Nothing is set in stone, but there is the possibility that Major League Baseball could take control of the Texas Rangers from Tom Hicks this week, and with it, there is likelihood that the stalemate between Hicks Sports Group’s offer of $270 million to the 40 creditors that HSG owes $525 million to, and the lead creditor’s instance that they will accept no less than $300 million, will break. Here’s the good, the bad, and the ugly aspects of MLB seizing control of the Rangers:
- For Bud Selig, he gets to flex his muscles and seize control of the Rangers by using the “best interest of baseball” clause from the league constitution, which reads under Article II, Section 3 of “The Commissioner” (emphasis, author):
In the case of conduct by Major League Clubs, owners, offices, employees or players that is deemed by the Commissioner not to be in the best interest of Baseball, punitive action by the Commissioner for each offense may include any one or more of the following:
(a) reprimand; (b) deprivation of a Major League Club of representation in Major League Meetings; (c) suspension or removal of any owner, officer, or employee of a Major League Club...
(see a rare section of the MLB Constitution from June of 2005)
- The move by MLB would stop the creditors from moving the Rangers into involuntary bankruptcy where ownership transfer would have to wait.
- If you’re a Rangers fan, the good news is MLB would conduct the sale without the creditors’ approval. The group led by Chuck Greenberg and Nolan Ryan would take over.
- With a sale, the Rangers move out of the picture (not entirely, more on that in a bit), and creditors would then focus on Hicks Sports Group, which from MLB’s perspective, is who this should be about in the first place.
- The most preferred outcome from all of this would be that some sort of agreement is reached where no extreme action occurs. Either the lead creditor (Monarch Alternative Capital) accepts the $270 million or some figure between $270 million and the $300 million figure they want is agreed upon. No one breaks out the heavy weaponry, and the lingering effects of the sale would cease.
- If Selig and the league seize control of the Rangers, the creditors would move the Rangers into involuntary bankruptcy, regardless of MLB conducting the sale. Yes, Greenberg/Ryan would become owners, but depending on the outcome in bankruptcy court, they could be removed in favor of another bidder that the courts might deem to offer up more to the creditors.
- It’s possible that some creditors may become soured in doing business with MLB in the future. The emphasis should be “possible”. Monarch Alternative Capital is the real sticking point in this deal getting completed, and since they’re a predatory hedge fund that is involved in purchases debt with the idea of making a profit off of it, they would never be a lending institution for the league; MLB would love nothing more than to never see them again. Other lenders will most likely make wiser loans to MLB clubs, not stop them all together.
- The Rangers situation drags on… and on… and on, as the case would take months – maybe more than a year – to get sorted out.
- As we saw in the bankruptcy case with the NHL Phoenix Coyotes, while the courts eventually sided with the league, it came with a price. The creditors will use the power of discovery to get their hands on documents, or correspondence, such as emails, which could then be leaked to the public. The true bid offers would most likely surface, and that “rare” section of MLB’s Constitution that The Biz of Baseball has would become easily accessible (see the collection of docs on the Phoenix Coyotes case, plus the NHL Constitution and Bylaws). Leagues hate having this information in the public’s view, and if sensitive financial info is leaked, it could give the league a black eye that would last beyond the Rangers sale.
- If the case were to move to bankruptcy court and the judge sided with the creditors that there is a better deal on the table for them through another bidder, the Greenberg/Ryan group could be removed from owning the Rangers. This would send a shockwave through all leagues, not just MLB, as it would signal that they no longer have rights to choose who sits at the ownership table, regardless of whether the bid offer is lower than another. At the very least, there would be gyrations in the front office as those brought in by the Greenberg group would be replaced by new ownership’s selections, and it’s very possible that Nolan Ryan would walk, something the league desperately would not want to happen. If the removal of the Greenberg/Ryan group were to happen it would be an embarrassment to Selig and MLB, and is surely something that no one at 245 Park would want to see happen.
There’s a $30 million gap between what HSG is offering and what Monarch Alternative Capital seems willing to accept. Pushing the Rangers into bankruptcy will cost tens of millions of dollars to settle. For one, if the Rangers need to borrow more money from the league to make front office payroll, that money gets paid back to the league first before money gets dispersed to the lenders. Interest would continue to mount, and legal fees would skyrocket. Suddenly, walking away from the $30 million doesn’t look as bad as it sounds. After all, not one red cent comes anyone’s way out of the Rangers sale if it’s wrapped up in the courts. That doesn’t serve the creditors, most exclusively Monarch Alternative Capital.
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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