Baseball-Style Arbitration: Don't Strike Out1/27/2006 07:00:00 PM Eastern
The ballparks are empty, and a winter chill is in the air, but not all baseball has ceased for the off-season. Increasingly, titans of the broadcast and cable industry are resorting to “baseball-style” arbitrations to resolve high-stakes programming disputes between media-ownership groups on the one hand and cable and satellite video distributors on the other.
In baseball-style arbitration, each side submits a final offer to an arbitrator, who then must select the more fair and reasonable proposal. The format derives its name from Major League Baseball salary arbitrations, in which the player and club each submit a proposed salary figure, with an arbitration panel ultimately selecting the more appropriate figure. These arbitrations are “winner take all,” with no ability for the arbitrator to pick and choose aspects of each side's proposal.
In 2004, the Federal Communications Commission adopted the baseball-style arbitration methodology in connection with News Corp.'s partial acquisition of DirecTV. Under the FCC order, a multichannel video provider can elect arbitration to determine the terms of its carriage of News Corp.'s regional sports networks and its owned-and-operated stations. Such arbitrations are tried in expedited fashion, before a single arbitrator picked from a panel pre-approved by the FCC. The commission retains the right to review the arbitrator's decision.
Given the size and scope of many News Corp. carriage agreements, arbitrations under the FCC order tend to be extremely significant. And they happen fast: Arbitration commences within 30 days of the appointment of an arbitrator, leaving little time for discovery, retention of experts, witness preparation and the myriad other pre-trial activities.
But station-ownership groups and cable and DBS operators should get used to this format: Arbitration of carriage disputes is on the rise, and not only in cases subject to the FCC order. Facing considerable pressure—from the public and politicians—media companies increasingly have turned to arbitration to resolve big disputes. Last year, for example, Cablevision and the YES Network conducted a much-publicized arbitration over Cablevision's carriage of YES. In Washington, several cable organizations want the FCC to order arbitrations in some retransmission-consent disputes.
Baseball-style arbitrations present unique strategic considerations for companies. Considerable thought must be given to a party's final arbitration submission, and close coordination between a company's counsel and business unit is required. Given the stakes, the unique procedural requirements, and the extremely expedited time frames, baseball-style arbitration can be a boon for the well-prepared— and a trap for the unwary.