According to multiple sources, if the stalemate between Major League Baseball and a group of 40 creditors of Hicks Sports Group isn’t resolved this week, Bud Selig will use powers given the commissioner to seize control of the Texas Rangers and sell them to a group led by Pittsburgh sports attorney Chuck Greenberg and Hall of Fame pitcher Nolan Ryan without creditor approval. Currently, Monarch Alternative Capital, a “predatory” hedge fund is reportedly holding out for $300 million in post-sale dollars while Hicks Sports Group is offering $270 million. The Greenberg/Ryan group has reportedly offered $570 million for the Rangers and 154 acres of land surrounding Rangers Ballpark in Arlington. Creditors hold a $70 million lien on the Rangers, but there is no lien on the land, something that has angered creditors as they have no access to monies involved in that part of the deal. Major League Baseball has been acting as an intermediary between HSG and the creditors to finalize the sale.

If the action is taken, it is believed that the creditors would look to force the Rangers into involuntary bankruptcy with the hope of having prior bidders Jim Crane or Dennis Gilbert offer up more money to satisfy more of HSG’s $525 million in debt, while MLB would argue that historically professional sports leagues have been able to select who owns clubs within a league format, regardless of whether the selected owner is offering less than other bidders. Baseball wishes to see Nolan Ryan involved, given his strong standing in baseball.

Selig would use the “best interest of baseball” clause from the league constitution, which reads under Article II, Section 3 of “The Commissioner”:

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...

The SportsBusiness Journal confirms The Biz of Baseball's sources by reporting that "Selig has warned the creditors of the Texas Rangers owner that he could revoke their liens on the franchise if they do not approve the long-pending and controversial sale of the club, sources said last week."  According to the report:

While the creditors would still be paid back something from the proceeds of a subsequent franchise sale, the commissioner by taking this route would be blocking the lenders’ right to stop the sale and have a say in their payments. The creditors would surely sue in response, and one source said many of the roughly 40 lending institutions, which are owed $525 million, are already clamoring to file an involuntary bankruptcy petition on behalf of the Rangers. That document is ready to be filed, sources said.

Selig's warning has sent "shock waves through the sports finance world." As further reported by the SBJ, outside sources see financing issues for future club sales at stake.

“Bud can forget any lender, which includes any hedge fund or anyone, [lending] a single nickel or dime into baseball again,” said Joe Kosich, who owns advisory firm Dornoch Capital Advisors and formerly ran sports lending at Wachovia. “In my opinion, it’s cutting off his nose to spite his face. … It is completely wrong.”

The last time an MLB club was under league control was 2001 when owners voted 30-0 to form a Delaware partnership, Expos Baseball, LP, to purchase the Montreal Expos from Jeffery Loria with the intent to relocate and sell the club. That action occurred when MLB conditionally awarded the club to Washington, DC and Ted Lerner purchased them, rechristening them the Washington Nationals.

MORE ON MLB POSSIBLY SEIZING CONTROL OF THE RANGERS:

The Good, the Bad, and the Ugly of MLB Seizing 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 (7)

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written by Richard1, May 10, 2010

MLB should work on getting more kids involved with baseball in this country. Kids today have very little knowledge of baseball compared to thirty years ago. Whenever I pa*s by an elementary school, the kids are aren't playing baseball (they are shooting baskets or kicking soccer balls) and most baseball fields are empty but I saw a few kids playing lacrosse on it though. MLB is more more concerned with initiatives in China. MLB should approach elementary schoolds to introduce baseball in this country. MLB should demand that college baseball teams get more than eleven scholarships too.

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That's nice...
written by Tom Swift, May 10, 2010

but, what the h3ll does that have to do with the sale of the Texas Rangers?

Before this thread gets highjacked...

Maury doesn't mention this in the story, but the owners are meeting, I believe, this week. This will surely be the top item up for discussion as it has ramifications for all the owners (lenders giving the league the cold shoulder)

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bankruptcy
written by Pinto, May 10, 2010

You say that the creditors may respond by trying to force the Rangers into involuntary bankruptcy. Can you expand on this please?

