When the New York Yankees told MSG a month ago that the team intended to start its own TV sports network, MSG cried foul and filed suit. Last week, a New York judge sided with the Yankees' TV-rights holder and ordered the Yankees to shelve, at least temporarily, plans for a new network.
Judge Barry Cozier ruled that the Yankees violated its current TV-rights agreement with the Madison Square Garden Network by failing to honor a "right of last refusal" clause in it. That clause requires the Yankees to give MSG the right to match any offer that the Yankees decide to take for the next rights cycle, which begins with the 2001 season.
MSG said it was "gratified by Cozier's decision" and "looks forward to more productive discussions in the future."
Harvey Schiller, president of the YankeeNets, the joint-venture company that owns both the Yankees and the New York Nets basketball team, said last week he expects to meet with MSG shortly. "There are still many options available to us" and "many new interested parties," that want to talk. He did not rule out a resolution that would have the Yankees taking an ownership interest in MSG in exchange for rights.
The Yankees argued unsuccessfully that it gave MSG the right to match the terms accepted by New York-based sports program packager Trans World International (TWI). TWI agreed to become a 5% stakeholder in a yet-to-be-formed company called Newco, to which the Yankees intended to assign all TV rights to the team's games. Newco, 95% owned by the Yankees, would then form a TV sports network anchored by Yankees and Nets games and possibly those of the New Jersey Devils hockey team. The Newco plan, the Yankees project, could generate TV-related revenue of close to $1 billion over the next decade.
But under the last-refusal clause, said Cozier, the Yankees management is required to give MSG the opportunity to directly acquire 100% of the TV rights to Yankees telecasts. What the Yankees offered MSG was an opportunity to buy out TWI's 5% stake in Newco, Cozier ruled. Because TWI would not directly own and control Yankees TV rights under the proposed network, he said, that offer was not a bona fide offer under the last-refusal clause.
Therefore, Cozier granted MSG's request for a preliminary injunction barring the Yankees from going ahead with plans for the new network, as currently structured with Newco and TWI. "You can't give half a loaf" when a full loaf has been contracted for, the judge ruled. "Here, the Yankees have attempted to offer 5% of a loaf."
Cozier urged the Yankees to come up with a legal offer for MSG to consider-one that offers full and direct control of Yankee TV rights for the 2001 season and beyond. Only then, he said, would MSG be able to "exercise its proper right of first refusal."
Cozier did say the Yankees could continue to conduct talks with third parties concerning the next rights cycle. He also said it could restructure its network proposal and offer MSG the opportunity to match its terms. In effect, such an offer would have to allow MSG the opportunity to acquire any new network the team comes up with to televise Yankee games.
In the meantime, Cozier told the parties to coordinate dates for the discovery phase of trial. If the two sides can't come to terms, a trial concerning MSG's petition to have the Yankees permanently barred from starting a sports network would be scheduled for the fall.