SBJ/October 8 - 14, 2007/This Weeks News

Will clubs back MSG’s digital-rights play?

MSG Chairman James Dolan is often viewed as an industry pariah, a notion no doubt burnished by his defeat last week in the Anucha Browne Sanders sexual harassment lawsuit.

But surprisingly, the argument of Dolan, MSG and the New York Rangers — if not the methods — are garnering support from other NHL clubs and regional sports networks in their legal fight against the NHL for control over digital rights.

The Rangers, fighting behind closed doors with the NHL over new media since the league’s board of governors voted in June 2006 to centralize its once disparate Web operations, took the battle public by suing the league and accusing it of operating as an illegal cartel.

The lawsuit marks the first major challenge of a league’s claim to new media rights in U.S. professional sports. Over the last seven years, MLB, the NBA and NFL have centralized their online efforts, believing that aggregating and selling new media sponsorships across the entire league would lead to increased revenue.

Though those leagues faced some internal resistance, the MSG lawsuit carries such dissension to another level entirely and could alter the future of new media rights among major sports properties.

“There’s some feeling around the league that says, ‘Good for them,’” a team executive said. “There’s some downside to the league saying, ‘Boom. Here’s your (Web site) format.’ Teams have been hurt by that and aren’t getting satisfaction.”

Those clubs sympathetic to Dolan’s argument are similarly getting support from regional sports networks that are lower on the NHL digital rights food chain but no less eager to exploit additional opportunities on the Internet.

“We think digital rights can be best exploited on a team-by-team basis locally through the team and its local media partners,” said an executive at an RSN with NHL rights after asking for anonymity because of the ongoing lawsuit.

Amid the conceptual support for Dolan is uneasiness regarding how he chose to seek resolution. No professional league is comfortable with a legal challenge from one of its own, and outside entities such as media rights holders and sponsors often find themselves caught in the legal crossfire.

The NHL, whose executives including Commissioner Gary Bettman were completely surprised by Dolan’s offensive, plans to file its legal response to the lawsuit late this week. A hearing is set for Oct. 23 on MSG’s attempt to get a preliminary injunction against the league and control over the Rangers’ Internet operations.

The MSG legal challenge extends from simply new media rights to a broader battle over the NHL’s operational role. The Rangers, claiming 93 percent of NHL revenue is generated locally, say “the league’s continued efforts to take over club rights hurt each of us by taking our ability to be responsive to our fans,” according to a letter Dolan wrote to NHL team owners. “The league continues to squander opportunities to improve our businesses and solidify and grow our fan base.”

The NHL, conversely, embraces a more global mentality, and in the last year has signed new media content distribution deals with outfits such as YouTube, MySpace, Joost and others that have international profiles. To that end, NHL executives believe the league’s efforts to compete on a national and international basis, through a centralized new media plan, supersede local concerns.

“[The Rangers’] market definition borders on ridiculous,” a league source said.

Legal experts expect the NHL to prevail, saying courts generally uphold the rights of associations to enforce anticompetitive rules in order to maintain their business.

Matthew Pace, a sports attorney with Duval and Stachenfeld LLP, said that the Rangers’ claim that centralizing new media negates the club’s ability to compete with other teams is too narrow.

“If anything, it’s the opposite,” Pace said. “It allows (the NHL) to be competitive against other forms of media and entertainment like the NBA, NFL and prime-time TV, which is what the league competes against.”

While the legal battle unfolds, the MSG-produced Rangers site at will serve as the official Internet site and the NHL has suspended its production of The Rangers maintained throughout the 2006-07 season despite the ongoing efforts to migrate clubs into the single league portal.

The league fined the team $200,000 last April for maintaining Repeated negotiations to resolve the standoff failed, and after the NHL rebuffed MSG’s attempt to have both Rangers sites exist going forward and threatened another $100,000-per-day fine, Dolan filed suit.

NHL owners voted in June 2006 to create the league Web portal and uniform team sites by a 25-3 vote, with the Rangers, Toronto Maple Leafs and Minnesota Wild dissenting. Detroit abstained, and Edmonton was absent from the session.

Such an overwhelming owner vote suggested the issue was closed. But MSG has taken particular issue with both the financial results of the collective new media efforts — claiming the “flawed” plan is already $12.6 million behind revenue projections — as well as the NHL’s efforts to fine the Rangers $100,000 per day for failing to migrate its Web site to the common platform, as well as pursuing some club-level new media initiatives such as e-commerce on their own.

Under the NHL’s centralized system, teams can protect two sponsorship categories and turn most of their advertising inventory over to the league. Teams maintain control of their site’s content, can still sell advertising in some areas and can send e-mails to fans without going through the league office.

The divide among teams on the issue does not break along big-market and small-market lines. Some big-market teams say they have found ways to continue to generate revenue locally on their Web sites despite shifting the sites to a league platform. Small teams also have benefited from stronger, video-rich content.

“For us in Atlanta … we get video and other content our fans love and we couldn’t provide with our current level of resources,” said Bernie Mullin, president and chief executive of the Atlanta Spirit, parent company of the Thrashers. “Our people are very satisfied with it.”

Teams with sophisticated Web operations prior to the shift believe a centralized new media effort leaves local money on the table. They contend that the front page of team sites are smaller, limiting space for advertising. They also fear there’s not enough incremental revenue from national advertising sales to support every team.

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