SBD/June 28, 2011/Franchises

MLB Prepared To Offer Alternative Financing To Dodgers In Bankruptcy Case

McCourt contends bankruptcy filing will not affect day-to-day operations
MLB plans to tell a Delaware federal bankruptcy court today it is prepared to provide alternative financing to the Dodgers, sources said. The Dodgers and four related entities filed for Chapter 11 bankruptcy protection yesterday, and asked the court to approve a high interest rate $150M loan from a hedge fund in order to allow the team to meet payroll Thursday. But MLB, which the Dodgers accuse of forcing the bankruptcy move by turning down a team deal with Fox last week, is planning to offer its own emergency, or debtor in possession (DIP), financing, the sources said. The move is not unprecedented. Last year MLB provided DIP financing for the Rangers during their bankruptcy, though the amount, $21.5M, is far less than what the Dodgers have arranged through HighBridge Capital, a unit of JPMorgan Chase. The HighBridge loan would charge at least 10% and includes a $4.5M commitment fee. By contrast, MLB charged the Rangers 1.5%, though that was down from 5.75% the league originally offered before lowering the rate in response to a competing DIP offer from the club’s lenders. The Dodgers need nearly $40M by the end of the week to meet payroll and fund a deferred compensation reserve. It is possible MLB would offer less than HighBridge, arguing not as much is needed and the league can offer it at significantly lower rates. Meanwhile, Jamie McCourt, whose divorce from Dodgers Owner Frank McCourt triggered the team’s financial situation, will have a legal representative in the courtroom today, her spokesperson said. Her lawyer, David Boies, issued a statement yesterday blasting the bankruptcy filing. Jamie had agreed to terms of a divorce that anticipated MLB approving the Fox deal. When MLB turned down that deal, arguing it was undervalued and too much money directly flowed to Frank, the divorce deal disappeared as well. She would like to see the team sold, something her husband has fiercely resisted (Daniel Kaplan, SportsBusiness Journal).

UNCERTAINTY REIGNS
: In L.A., Bill Shaikin notes the bankruptcy proceedings mean the Dodgers "could end a third consecutive season with no resolution to an ownership issue clouded by" the McCourt's divorce. The "specter of additional months -- or years -- of court proceedings comes as the Dodgers have sunk toward the bottom of the standings, playing many nights in front of a half-empty stadium," while McCourt fights with MLB Commissioner Bud Selig "over what the future of what was once the marquee franchise in the National League." But the statement in which McCourt announced the filing indicated bankruptcy protection will cause "no disruption to the Dodgers' day-to-day business, the baseball team or to the Dodger fans." Meanwhile, Shaikin notes MLB's constitution "authorizes Selig to revoke the franchise rights of an owner who files for bankruptcy, a step he hasn't taken but has not ruled out within the near future." The "foundation of McCourt's case rests upon whether the league can set its own rules -- for debt guidelines, for the approval of television contracts, or anything else -- without being subject to court oversight." The filing indicated that the Dodgers "intend to hold a 'competitive sale process' to secure a new cable television contract within 180 days." The Dodger's current contract with Fox "extends through 2013 and forbids the team to negotiate with any other entity before Nov. 30, 2012," but the team has "asked the bankruptcy court to consider an auction." Shaikin notes Time Warner Cable's "new Lakers channel would be a likely bidder, which could force Fox to choose between joining MLB in opposing an auction and risking the loss of a valuable television property" (L.A. TIMES, 6/28). USA TODAY's Bob Nightengale cites three sources as saying that Fox's proposed deal for Dodgers rights -- "worth $3 billion according to McCourt and about $2 billion according to MLB -- is no longer on the table." Fox "does not want to interfere while legal proceedings are pending" (USA TODAY, 6/28).

WHO'S OWED WHAT
: In N.Y., Katie Thomas cites court documents as indicating that the Dodgers' "largest creditor" is former MLBer Manny Ramirez, who played with the team from '08-10 and is owed "nearly $21 million." Yankees RF Andruw Jones, who played for the Dodgers in '08, is owed 11M, and Dodgers announcer Vin Scully is owed $153,000 (N.Y. TIMES, 6/28). ESPN's Bomani Jones said Scully is a "saint, a man among men, because I’m not coming to work every day if they owe me a $150,000.” Dallas Morning News columnist Tim Cowlishaw: “Vin Scully needs to get paid. That’s the Dodgers right there” (“Around The Horn,” ESPN, 6/27). In L.A., Hoffarth & Orlov note the Dodgers also owe the city of L.A. $240,563, and L.A. Controller Wendy Greuel said that she "will try to make sure the city takes action to ensure payment of the debt." Greuel: "As a lifelong Dodger fan, I've always wanted to be in the same company as Vin Scully. I just never thought it would be in a bankruptcy filing" (L.A. DAILY NEWS, 6/28). The following lists the Dodgers' 10 largest creditors (CNBC.com, 6/27).

