Conflict over Dodgers heads to court of law for a showdown
The showdown has been brewing for months — now Frank McCourt and Major League Baseball will finally square off in a court of law with the future of the Dodgers at stake.
The battle lines were drawn when the team filed for bankruptcy Monday and the beleaguered owner faces long odds, legal and sports business experts said.
“To use sports parlance, this is a Hail Mary pass,” said Marc Ganis, a sports consultant who acted as an advisor in the recent Chicago Cubs sale. “Hail Marys sometimes work, but very rarely.”
McCourt’s gambit is practically unheard of in American sports history. While pro teams have not exactly been strangers to Chapter 11 in recent years, owners have almost never sought relief against the wishes of their parent leagues.
“If you think you can fly in the face of the MLB, you’d better be sure you are right,” said Dan Schechter, a Loyola Law School professor, “because they have the only game in town.”
Professional leagues hold tremendous sway over their owners by way of guidelines and constitutions. The question is: How much will that matter to a judge more concerned with the rights of debtors and creditors?
McCourt is expected to ask the judge for approval of $150 million in interim financing and, more important, the right to auction off the team’s lucrative broadcast rights.
That money would put McCourt on more secure financial ground to operate the Dodgers for years to come.
Major League Baseball, which seized control of the team’s day-to-day operations in April, recently vetoed a proposed broadcast deal with Fox Sports while it pursues an investigation into McCourt’s handling of the team. The league has been embarrassed by McCourt’s messy divorce to ex-wife, Jamie, security concerns at Dodger Stadium and a premier franchise that now struggles to draw fans.
Despite all this, McCourt could win a few skirmishes.
“The bankruptcy court has a vast amount of power,” said Darrell G. Adkerson, a Texas lawyer who represented clients in the recent Texas Rangers bankruptcy.
The law, he said, “is designed to protect the debtor.”
Debtors — the Dodgers, in this case — get first crack at drawing up a plan for reorganization. That plan, typically due within 120 days, could include Fox Sports’ tentative deal or propose an auction for broadcast rights.
Major League Baseball is likely to argue that McCourt has mismanaged the organization and shouldn’t be given bankruptcy protections, experts said.
The league might argue that McCourt has created the shortfall by taking from his ballclub’s coffers. Documents from his divorce showed that he and Jamie diverted more than $100 million in team revenue.
“Frank supposedly used the Dodgers as his private piggy bank,” Schechter said. “So if you borrow money against the company and you drain the proceeds for your personal use, that may be a fraudulent transfer.”
To some degree, experts say, the plight of the Dodgers and other financially troubled teams reflects a larger economic issue.
“Too much easy credit was offered to owners,” said Ganis, the Cubs’ advisor who is president of the Chicago-based SportsCorp. “Banks were willing to lend them the money and some leagues accepted those deals.”
The NFL and NBA, which have comparatively strict guidelines regarding debt ceiling and equity for owners, have avoided problems, but other leagues have not.
Seven teams from the National Hockey League have filed for bankruptcy since 1975. The Kings sought protection in the mid-1990s when owner Bruce McNall was found to have defrauded more than $236 million and pleaded guilty to conspiracy and fraud. In the case of the Phoenix Coyotes, the league went to court opposing a sale to an owner who wanted to move the team to southern Ontario.
Baseball has had five teams, including the Rangers, Baltimore Orioles and Seattle Pilots, go bankrupt.
In the Rangers’ case, owner Tom Hicks and Major League Baseball used bankruptcy to their mutual advantage.
Both parties wanted the Rangers sold to a group led by Hall of Fame pitcher Nolan Ryan, but creditors held the deal up — some thought the team was being undervalued. Ryan and his colleagues eventually acquired the team through a court auction.
But even that deal has not been seamless. Hicks split various aspects of the franchise into separate business entities and ultimately retained control of parking lots surrounding the stadium.
He recently sought to raise prices, a move the Rangers fought in court. The sides are trying to negotiate a settlement, a team spokesman said.
McCourt has similarly divided various parts of the Dodgers operation, splitting the team from its stadium and property, even from its own ticket sales, according to the bankruptcy filing.
Such complexities add to the uncertainty surrounding the franchise, which had taken on more than $400 million in debt, according to divorce documents.
“At a minimum, the team has bought itself more time,” said USC law school dean Robert K. Rasmussen. “It is unclear if it has done anything more than that.”
Even a victory in bankruptcy court might be short-lived. Because the Dodgers are a franchise operating within the parameters of Major League Baseball, falling under its ownership rules, McCourt might find it impossible to persist in the long run.
“If it becomes an all-out fight between the McCourts and Major League Baseball, I think ultimately the McCourts lose because the value of the Dodgers is diminished without the franchise agreement,” said Joel Weinberg, who teaches law at Loyola and heads Insolvency Services Group Inc. in Beverly Hills.
“My guess is this will be a transition to some other ownership deal,” he said. “If I was a betting person, I’d bet there will be a sale at the end of the day.”
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