In a move that will test the powers of sports leagues over the control of their franchises, Major League Baseball has asked the bankruptcy judge overseeing the Chapter 11 case of the Dodgers to force Frank McCourt to sell the club and the associated assets of it, which includes Dodger Stadium, land, etc (Los Angeles Dodgers LLC; Los Angeles Dodgers Holding Company LLC; LA Holdco LLC; LA Real Estate Holding Company LLC; and LA Real Estate LLC).
McCourt is seeking an auction of media rights of the Dodgers after the league rejected an extension with FOX. In their filing the league said, “[T]he sale proposed in the Media Rights Motion—the centerpiece of the Debtors’ sole reorganization strategy—is dead on arrival and cannot be completed. Accordingly, the (Dodgers) should not be permitted to continue pursuing this futile reorganization strategy, and the (Dodgers’ current ownership) should be terminated.” The league has said repeatedly that the prior request for an extension, and now the auctioning of the media rights “because doing so is not in the best interest of the Debtors, Major League Baseball or the 29 other MLB Clubs.”
Undisclosed prior, MLB agreed to not seek to remove McCourt for a limited period of time. A footnote in the filing on Page 1, reads:
“Major League Baseball previously stipulated to support a request by the Debtors for an extension of the initial period of exclusivity in these Chapter 11 Cases for 34 days, without prejudice to Major League Baseball’s right to seek, at any time, to terminate exclusivity for cause shown, so long as any motion seeking to terminate exclusivity disclosed this agreement between the parties. Major League Baseball hereby discloses its prior agreement and respectfully submits that cause exists to terminate exclusivity.”
READ THE MOTION BY MLB SEEKING TO FORCE FRANK MCCOURT TO SELL THE DODGERS
The initial television rights extension with FOX that MLB rejects had $385 million of upfront cash in the deal, but $173.5 million of it would have been diverted to pay McCourt’s legal fees as part of his divorce to his former wife, Jamie. In terms of the proposed auction of the media rights now before the court, FOX has exclusive rights with the Dodgers. The deal expires in 2013 and no negotiations to extend those rights with FOX can begin before Nov. 30 of 2012. FOX is opposed to the auction and has said they will sue to retain the contract reached prior.
READ THE REJECTION LETTER FROM COMMISSIONER SELIG
The league cites several factors in not granting the initial extension from FOX and now the media rights auction. They cite that they wish seek “terminating the Debtors’ exclusivity because the Debtors are using these Chapter 11 Cases not to maximize the value of their estates for their stakeholders, but rather, to advance the personal interests of their principal, Mr. McCourt” adding that “he has used the Debtors’ property to secure numerous loans to fund transactions unrelated to the Dodgers’ operation as an MLB Club and to repay personal indebtedness, and he has transferred team assets from the Debtors to other companies he controls.”
The league cited the powers of leagues over their franchises, through both MLB Constitution (see the MLB Constitution) and the prior bankruptcy sale of the Phoenix Coyotes. In the case of the Coyotes, Jim Balsillie was looking to purchase the club and relocate them to Canada while the NHL wanted to keep the club in Phoenix. While Balsillie’s bid was higher, the bankruptcy judge sided with the NHL. The difference in that case and the Dodgers is that relocation is not part of the equation.
READ THE MLB CONSITITUTION
The Dodgers, through their legal team, responded by saying, “Major League Baseball’s motion is meritless. It is another step in the Commissioner's continuing effort to cause the sale of the Dodgers notwithstanding that the Dodgers can and will be successfully reorganized as outlined in the recently filed media rights marketing motion. In United States bankruptcy reorganization cases, liquidation is the last resort, not the first option.” The statement also added that, “MLB’s motion also ignores the fact that the Commissioner has treated the Dodgers differently from other Major League Baseball Clubs.” The Dodgers plan to file its initial response to MLB’s motion with the Court early next week.
While not speaking specifically, the statement that the Dodgers are “treated differently” may be a reference to New York Mets who have been besieged by financial woes due to ownership’s association to Bernie Madoff and the fallout from Madoff’s ponzi scheme.
But, the rejection of media rights by Major League Baseball is not new, and therefore, McCourt may lose that battle. Former Texas Rangers owner Tom Hicks sought a media rights extension with FOX when his holding company Hicks Sports Group was on the edge of bankruptcy. Just as is the case with the Dodgers now, the league said that granting the extension to Hicks was not in the best interest of the Rangers, or baseball and its 29 other owners, and rejected the deal. The Rangers were eventually auctioned out of bankruptcy in August of 2010.
In a separate filing, the league is seeking to disqualify McCourt’s legal counsel. That team consists of Dewey & LeBoeuf LLP and Young Conaway Stargatt & Taylor, LLP. The additional filing states that “Debtors’ Counsel are advancing the interests of Mr. McCourt in direct conflict with the interests of not only the Debtors, but of every other material stakeholder in these Chapter 11 Cases, including Major League Baseball and the other 29 Major League Baseball clubs (each an “MLB Club”). Disqualification is, thus, required.”
READ THE FILING SEEKING TO DISQUALIFY THE DODGERS’ LEGAL COUNSEL IN THE BANKRUPTCY CASE
The move by Major League Baseball is fraught with risk. In seeking to force the sale, and saying that any media rights deal –auction or otherwise –by McCourt is “dead on arrival”, they are putting the powers of sports leagues over franchises over the powers of the bankruptcy courts. An Oct. 12 hearing is scheduled to address the motion.
SEE OTHER MLB AND DODGER RELATED DOCUMENTS IN PDF
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, and is a contributor to Forbes SportsMoney blog.. He is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network (select his name in the dropdown provided).
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