NEW YORK – The New York Yankees settled their lawsuit with Madison Square Garden on Tuesday, leaving the World Series champions free to start their own television network next year.

Under the deal agreed to between the Yankees and MSG, the team could have a minimum of 65 games to televise on its own network in 2002.

Harvey Schiller, the chief executive officer of the team's parent company, YankeeNets, declined comment on the settlement, which ends the MSG Network's right of first refusal, part of a $486 million, 12-year contract that expired at the end of last season.

MSG sued the Yankees last summer and got an injunction that blocked the team from forming a network with a division of the International Management Group. While the suit dragged on, the sides agreed to a $52 million, one-year extension for 2001.

YankeeNets would like to form its own network to televise baseball along with the NBA's New Jersey Nets and eventually the NHL's New Jersey Devils, the two other teams it controls. The Nets' current deal with Fox Sports New York, which like MSG is owned by Cablevision Systems Corp., expires after the 2001-02 season while the Devils' deal runs for several more years.

"It's just too early to tell. They have 60 days to figure out what they want to do," MSG president Dave Checketts said.

Under the settlement, the right of first refusal ends immediately.

MSG gets the right to 85 games in 2002 for nothing, but the Yankees can decide in the next 60 days to buy back those games for $30 million.

Alternatively, the Yankees can exercise an option that would give MSG the rights to 65 additional games next year for $37.5 million – meaning MSG would have the rights to all Yankees games except for national telecasts by Fox and ESPN.

MSG has been talking with YankeeNets about becoming an equity partner in a new network controlled by YankeeNets, but the sides disagreed over both the stake and the price of the investment. YankeeNets already has started construction of television production facilities in Manhattan.

"Of course there has been discussion about a long-term arrangement, but because of the right of first refusal, it was difficult to reach an agreement," Checketts said. "Discussions will proceed. I'm always interested in having them on our network in any way."

The settlement was mediated by retired U.S. District Judge Frederick Lacy, who was appointed by New York Supreme Court Justice Helen Friedman. The sides agreed to the tentative terms of the deal last week and filed the final papers with the court Tuesday.