SBJ/March 7-13, 2011/Media

YES, Nets taking their rights fee dispute to arbitration

Editor's note: This story is revised from the print edition.

YES Network and the New Jersey Nets are taking a cable rights fee dispute to arbitration, marking the first time a panel of arbitrators will be used to decide the rights fee an RSN will pay an NBA team.

Talks broke down last month, with YES Network and the Nets remaining far apart on both money and years. The two sides have been trying to work out a deal over the past year, with YES President and CEO Tracy Dolgin and Nets Sports and Entertainment CEO Brett Yormark leading the negotiations.

YES and the Nets declined to comment, and while it’s not clear what YES currently pays the team in an annual rights fee, sources say the two sides remain far apart, leading to the unprecedented step of using an arbitrator to determine the fee. The Portland Trail Blazers currently are in arbitration with Comcast SportsNet Portland, but that proceeding is about the RSN’s distribution and does not involve its rights fee, sources said.

In a last-ditch attempt to avoid arbitration, the New Jersey Nets hired Evolution Media Capital to negotiate a deal on its behalf. The Nets told Evolution’s David Rone that he was authorized to represent the team’s management and ownership while trying to cut a deal with YES.

After a marathon session during the first week in February, Rone and YES reached a tentative agreement, sources said. YES agreed to pay the Nets a healthy increase — around $20 million per year to start, with moderate annual increases — but only if a long-term extension was on the table. The Nets agreed to give YES a 10-year extension.

Nets owner Mikhail Prokhorov nixed a deal that CAA Sports negotiated.
Papers were drawn up and sent to Nets owner Mikhail Prokhorov, who was in Russia at the time. Almost a week after Evolution and YES committed to a deal, Prokhorov stunned executives by nixing it, sources said. The sticking point, according to sources, was the 10-year extension that would have tied the Nets’ TV rights to YES Network through the 2031-32 season.

The arbitration process starts in about a month and will last about 30 days. YES and the Nets will make their case in front of a panel of arbitrators, which will decide on what the rights fee should be.

YES and the Nets are in the middle of a 20-year deal that ends with the 2021-22 season. The deal, which originally was signed when YES launched in 2002, allowed each side to reopen it and reset the rights after this season.

This clause, which industry sources said is standard in most long-term contracts, does not allow the Nets to shop their rights to other TV channels; YES Network will continue to carry Nets games through at least the 2021-22 season.

The reset clause helps teams and RSNs compensate for changing circumstances that occur in the first 10 years of a deal, like when the Heat signed LeBron James or, conversely, when the Cavaliers lost him. So far this year, Miami ratings have showed the NBA’s biggest increase, while the Cavs have suffered through the biggest decrease.

The Nets are hoping to use the reset to capitalize on the team’s planned move to Brooklyn. Sources said the Nets were pushing for a big increase on the promise that the move out of New Jersey will increase interest — and TV ratings — in the team.

YES is hoping to use the Nets’ dismal on-court performance and poor TV ratings as a reason to keep from paying too much of an increase. When YES signed the deal, the Nets were coming off a trip to the NBA Finals. The team hasn’t made the playoffs in the last four seasons, and has been among the NBA’s worst performing on-court teams over the past two years.

TV viewership for Nets telecasts has been the league’s lowest. At the season’s halfway point this year, the Nets were averaging a 0.29 rating, the worst in the league. The second worst rating belonged to the Clippers with a 0.82 rating that still was three times higher than the Nets. For the 2009-10 season, the Nets also finished last in ratings.

Over the past 2 1/2 years, Nets ratings on YES have been lower than every MLB, NBA and NHL team, except the Florida Panthers.

For now, the sports media industry is keeping its eyes focused on a historic arbitration process that could set a precedent for future disputes.

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