I seriously doubt Bud Selig listens to Bob Dylan, but if he did, I suggest he spins, “The Times They Are A Changin’” when his mind rolls over to what can only currently be called a stalemate in the protracted process involved in the sale of the Texas Rangers. Now, over a year since current owner Tom Hicks fell into default to the tune of $525 million and put the club up for sale, the process has had creditors, MLB, and owners-in-waiting Chuck Greenberg and Nolan Ryan playing a sports business game of chicken.

As I said at the outset, the times have changed from the days before the economy went colder than a spring baseball game. There was a point in the past when the banks that MLB owners dealt with over debt issue were almost exclusively key partners with the league. Lenders such as JPMorgan Chase and Bank of America might be willing to play ball with baseball’s owners given the cozy relationships, and the fact that even if there was a slight hiccup, the feeling was that with money flowing freely, nothing staggering on the scale that HSG is currently i, would befall those that might have outstanding debt with these institutions (for more detail on this, see the SportsBusiness Journal article Creditors push back)

Now, there’s new players in the game, who would probably rather spit on Babe Ruth’s grave than settle with Hicks, or for that matter, Major League Baseball.

Such is the case with the lead debt holder of the Rangers, a “predatory” hedge fund called Monarch Alternative Capital who scooped up $100 million of Hicks Sports Group debt for pennies on the dollar. As a hedge fund, Monarch’s M.O. is to make a profit off of distressed debt. A hedge fund isn’t going to be a cornerstone partner with MLB, or Greenberg/Ryan, so when Hicks is offering up approx. $270 million post-sale to the creditors, and the creditors (read: largely Monarch) aren’t going to budge on signing off on the sale unless they get $300 million, well... Welcome to Jungle.

For those that have been following this saga, prospective owner Chuck Greenberg has felt that the deal would be reached soon. Recently, he said that while he wasn’t make a solid prediction, if the parties continued to constructively work to an agreement, this week would be the time for the deal to get signed off on. Since then, Greenberg has wisely gone silent citing the “delicacy” of the deal.

There’s been talk that the creditors could push the Rangers into bankruptcy court. There’s talk that they want to see the bidding opened back up to see Houston businessman Jim Crane back into the mix.

At this point, a small faction is holding the deal hostage over $30 million. The longer the deal languishes, the more in legal fees rack up. MLB takes over the Rangers, and they have the pockets to counter the banks, and precedent in the prior Phoenix Coyotes deal to fall back on.

For those not familiar with the Coyotes situation, owner Jerry Moyes threw the club into bankruptcy, and then tried to do an end-around on the NHL by offering to sell to Research in Motion (Blackberry) co-CEO Jim Balsilliie who had designs of relocating the club to a suburb of Toronto, Canada. The short story is, the NHL said that leagues control who owns clubs, and even though the offer from Balsillie was far in excess of what the NHL was offering to keep the club in Phoenix, a bankruptcy judge agreed with the NHL.

And, Tom Hicks, unable to see that at this stage he would be better off seen than heard in this saga (after all, he created the mess, see How Tom Hicks Became the Most Hated Man in Baseball), jumped into the fray Weds. night:

"I think the lenders feel that [the Greenberg-Ryan] group may not be the highest option," Hicks said. "It's something that has to be worked out between MLB, the lenders and the Greenberg group. When we agreed to this sale in January, we said it was a complicated deal and it's only getting more complicated. At the end of the day, the lenders have the final say."

MLB released a statement shortly after that shows they’ve just about had enough of Hicks, Monarch… the whole damn mess; time to play hardball:

“As part of the Texas Rangers sale process, Tom Hicks selected the Chuck Greenberg/Nolan Ryan group as the chosen bidder on December 15, 2009 and entered into an exclusive agreement with that group. Major League Baseball is currently in control of the sale process and will use all efforts to achieve a closing with the chosen bidder. Any deviation from or interference with the agreed upon sale process by Mr. Hicks or any other party, or any actions in violation of MLB rules or directives will be dealt with appropriately by the Commissioner.”

So much for Crane. Tom, time to go sit in the corner.

And Bud, maybe you need to drop the Bob Dylan and move on to listening to something more aggressive. Maybe something more Texan... Say, Pantera.

The league has been at the head of the table, but technically isn’t controlling the club; time to consider taking it over. The league has more or less protected HSG from the creditors only allowing for minimal embarrassment. After Hicks made his statement to the press, the league appears ready to say enough is enough, hence the message being sent from the press release.

Oh, and there’s lender liability issues, as well. For those that may not know, there’s a $70 million lien on the Rangers. The offer on the table is approx. $270 million, or $200 million over the lien value. So, just how is that going to sit with the bankruptcy courts?

