Book Report: Lawyerball: Os vs the #Nats

Name the title, author, and the number of pages:
Lawyerball: The Courtroom Battle of the Orioles Against the Nationals and MLB for the Future of Baseball, Charles H. Martin, 242 pages

Identify the type of book:

Identify the main characters:
Ted Lerner and the Washington Nationals, Peter Angelos and the Baltimore Orioles and Mid-Atlantic Sports Network (MASN), Justice Lawrence Marks, Proskauer Rose Law Firm

Describe the book’s setting:
New York County State Court where the previously private contract for the Nats broadcast rights and the terms of the internal MLB arbitration have now been made public.

Give a brief summary of the plot:
The core of the book was the dispute between the Nats and MASN over the TV broadcast rights fees. Starting with the history of baseball in Washington and Baltimore, including the legal history of anti-trust exemption and the reserve clause, then the biographies for Ted Lerner and Peter Angelos, followed by the original contract that gave the broadcast rights to Angelos, leading into the arguments presented in court by both sides over the past year, and finally a summary of the impacts of the case.

What was the theme of the book?:
That the dispute over hundreds of millions of dollars between two billionaires will likely have a lasting impact on MLB, along with anyone bound by a contact with an arbitration clause that now has a lower threshold to be reversed in court.

Explain why you liked or disliked the book:
A book on the MASN dispute would likely have a very limited audience of Nats and Os fans who have an interest in reading legal minutia about the case so the author wrapped the dispute in a great deal of background, including legal precedents and conclusions on how this case could affect a lot of people who may have never even heard of MASN. In reaching for this larger reader base there was a very large amount of tangential information, including a couple of pages on the history of the Civil War in the neighborhood where Ted Lerner grew up and way too many pages on deflategate.

However the middle sections on the legal arguments were fascinating, with a ton of information previously only available in the court transcripts.

Buy on Amazon

Buy the book now, before reading any further, in previous reviews I was careful to not reveal too much but the MASN case has too much juicy info and some but not all are about to be listed here.

Back in early 2005 when the MASN deal was signed MLB and Angelos agreed to a set of fees to be paid to the Nats for five years, which started in 2007, the first full year after the sale and ran though 2011. At which point the rights fees were to be renegotiated based on “established methodology”, leaving enough room for two teams of lawyers to get rich debating that definition.

The contract stated that there were three method for which the Nats and Os were to agree upon the new rights fees: 1) negotiation, 2) mediation, and 3) arbitration. It didn’t start well, the Nats representative literally tore up the Os offer and threw it back at them. Based on zero confidence on either side that an agreement could be reached via non-binding mediation they skipped straight to arbitration.

But first MLB stepped in and worked to broker a deal to sell the broadcast rights to Comcast or Fox in order to dissolve MASN and end the dispute forever. The Nats agreed to this plan for obvious reasons, to acquire the right to negotiate their own TV deals the same as every other team in the league. The Os agreed as a stall tactic, which has been their standard operating procedure at every step. Two full years later this plan fell through as all sides reached the conclusion that there was no deal that Angelos would ever sign.

Heading into binding arbitration by a panel of representatives from three MLB teams, as defined in the contract, the Os offered $34 million for 2012 and the Nats asked for $109, with these values rising each year based on a multiplier set by the Os and not challenged by the Nats. The Os were represented by Alan Rifkin, who was also a managing partner of the team and a participant in MLB meetings as the Orioles representative. The Nats were represented by Proskauer Rose Law Firm, who had represented the Lerner family pre-dating their purchase of the Nationals, along with representing all three members of the arbitration panel in various disputes.

The panel threw out the Nats request for $109 million as being unrealistic. MASN was estimated to have netted $114 million in 2012, and the original contract called for both clubs to receive an equal amount in fees. The Nats had used a “comparable markets analysis” to justify their claim, based on teams in similar sized cities receiving fees in that range. The panel declared that they would not bankrupt MASN with their decision and that there were other factors in market comparison other than size. (My thought is that the TV ratings for the Nats were so low in the early years that the fees paid by the local cable networks are lower than in other markets, in effect the Nats are still paying for those 1oo loss seasons.)