I see two possible meanings to what you wrote. 1, you mean that the creditors will force HSG into bankruptcy, and the Rangers team, being an a*set of HSG, will be sold (or an attempt at a sale will be made) by the creditors. This would make sense to me, but would more accurately be described, at least in my thinking, as forcing HSG into bankruptcy.

The 2nd possible meaning is that the Rangers, itself, will be forced into bankruptcy. This would seem to require that (a) the team is unable to pay its bills (which some would say is the case, evidenced by the loans required from MLB, while others would point to said loans as proof that the Rangers have access to capital to pay their bills), but also (b) that Monarch and the other lenders are creditors of not only HSG, but also of the Rangers. And I did not think that was the case. In other words, just because the Rangers organization is collateral for debt owed by HSG, it does not mean that the Rangers owe a debt to the lenders. And if the Rangers don't owe a debt to the lenders, how would the lenders have the ability to force the Rangers into bankruptcy?

Thanks for keeping us informed on this process.

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David...
written by Maury Brown, May 10, 2010

The push into involuntary bankruptcy is on somewhat shaky footing. While HSG is where the focus is, the Rangers are an a*set of HSG, and therefore, creditors are looking to get every penny as possible out of the deal. There is a belief by the creditors (and remember, there are 40 of them, so some, not all, may believe this) that the land was overvalued in the deal to allow Hicks to retain more $$ post-sale (there is no lien on the land). Sources close to baseball indicate that this doesn't fly as the flip side is undervaluing the Rangers, which then lowers value of future franchise sales.

By forcing the deal into bankruptcy court, the creditors are looking to get other bidders in play that may offer more for the Rangers a*sets to HSG, which would then funnel down to the primary and secondary lenders.

It's all a very dangerous game on both sides.

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written by bigoil, May 10, 2010

Hicks Sports Group A$$ets:

1) Texas Rangers $451,000,000.

2) Dallas Stars
$247,000,000.

3)50% American Airlines Arena
$50,000,000

4) Land around BIA
$60,000,000

Total A$$ets: $808,000,000.

Total Debts:

MLB corporate: $85,000,000

Deferred Players Salaries:
$40,000,000.

Misc Vendor unpaid debt:
$6,900,000.

Payoff of all Hicks Sports Group Debt(with all late penalties and late interest payments)

$650,000,000.

Total A$$ets: $808,000,000.
Total Debts: $781,900,000.

$26,100,000 Net equity of Hicks Sports Group.

All that's needed is a check for $26,100,000 made payable to Thomas O. Hicks, a*sume financial responsibility for the outstanding HSG debt obligations, and give the control ownership to Nolan Ryan and your Rangers problems are SOLVED.

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The numbers above...
written by Maury Brown, May 10, 2010

The numbers above are pulled from thin air. No where close.

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bankruptcy
written by Pinto, not David tho, May 11, 2010

I understand the motivation and purpose of the lenders wanting to drag the sale into court -- they think their collateral is being sold for below market value and they want a court to intervene on their behalf -- but the basis of forcing the Rangers (as opposed to HSG) into bankruptcy is still very cloudy to me.

The team, as we have noted, is an a*set that is collateral for a debt owed by HSG. Does the team have some other direct relationship with the lenders?

If the answer is no, it would not seem to be completely dissimilar to my house, which my bank has a lien against as security for my home loan. To say that the team will get forced into bankruptcy would be like saying my bank is going to force my house to declare bankruptcy because I want to sell it for less than the bank thinks it's worth. Obviously there are differences because my house is not an operating entity, but from the standpoint of the lender-borrower-collateral relationships, it's the same.

I'm wondering if the reporting on the bankruptcy angle is just a bit inaccurate, and that the expected move by the lenders would be to force HSG into bankruptcy in order to attempt to liquidate this particular a*set at what the banks see as market value (i.e. above what the Greenberg group is offering).

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