Orioles must pay $296.8 million to the Nationals for television rights fees from the 2012 through 2016 seasons. Peter Schmuck, Judge Upholds Arbitration Ruling that Orioles Owe Nationals About $100 Million in MASN TV Rights Dispute, Balt. Sun (Aug. 23, 2019, 5:32 PM), https://www.baltimoresun.com/sports/orioles/bs-sp-orioles-lose-latest-round-in-masn-lawsuit-20190823-ww6a53a7nraipgwuypgxef2gt4-story.html. The dispute between the Orioles and Nationals over the MASN deal has persisted for almost ten years, and the latest development is a major blow to both the Orioles and MASN. See id.
I. The Nationals’ Move to D.C. and the Dispute Over Television Rights Fees with the Orioles
In 2005, the Montreal Expos relocated to Washington, D.C. and became the Washington Nationals. Stacy Marris, Tie Goes to the Runner: Questionable Calls in the Baltimore Orioles-Washington Nationals Television Rights Fees Dispute, 32 Syracuse J. Sci. & Tech. L. 37, 40 (2016). Because the Nationals were a new team in the Mid-Atlantic region that would encroach on the Baltimore Orioles’ territory and fan base, the Orioles were awarded financial incentives in exchange for their acquiescence to the Expos’ move to Washington, D.C. Id. at 45. MASN was formed from the previous Orioles Television Network to broadcast the Orioles’ and the Nationals’ games in the Mid-Atlantic region. Id. at 46. One of the main benefits the Orioles received in the Expos’ move was a 90% equity stake in MASN, with the Nationals owning the remaining 10%, which increased 1% per year after an initial two-year period until the Nationals own 33% of MASN. Josh Luckenbaugh, A Timeline of the Never-Ending Nationals-Orioles MASN Dispute, NBC Sports Wash. (May 3, 2019, 8:36 PM), https://www.nbcsports.com/washington/nationals/timeline-never-ending-nationals-orioles-masn-dispute. Moreover, the Nationals were to receive television rights fees in accordance with the following schedule: $20 million in 2005 and 2006, $25 million in 2007, and an additional $1 million each year thereafter through 2011. Id. After 2011, MASN and the Nationals were expected to renegotiate a deal based on the value of the Nationals at that time. Id.
II. First Arbitration and its Issues
In 2012, the Orioles and Nationals could not come to an agreement, so the dispute went to arbitration with the Revenue Sharing Definitions Committee (RSDC). Id. The RSDC is a committee set up by Major League Baseball (MLB) to determine the outcome of the dispute pursuant to a clause in the teams’ original agreement. Id. The original agreement between the Orioles and Nationals stated that disputes will be resolved using the Bortz Media & Sports Group (Bortz) Methodology (Bortz is a company that offers methodologies for calculating media valuations) to calculate the Nationals’ share of television rights fees. Marris, supra at 51.
In 2014, the RSDC ruled that the Nationals were owed approximately $59 million per year from 2012 to 2016, which equates to a total of approximately $298 million. Id. MASN and the Orioles challenged the RSDC’s decision in the Supreme Court of New York based on several arguments. Id. at 54. First, the three members of the RSDC—one representative from three MLB franchises— as well as the MLB itself were all said to have conflicts of interest and were positioned to benefit from the Nationals receiving increased compensation. Id. MLB had given the Nationals a loan based on their impending award from the television rights fees dispute and the three franchises would have received more money from the MLB’s revenue sharing pool if the Nationals received more money. Id. Additionally, instead of using the Bortz Methodology, as agreed in the original contract, the RSDC utilized a fair market value approach to determine the award for the Nationals. Id. at 53. The Orioles and MASN argued that under § 10(b) of the Federal Arbitration Act and § 7511 of the New York Code, vacating an arbitration award is appropriate where there is evident partiality against a party in arbitration, and that evident partiality clearly existed in the RSDC arbitration. Id. at 56. The Nationals and the MLB responded by arguing that there was no bias in favor of the Nationals by the RSDC. Id. They further argued that although the Bortz Methodology is stated in the original contract, the Nationals’ television rights fees are worth far more than the Bortz Methodology calculation and, therefore, a fair market value approach is the correct calculation. Id.
III. First Arbitration Vacation and the Decision of the Second Arbitration
The New York Supreme Court agreed with MASN and the Orioles, and in 2015 it vacated the RSDC’s decision finding that they did not receive a fair hearing. In re TCR Sports Broad. Holding, LLP v. WN Partner, LLC, 153 A.D.3d 140, 142–43 (N.Y. App. Div. 2017). However, the court denied their request for arbitration to be heard by a non-MLB affiliated panel and sent the dispute back to the RSDC for a second arbitration. Id. The Orioles and MASN appealed to the New York Supreme Court Appellate Division, which upheld the decision of the New York Supreme Court and sent the dispute back to arbitration with the RSDC—not to an independent, non-MLB affiliated arbitration. Id.
While it is understandable that the courts were in favor of vacating the initial RSDC arbitration decision, the courts should have required independent arbitration to prevent the recurrence of a second biased decision by the new RSDC committee. Judge Acosta mentioned this risk of recurrence in his dissent, which according to the Orioles and MASN is exactly what happened in the second arbitration. Id. at 162 (Acosta, J., dissenting). Under New York law, the court has the power to vacate an arbitration decision if the decision is unfair. Id. at 173. As Judge Acosta stated:
[W]hile the parties’ contractual choice to select a particular arbitral forum is entitled to great deference, courts nevertheless retain their inherent judicial power, and their statutory power under 9 USC § 2, to override that choice in the event that the forum is shown to be so corrupt or biased as to undermine the reasonable expectations of the parties to have a fundamentally fair hearing.
Id. Judge Acosta understood, as did the rest of the court, that the initial RSDC decision was biased and should be declared unfair and invalid. See id. at 181. However, unlike the rest of the court, Judge Acosta understood that sending the decision back to the RSDC with new members on the committee would result in a similar biased decision as the initial RSDC committee’s decision. See id.
On the RSDC’s second attempt, it awarded the Nationals $296 million in the television rights fees dispute in May 2019; a sum that is nearly identical to the initial RSDC committee’s award of $298 million. Schmuck, supra. The Orioles and MASN once again appealed the RSDC’s second unfavorable ruling. TCR Sports Broad. Holding, LLP v. WN Partner LLC, No. 652044/2014 2019 WL 3973873, at *1 (N.Y. Sup. Ct. Aug. 22, 2019). However, on August 22, 2019, New York Supreme Court Judge Joel Cohen denied the Orioles’ and MASN’s request to vacate the RSDC’s second decision. Id. at *12–13.
Currently, the Orioles and MASN are stuck in an unfair situation where it appears the rest of the franchises and the MLB are attempting to take advantage of the television rights fees dispute through the conflicts of interest within the RSDC. See Schmuck, supra. The Orioles will likely appeal the New York Supreme Court’s denial to vacate the RSDC’s second decision, and it is possible that the New York Supreme Court Appellate Division will vacate the RSDC’s second decision. Hopefully, this time the court will agree with Judge Acosta’s dissent and require arbitration with a neutral, non-partial arbitrator. See In re TCR Sports Broad. Holding, LLP v. WN Partner, LLC, 153 A.D.3d 140, 162 (N.Y. App. Div. 2017) (Acosta, J., dissenting).
*Samson R. Nabozny is a second-year law student at the University of Baltimore, where he serves as a staff editor for Law Review. Samson is also a member of the Royal Graham Shannonhouse III Honor Society. Currently, Samson works as a law clerk at Storzer and Associates, P.C.