CREDITOR
AMOUNT
Former MLBer Manny Ramirez
$20,992,086
Yankees RF Andruw Jones
$11,075,000
Dodgers P Hiroki Kuroda
$4,483,516
Dodgers SS Rafael Furcal
$3,725,275
White Sox
$3,500,000
Dodgers P Ted Lilly
$3,423,077
Dodgers P Zach Lee
$3,400,000
Former MLBer Kaz Ishii
$3,300,000
Dodgers 3B Juan Uribe
$3,241,758
Dodgers RF Matt Guerrier
$3,090,659
   
   

REPRESENTATION FOR BOTH SIDES: MLB has hired one of the top bankruptcy firms in the country, White & Case, to represent the league in the Dodgers bankruptcy. MLB is very familiar with White & Case, which represented the winning bidders in the Rangers bankruptcy auction last year. The two lawyers who handled that case will also represent MLB, Tom Lauria and Glenn Kurtz. MLB also hired Proskauer Rose. Both forms notified the Delaware bankruptcy court this morning of their roles. MLB’s counsel in the Rangers process, the law firm Paul Weiss, thus far has not filed an appearance. The MLBPA also filed its intent to be represented in the Dodgers process, stating in the filing this morning it is a creditor. The American Federation of Television and Radio Artists also notified the court it would be represented in the process, saying it too is a creditor (Kaplan). Dewey & LeBoeuf LLP bankruptcy partner Bruce Bennett is "leading a team from the firm advising the Dodgers in their Chapter 11 case" (AMLAWDAILY.com, 6/27).

MLB KEEPS WATCHFUL EYE: YAHOO SPORTS' Tim Brown reported the Dodgers moments after filing for bankruptcy yesterday "notified Major League Baseball's in-house monitors -- Tom Schieffer and John Allen -- that they no longer had the authority to oversee the club's day-to-day business operations." Neither Schieffer nor Allen "reported to Dodger Stadium," as instead both "attended to Dodgers business from the offices of MLB's Los Angeles-based law firm" (SPORTS.YAHOO.com, 6/27). The GLOBE & MAIL's Jeff Blair writes there is a "sense of haste to resolving the Dodgers' matters" for MLB. Commissioner's office sources said that MLB is "concerned that once a new NFL collective agreement is reached, it will only be a few seasons before the NFL puts a team back in L.A., an already-crowded sports market." Additionally, next year marks the 50th anniversary of Dodger Stadium, which is "something of a faded gem." The ballpark, the "third-oldest facility in baseball," has "20,000 more in capacity than Fenway and 15,000 more than Wrigley -- and that's a bad combination for ownership unable to make improvements." Blair notes the McCourts "long ago shelved a planned $500-million renovation to the stadium" (GLOBE & MAIL, 6/28).

BY ANY MEANS NECESSARY
: In L.A., Wharton, Dolan & Williams note 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." Loyola Law School professor Dan Schechter: "If you think you can fly in the face of the MLB, you'd better be sure you are right, because they have the only game in town." The Dodgers, as the debtor, "get first crack at drawing up a plan for reorganization," but experts said that MLB is "likely to argue that McCourt has mismanaged the organization and shouldn't be given bankruptcy protections" (L.A. TIMES, 6/28). An L.A. TIMES editorial states, "We're hardly in a position to deride bankruptcy protection ... but McCourt's use of it suggests his desperation in his increasingly shrill campaign to keep the team he bought in 2004." McCourt was "approaching a day of reckoning -- the end-of-the-month team payroll -- and Selig's refusal to approve a long-term television deal with Fox meant that money he'd counted on wasn't there." The editorial: "So McCourt threw a wrench in the machine. ... That may work, but it's a sad moment in the team's history" (L.A. TIMES, 6/28).
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