Answers to Dodger bankruptcy questions
It’s almost too perfect that the drama between the Dodgers and Major League Baseball started in Los Angeles, just a few miles from Hollywood. As this screenplay continues to be written, we give you the lowdown on its newest scene as team owner Frank McCourt filed for bankruptcy yesterday.
Why did McCourt file now?
According to bankruptcy lawyer Anthony Michael Sabino, when McCourt filed in Delaware yesterday, he stopped some of the bleeding. “The moment any company files for bankruptcy, it assumes a dual personality whereby all the pre-bankruptcy debts are frozen and only their current debts come due,” he said.
Those current debts include Thursday’s payroll, which various reports said he may not have been able to pay. Now that he may not have to worry at the moment about expenses like the cash that’s due to Manny Ramirez, this filing could free up the money to keep the day-to-day operations going.
Wait a second. Delaware?
“Filing where the team plays can be an advantage or distinct disadvantage,” said Chad Dale, a partner at K&L Gates who worked on the Pittsburgh Penguins’ bankruptcy case in the late 1990s. “Delaware is a well-recognized jurisdiction for filing sophisticated Chapter 11 cases and whoever represents the Dodgers may have felt more comfortable that the playing field would be more level in Delaware than in L.A. As we learned in the Penguins case, judges are season-ticket holders too.”
How does MLB feel about this?
Take a guess. Part of a statement released by the league yesterday read, “We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of Baseball would not be acceptable. ... To date, the ideas and proposals that I have been asked to consider have not been consistent with the best interests of Baseball. The action taken (yesterday) by Mr. McCourt does nothing but inflict further harm to this historic franchise.”
Didn’t the Texas Rangers make a similar move last year?
Yes, but there’s a difference here. Tom Hicks, while he owned the Rangers, had similar cash troubles that forced him to file for bankruptcy. The difference here is that Hicks had no solution in sight, whereas McCourt could argue that the television deal with FOX Sports would help infuse the club with cash since it would be worth a reported $3 billion.
If a judge rules against the TV deal, what happens?
The Dodgers likely become Texas Rangers 2.0 — the eventual outcome is an auction to the highest bidder. And Sabino believes that even if commissioner Bud Selig and the owners don’t necessarily approve of a group that takes over, they may not have much say over the matter.
What if McCourt gets his deal approved?
Sabino played out the scenario: With the cash infused into the Dodgers, the franchise will become solvent. The next step in Chapter 11 cases is to propose a plan of reorganization. At that point, with McCourt’s balance sheets in order, Sabino thinks he could sell. Paging Mark Cuban...
Is the solution really that easy?
Not quite. “It appears that the McCourts are desperately trying to salvage ‘equity’ in the team by monetizing future media revenues, which will hamstring the club in the long run,” Dale said. “The vast majority of the funds to be loaned to the Dodgers by FOX under its proposed long-term media deal will be used for operating and working capital purposes. The deal with FOX won’t leave the club with any borrowing capacity to support its future working capital needs.”
In other words, it’s a short-term solution with potential long-term repercussions.