TCR Sports Broadcasting Holdings, LLP v. Washington Nationals Baseball Club
MLB Revenue Sharing Definitions Committee
MLB Revenue Sharing Definitions Committee (2014)
- Written by Steven Pacht, JD
Facts
In December 2004, Major League Baseball (MLB)—over the objection of the Baltimore Orioles (Orioles)—allowed the Montreal Expos to move to Washington, DC, and become the Washington Nationals Baseball Club (Nationals) (defendant). In connection with this move, MLB, the Nationals, the Orioles, and TCR Sports Broadcasting Holding, Inc. (operating as Mid-Atlantic Sports Network (MASN)) entered into an agreement pursuant to which MASN would broadcast Orioles and Nationals games. As of 2012, the Nationals owned 13 percent of MASN, and the Orioles owned 87 percent and had almost complete operational control over MASN. The contract set forth the rights fees MASN would pay the Nationals and Orioles for an initial five-year period (with the clubs receiving the same amount starting in 2007). The contract also established a process for determining rights fees for subsequent five-year periods. Specifically, the contract provided that if either club failed to agree with MASN regarding rights fees and mediation failed to resolve the issue, MLB’s Revenue Sharing Definitions Committee (RSDC)—a committee comprised of representatives from three MLB clubs—would determine the broadcast rights’ fair market value. The agreement instructed the RSDC to determine the fair market value via its established methodology for evaluating related-party telecast agreements in the industry, which included consideration of the network’s income statements. The Nationals and MASN failed to agree on rights fees for 2012 to 2016, with the Nationals seeking $109 million for 2012 and MASN proposing $34 million for 2012. Accordingly, the parties submitted the issue to the RSDC. In support of their positions, the parties submitted detailed financial evidence and presented arguments regarding, among other things, MASN’s operating margin after rights fees. Thus, the RSDC was advised that MASN’s 2007 operating margin was 6.2 percent, but its margin ranged from 25.1 percent to 33.4 percent between 2008 and 2011. The Orioles argued that MASN should earn a 20 percent annual operating margin after rights fees. The RSDC also received evidence that the market value of live sports programming increased substantially in both large and small markets and that such increases necessarily reduce broadcasters’ operating margins.
Rule of Law
Issue
Holding and Reasoning ()
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