So, creditors, try taking the Rangers into bankruptcy. To get this deal done, it’s time for the league to flex some muscle, otherwise, there will be continued haggling, possibly until the All-Star break. After the league’s statement, it seems unlikely the Greenberg’s educated target date of this week for closing the sale isn’t going to come, unless the creditors see the statement from the league as a clear sign that they mean serious business about the Greenberg/Ryan group’s offer and that the alternative is bleeding away legal costs on the $30 million gap. Maybe it’s time to take the money on the table and worry about the next matter on the table for HSG… the sale of the NHL Dallas Stars.

NOTE: I will be on WBAP Newstalk 820AM and 96.7FM in the Dallas/Ft. Worth market Thursday at 7:45AM CT talking the sale of the Rangers.

Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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Comments (11)

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Sooo...
written by Rangers100, April 21, 2010

What is it again that was wrong (or against his best interests) about Hicks's statement?

Are you still as confident that this deal will get done as you were a few weeks ago? What is it specifically you think MLB should do to "play hardball"?

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On the sale
written by Maury Brown, April 21, 2010

Very confident it gets done. Articles spells it out for you.

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...
written by MLBLender, April 22, 2010

Your point about lender liability and the size of the lien on the Rangers is just wrong. If true, the fact that there is only a $70mm lien on the Rangers does not change the position of the creditors. If the Rangers entity is a co-borrower and co-guarantor on the notes, then the creditors have a $70mm first lien interest in the sale proceeds and a $455mm unsecured interest in the entity. HSG has a plain fiduciary obligation to maximize proceeds on the sale of the Rangers for the benefit of all creditors, secured and unsecured. The are really bad facts here that create problems for MLB/HSG: (i) that Crane's clearly superior bid was ignored in favor of MLB's (and Drayton Mclane's) cronies, (ii) that the Greenburg's bid supposedly overvalues the real estate (for the benefit of Hicks and to the detriment of the creditors), and (iii) that Crane seemingly remains ready to engage. The creditors have a huge potential claim against HSG and MLB (since MLB is in "control") for breech of their respective fiduciary duties, not to mention the chilling effect this will have on any institution asked to loan money to a MLB team in the future. That's why Hicks is disavowing any stake in the process, because it stinks, and he doesn't want to get sued (and lose whatever he has left) over this travesty.

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A few points here....
written by Maury Brown, April 22, 2010

A) The lien value is correct: $70 million
B) If the land is an issue, why was the there no lien against it?
C) There has been unconfirmed information through a source close to the sale that even after knowing that the land sale proceeds would not be accessible to the lenders that hedge funds continued to purchase debt of HSG
C) All economics of the deal aside, ownership selection in a league format has seen its day in bankruptcy court (Coyotes), and other sales have seen lower bidders selected (Red Sox).
D) Hicks "disavowing any stake in the process"... If he has a fiduciary duty, then he should use proceeds from the land sale to help erase HSG debt.
E) You seem sure that the Crane bid is "superior"... I'd be interested in hearing you spell that out (please, outline the structure, approx. amount of cash component, etc)

I will say this...

There is a real possibility that if the numbers don't move some lenders may decide to forgo offering credit to MLB sports properties. But, this issue seems more closely aligned with a hedge fund looking to maximize profits. There's nothing wrong with that (after all, it is business), but as outlined in the column there seems little chance that these institutions will be involved in any capacity, other than through financial collapse. MLB has to weigh whether the likes of JPMorgan Chase will be upset (for the record, they control the title as agent of the loan on the Rangers deal).

Finally, the above is a column, so take it as my educated opinion... We're stuck in neutral on this deal over $30 million. Time to kick the sides in the ribs to get the deal done.

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On Hicks "disavowing"...
written by Maury Brown, April 22, 2010

Forgot to add this in...

Hicks was the one that made the deal with Greenberg/Ryan, not MLB. MLB and the creditors approved the selection, and remember... HSG couldn't apparently get a deal structured with Crane.

So...

Having the lenders complain about a deal that was agreed upon seems, well...

Hicks needs to finish up this deal. After all, he's the one that agreed to it in Dec.

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Thanks, MLBLender...
written by Rangers100, April 22, 2010

...for adding some balance to the heavy slant Maury Brown is putting on this story through his MLB sources.

And, Maury, you missed the point on the $30M more from Greenberg's group. No, they aren't obligated to close that gap, but they certainly could do so if they wanted the team badly enough. Unfortunately, they are maxed out on the cash they can or want to put towards the Rangers. Greenberg only has $3M of his own money in the deal, and his backers are financial investors looking for a deal with immediate cash returns, not ego buyers playing this for a long-term equity return.

