The Connection Between the 2018 All-Star Game and the MASN Lawsuit

The Nationals will host the 2018 All-Star Game.  The Orioles haven’t hosted an All-Star Game since 1993 and were expecting an opportunity to do so in 2016, 2017 or 2018 but weren't awarded one. Roch Kubatko wrote in January that “The Blue Jays, Athletics and Rays are the only other American League teams that haven't hosted the game since 1993, and MLB doesn't figure to be in any hurry to showcase stadiums in Oakland and St. Petersburg.” The Washington Post noted that “in a break from tradition, one league — the NL — will be awarded four straight all-star games (2015 through 2018). The AL will even bat last, as if it was the home team, in 2018.”

Both the Washington Post article quoted above as well as the Baltimore Sun claim that it is possible that the MASN dispute affected the site selection. Peter Schmuck noted that "the real benefit of hosting the All-Star Game would be to the community and local businesses, but it's not reasonable to expect the Orioles to take a huge ongoing revenue hit simply to be good civic citizens for one entertaining week in July." It seems that since MLB has been unable to impose its will on either the Orioles or their owner about MASN, they decided instead to punish the city of Baltimore and its baseball fans. 

This has worrisome implications for MASN. If MASN loses its court case, then in 2017 the MLB  will likely be in a position to determine a media rights fee for the Orioles and Nationals. How will the MLB treat MASN in arbitration where they can make any arbitrary decision that they want? Can the MLB be trusted as a fair arbitrator given their behavior?

MASN has long questioned whether MLB can be impartial as evidenced by its lawsuit with MLB. But I'm beginning to see more and more evidence that the Nationals may question whether MLB should be the arbitrator as well. The Nationals argue in their latest letter to the court that Alan Rifkin, who they claim was counsel for the Orioles in the RSDC proceeding, undertook ex parte discussions with MLB in 2013 and 2014. They further argue that Rifkin was well known to the RSDC members and MLB as he regularly attended MLB owner meetings as the Orioles’ representative and interacted with owners as a peer and not merely as counsel for a party.

MASN argues that this is a faulty comparison because Alan Rifkin does not work for MLB, the RSDC, or any other baseball club aside from the Orioles, while Proskauer Rose represented MLB in 74 separate instances between January 2005 and June 2014. Rifkin stated that he made it a point to have no discussions with those gentlemen, other than to exchange pleasantries during the entire arbitral process. Proskauer Rose also represented the three teams (Pirates, Rays, and Mets) that were on the RSDC. Proskauer Rose works directly with MLB and the relevant clubs and therefore there is the potential for an improper relationship. Rifkin doesn’t represent MLB or the clubs in question and isn't in the same situation.

The Nationals have at other points made clear their displeasure with this process. For example, Theodore Lerner sent MLB a number of letters, including one on July 2013 stating that they were unhappy with the actual result issued by the RSDC and that the matter remained unresolved for such a long period to the “great detriment” to the Nationals. It's reasonable that they'd be unhappy that this case has dragged on for such a long period.

Ed Cohen claimed in an affidavit written on October 20, 2014, that he felt that MLB delayed release of the RSDC award for over two years in response to the Orioles’ threats, allowing the Orioles to present proposals to restructure the parties’ relationship to make it even more favorable to the Orioles. Cohen concludes his affidavit by asserting that "It is his firm belief that the aggressive, multi-form campaign MASN and the Orioles have undertaken since the release of the Award to resist and delay payment of the amounts awarded by the RSDC is part and parcel of a continuing effort by these entities to try to force the Nationals back to the negotiating table to accept some sort of restructuring of the Agreement that would be more favorable to the Orioles’ interests."

Jennifer Bishop discusses in an affirmation how the Nationals filed a petition on July 24, 2014, to confirm the RSDC's Arbitration Award and received a letter from then-Commissioner of Baseball Allan H. Selig directing the Nationals to "withdraw immediately all actions, petitions, motions and/or pleadings that have been filed in the Supreme Court of the State of New York." They state that they are filing this petition because the Commissioner has not confirmed the award. Certainly this is yet another example of how the Nationals questioned whether MLB can truly look after their interest.

