Nats, O’s prepare for legal battle over rights fees, which worries privacy-conscious MLB

Throughout the bitter saga between the Washington Nationals and Baltimore Orioles over rights fees from the regional sports network they share, Major League Baseball wanted above all else to keep the issue out of a courtroom and away from public scrutiny. The latter objective has become impossible, and preventing litigation in a complicated, contentious case has become the priority.

MLB’s arbitration panel ruled in the Nationals’ favor June 30 and hoped to settle the dispute over rights fees from Mid-Atlantic Sports Network. But it only led to a new dispute. The Orioles believe the ruling can be vacated and want what they refer to as an “independent” review. The Nationals have filed a motion in New York’s Supreme Court against the Orioles and MASN.

The rest of baseball has no vested interest in the outcome. But the case moving into court would be “a real concern for owners,” according to a person familiar with the situation who was not authorized to speak on the matter. “It will make the commissioner very alarmed if that happens.”

Commissioner Bud Selig knew the bitter dispute might spill into open court, and he has worked hard to avoid the outcome. All sides have incentive to avoid going to court, which would expose them to public discovery of financial details all professional sports teams want to keep private.

“I think chances are this doesn’t wind up in court,” University of New Hampshire sports law professor Michael McCann said. “I think a settlement will be reached. Particularly given pre-trial discovery, where information teams and the league have generally considered private could be revealed. There’s significant pressure on everyone to avoid going to court.”

The Post Sports Live crew debates whether the Nationals should make a move at Thursday's trade deadline given Ryan Zimmerman's hamstring injury. (Post Sports Live/The Washington Post)

While the case likely will be settled internally, the fact it has reached this point has stunned baseball insiders.

“The discretionary powers of the commissioner, financially and otherwise, are vast,” former Texas Rangers CEO Chuck Greenberg said. “For any major league club to risk the wrath of the commissioner would be quite reckless. I would still anticipate this will be resolved privately. It’s still remarkable that that question hasn’t been answered in the affirmative already.”

If the dispute enters court, it would leave the rest of the sport disappointed and aggravated with the Nationals and Orioles. Baseball ownership is an insular club that takes great lengths to settle arguments outside the public sphere. The sport thrives on positive public perception, and a court case involving two teams — pitted either against one another or the league itself — would create a public black eye.

Owners also fear it would set a dangerous precedent and tempt other clubs to take thorny matters into the courtroom. From umpires on the field to arbitration panels in boardrooms, baseball creates its own systems to resolve disputes. One person familiar with the case described using the courts as “an end-around” after four years spent trying to reach an agreement over MASN rights fees.

Beneath the acrimony, the dispute boils down to the interpretation of the contract MLB used to appease Orioles owner Peter Angelos when the Montreal Expos relocated to Washington and became the Nationals.

MLB created MASN, a regional sports network that shows both Nationals and Orioles games and is majority owned by the Orioles. The Nationals own 15 percent of MASN, a stake that has risen 1 percent per year and will continue to escalate at the same rate until it reaches 30 percent.

Every five years, there would be a “reset period” for an arbiter to determine how much the Nationals would be paid in rights fees. MASN contends the contract contains a set formula to determine rights fees during a “reset” period. The Nationals contend the contract stipulates their rights fees are to be set in accordance with the market.

Since the contract was signed, rights fees have erupted throughout professional sports and become a crucial revenue stream. In 2012, the Nationals asked MASN for $100 million to $120 million in rights fees; the Orioles offered $34 million.

It may be reasonable for the sides to have reached different, self-serving conclusions. One person familiar with the contract described some of the terminology as “ambiguous.”

“Maybe it’s intentional,” McCann said. “Maybe it was a sticking point when the Nationals were put into existence. Maybe they intentionally left it ambiguous to postpone this to the future — and the future is now. These are very smart people. I’ll put it like this: I don’t think it’s an oversight.”

To keep the matter out of court, Selig set up an arbitration panel from within the league’s Revenue Sharing Definitions Committee. The panel ruled in favor of the Nationals.

MASN and the Orioles now believe they have a legal right to “vacate” the ruling and challenge it in court, a person familiar with the Orioles’ thinking said. The Orioles also believe the ruling did not come from an independent judge, an assertion they base on how television profits relate to revenue sharing.

When a team owns a network, the profit it takes in is not subject to revenue sharing. But when a team receives money for its rights fees, that money is “taxed” by the league for revenue sharing. The Orioles believe MLB has incentive to give the Nationals a larger rights fee because more money generated by MASN would then be subject to revenue sharing.

MLB said it believes the sides can “amicably” come to an agreement without litigation. The amicable part already has passed, but MLB does possess several avenues for the sides to spar without entering a courtroom. It could even create a position — someone akin to George Mitchell, the former senator who oversaw baseball’s investigation into steroid use — to make another ruling.

Both sides have retained high-powered law firms. The Orioles and MASN are represented by Chadbourne & Parke. The Nationals have retained Quinn Emanuel.

“Those are firms that I hope hire my students,” McCann said.

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