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Monarch?
written by Greg Pawson, April 22, 2010

The question I have in all of this mess is why MLB would have allowed Hicks to get into an agreement with Monarch Alternative Capital in the first place, given A.) the apparently cozy relationships they have with BofA and Chase; and B.) if they are so picky about who owns equity stakes in their franchises, why wouldn't they be equally picky about who the debtors are (remembering that debtors get paid first in a liquidation).

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Greg...
written by Maury Brown, April 22, 2010

Monarch simply gobbled up the debt. They could have gotten in the mix, but once it's up for purchase...

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Ranger100
written by Maury Brown, April 22, 2010

Unfortunately, they are maxed out on the cash they can or want to put towards the Rangers. Greenberg only has $3M of his own money in the deal, and his backers are financial investors looking for a deal with immediate cash returns, not ego buyers playing this for a long-term equity return.

All false on a number of levels. Don't know where you get your info, but I'm guessing it's out of a fan forum.

On Greenberg...

I say to you, "Say, I have a car for sale. I'll sell it to you for $10,000 as I've fallen on hard times; I need to unload it."

You say, "OK, I'm interested, I'll make you an offer of $9,000, but I want this agreement in writing."

I come back and say, "Deal."

A few days pa*s and I come back and say, "You know what, the banks are about for foreclose on my house, and I need to sell the car for $10,000 and use that $1,000 to pay my mortgage."

Now, as a buyer, you could say, "Gee, I really want that car and I guess I could pay the difference," but most will stick to the offer agreed to, or walk.

This deal isn't a car... it's a much larger deal so not the perfect analogy.... but, it should be something that paints this picture... Why should Greenberg/Ryan pay more for something that they had a standing agreement for already?

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Depends...
written by Rangers100, April 22, 2010

Now, as a buyer, you could say, "Gee, I really want that car and I guess I could pay the difference," but most will stick to the offer agreed to, or walk.

...on how badly they want the car.

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Responses
written by MLBLender, April 23, 2010

A) Good.
B) Because, presumably, that the land is not owned by HSG and the creditors didn't lend against the land, just HSG. It is just based on the legal structure of the team and the land ownership.
C) That is consistent with B.
Second C) I'm not all that familiar with the Coyotes' process, but as I understand it, the Coyotes could have gotten more if NHL permitted a sale to an ownership group that would move the team to Canada. That is clearly the less economical solution, but not as egregious as this case in which both bidders want to keep the team as is. The Red Sox were a different deal, in which the equity owners sold to a group of their own determination. They have the free (and legal) will to choose a lower bid if other factors are clearly better.
D) If MLB has taken over and Hicks can no longer do anything, his fiduciary duty is arguably gone from hereon. With respect to paying off the creditors from the land proceeds, his fiduciary duty extends to HSG and its creditors. Since the land proceeds are outside of HSG, he has no more obligation to take the land money to pay off HSG creditors as he does to sell his house (which is HUGE!) to pay them off. However, if he specifically negotiated a larger price for the land in exchange for a lower price for the team, as has been a*serted by some, then that is a big, smelly issue. The creditors should be apocalyptic about that.
E) I'm restating publicly reported information, which su*gests that Crane was $30mm-ish above the Greenburg bid.

Other points:
-- I'm not sure that it is correct that the creditors approved the selection of Greenburg in January. Indeed, that is the impa*se right now, that the creditors won't approve the deal.
-- It is wrong to su*gest that MLB can stuff an uneconomical deal down Monarch's throat, and that won't have any long term consequences. JPMorgan and others may be cozy with MLB, but they don't hold all of the debt they underwrite in sports teams, they sell it off to other financial institutions. Those other institutions evaluate the credit with a backup plan that they can sell it at a discount to other firms, like Monarch, if things go terribly. If MLB proves that they will force an uneconomical deal with one of its cronies on to the creditors, creditors in the future may not be able to sell their debt if things go poorly, or if they do, they will get a much smaller price. This will be a chilling issue to future sports debt financings.
-- Finally, on your car analogy, you can at least extend it to its logical conclusion in this case. Hicks owes $10,000 on a car that Crane values at $9,500 and Greenburg values at $9,000. The car manufacturer is coming in and saying that Hicks can’t sell the car to Crane, that Greenburg is going to buy the car for $8,500 and the gas for $500 (which goes straight to Hicks, not the financing company). Hicks makes out better than he should, Greenburg makes out great, the car manufacturer makes out, and the parties that have legal rights to those proceeds are getting screwed. It all stinks to high heaven.

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