The panel threw out the Os proposal for $34 million as it left the MASN profit margins higher than would be expected in the current market. The Os argued that the established “Bortz” method for determining fees set the profit margin at 20%. The panel countered that if 20% was to be set in stone then that would have been stated in the original contract. That with rights fees rising faster than cable bills the typical profit margins have been dropping, and in addition several networks are operating at a loss based on sky high rights fees. The panel also noted that MLB takes 34% of all local broadcast fees and none of ownership equity in the networks, so that the Os were attempting to circumvent revenue sharing by keeping the fees low. The panel determined that the Os are in a smaller market than Washington and should not be expected to receive far greater profits from the broadcast rights. Finally, the panel put forward that by setting the profits at 20% there would be less incentive for MASN to work to improve their margins by improving their product.

So the panel took the $114 million in net profits, left 7% for profit to be split between the teams based on ownership equity, and gave each team $53 million in annual fees. With the fees rising each year based on the Os growth estimates that the panel felt were low but were not challenged by the Nats.

As part of the original agreement for the broadcast rights Angelos agreed not to sue, but this did not extend to the renegotiation phase and despite a stern threat from Bud Selig that was his next step in his efforts to stall payments in an attempt to get the Lerners to settle. The Os sued based on the panel not using the 20% Bortz method standard, based on the panel being biased to keep the MASN profit margin low, based on MLB loaning the Nats $25 million to help keep them competitive as negotiations dragged on, and of course based on a conflict of interest with the Nats’ legal team also representing every single one of the panel members.

Best quote in the book was from Angelos in 2007:

The ultimate control as to what is going to be paid for the rights from period to period is in the hands of Major League Baseball and will remain there. If at any time the Nationals would be dissatisfied with the fee structure, the rights fee structure, they have a right to complain to Major League Baseball and demand not that Bortz be applied, demand that a survey be made to guarantee that fair market value payments are being made for the rights fee for the rights to their games.

In response to the Os suit Judge Marks ruled that there was no “abundantly clear” evidence of fraud or conspiracy. Marks ruled that the panel did not exceed their scope and did not disregard the law. Marks ruled that the panel used proper justification in their ruling. Marks ruled that there was no misconduct by the panel. Marks ruled that the $25 million loan was not unfair. And then Marks ruled that both the panel and the Nats ignored complaints about the appearance of bias of Proskauer representing all parties except for the Os and he vacated the award.

Bottom line being that the Nats won on every point except one, but that one was enough to allow Angelos to further delay payments. In the Nats favor the Judge noted that he did not have the authority to change the dispute resolution methodology as set by the original contract, therefore the same arguments before the same panel with a different law firm representing the Nats would almost certainly result in the same award.

Having “won” the Os then appealed based on one of the same arguments that they had already lost on, that the panel was biased. The Nats counter-sued based on the appeal being a clear stall tactic, insisting that the Judge send the Os back to the arbitration panel. (In a case of the book already being out of date, the Judge for a reason that has not yet been disclosed has somehow forced the Nats to accept an independent mediator in an attempt to conclude the case. Zero chance that both sides accept whatever recommendation comes from non-binding mediation, a complete waste of time and money.)

As a final postscript to this resetting of the terms of the contract, round two starts for the 2017 season, in the end it will almost certainly take longer than five years to litigate the terms of a five-year contract. Making this more interesting is that the stakes are about to rise, many of the MASN contracts with local cable companies expire after 2016, meaning that there will likely be a lot more money to divide up the next time around.

Once again, buy the book, I left out a ton of details and testimony on every topic discussed above.

Ghost of Steve M wrote this piece back in December as Charles Martin was interviewed and we are hoping that we will be able to get Charles Martin back to answer Talk Nats reader’s questions on the MASN dispute, here is a list that I came up with to get started:

  • How did the Judge coerce the Nats into agreeing to non-binding mediation, an obvious stall tactic by the Os?
  • Assuming that the Nats win in the end will they receive interest on the money owed?
  • How did the MASN deal factor into the original cost that the Lerners paid for the Nats?
  • Did the DC Council make a mistake in signing the ballpark deal knowing that the broadcast rights were not going to be given to the new owners (this was made public by Marion Barry in December 2004)?
  • Do the Nats have to pay MASN every year for the 1% additional equity they gain in the network? If so, how is this price set?
  • Angelos has already lost out on getting the All-Star Game based on his filing suit in this dispute, will MLB further sanction him once the case is finally resolved? Will there be an repercussions for the Lerners in their filing the counter suit?
  • Any good stories on the early days of MASN? CSN showing up in Philly with trucks ready to broadcast the first series. Angelos parking the MASN truck next to the RFK ticket windows with a giant Os mural painted on the side.

I stand with Ed Cohen, rip up that contract

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