One may argue that the Nationals believe that MLB is struggling to be a fair arbitrator primarily due to pressure from MASN and the Orioles, but that still means that they question whether they are receiving a fair hearing. If this case was judged by a neutral arbitrator then it's certainly clear that neither side would benefit from any relationships they have with relevant parties nor would the arbitrator have an incentive to wait years before issuing a final decision.

Many people are aware that MLB receives benefits if MASN is forced to pay a high rights fee. A high rights fee increases the amount of revenue in the revenue-sharing pool and also inflates the cost of media rights for other baseball teams. In addition, the ruling that a team-owned RSN should expect to receive lower than a 20% baseball-related cash margin may be used against other team owned RSNs. If MASN is only allowed to earn a 6% baseball-related cash margin they why can't MLB decide to force NESN into accepting a 6% baseball-related cash margin?

Likewise, many people are aware that MLB offered the Orioles a Franchise Value Protection that guaranteed the Orioles a minimum sales price of $365 million. Fewer people are aware that the Franchise Value Protection is adjusted each year based on the growth or decline of local revenues. It also can be adjusted if there is a sale of the Orioles’ interests in either MASN or MLBAM.

This is a final copy of the actual agreement signed by the Nationals, Orioles, and MLB to compensate the Orioles for the relocation of the Montreal Expos to Washington DC. Note that the last pages of this document state that it was created on March 28, 2005, at 7:42 PM. Here is a draft of the agreement written on March 25, 2005, that discusses how the franchise asset valuation is adjusted annually based on the average rate of growth of local revenues. This draft was written on March 26, 2005, and uses similar language as the draft written on March 25, 2005.  Finally, the minutes of this Executive Council meeting discusses aspects about the franchise asset protection and notes that "the amount of protection would be adjusted according to changes in average club local revenues." The minutes state that this meeting ended on March 28, 2005, at 6:15 PM or mere hours before the final agreement was actually signed.

The growth of MLBAM and the natural increase in club values does make this protection less valuable over time. It's plausible and even probable that the Orioles and MLBAM combined are worth more than the Franchise Value Protection. But given the potential consequences to MLB, it makes sense that MLB would at least consider what could happen if they award the Nationals a rights fee large enough to bankrupt MASN.

I'm not sure whether the Nationals are familiar with the Franchise Asset Valuation clause. The Nationals have stated previously that MLB has not provided the Nationals a copy of Section 1 because it was irrelevant to the Nationals. In addition, Chris Bevilacqua earlier this year discussed BOLP's Franchise Asset Valuation Floor but didn't say anything about these adjustments. However, the Nationals have argued that the Franchise Asset Protection that the Orioles received is significant even without the slight annual increases. Presumably, they'd think it's more relevant with the slight annual increases. Not to mention that if the Nationals weren't originally told the details behind this relevant fact then who knows what else they don't know.

There is conjecture that MLB decided to side with the Nationals when they decided to give them the 2018 All-Star Game while continuing to stub Baltimore. But deciding to award the Nationals the All-Star Game doesn't have any of the adverse consequences that making a decision about rights fees have. Just because MLB is willing to support the Nationals in that regard doesn't mean they'll do so when there could be adverse consequences.

It is clear that MLB gains significant benefits from this decision and therefore it is reasonable to ask whether they can be a fair arbitrator. It is clear that MASN doesn't believe this to be the case, and it certainly appears that the Nationals are unhappy with how things have gone so far. Given the slow pace, one can wonder whether the Nationals as well as MASN wouldn't be happier with a different arbitrator.

A number of respected publications have asked whether MLB has decided to punish the city of Baltimore by not awarding them the All-Star Game due to the fact that MASN hasn’t agreed to respect the RSDC's decision. If MLB is willing to do that then can either the Nationals or MASN trust them to make a fair ruling even if it goes against MLB's own interest? The connection between the All-Star Game and the MASN Lawsuit is that they both show how MLB is willing to use its power in order to achieve their own interests.