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Uncertainty still factors into Rangers auction
Published August 2, 2010
The first bankruptcy court auction of a Major League Baseball team in 17 years, and just the third in four decades, is scheduled to occur on Wednesday, with the Texas Rangers possibly going to the highest bidder.
But the team’s winding road to a sale could take yet another turn if the long-standing buyer, the group fronted by Chuck Greenberg and Nolan Ryan, were to win the auction. If the bankruptcy court overseeing the team’s case approves a Greenberg-Ryan deal, it would almost surely trigger a legal appeal from the Rangers’ aggrieved lenders, who, contending that higher offers for the club have been made, have fought the duo since they agreed to buy the team in January.
Before an appeal, however, there is the chance that another potential bidder, such as Dallas Mavericks owner Mark Cuban or Houston businessman Jim Crane, could get the team.
All of which is to say much remains uncertain as the story that began with team owner Tom Hicks defaulting on his debt 16 months ago comes to a possible climax this week.
At stake is not only the future of the baseball team, but also MLB’s critical relationships with lenders, many of whom believe the sport has damaged its ties to banks. Also outstanding is the question of what would happen if the league were to turn down a court-approved bidder. That could set up a confrontation between the power of a bankruptcy court and the power of a sports league to choose its owners, an issue that has been hinted at and skirted around since the team filed for Chapter 11 bankruptcy protection May 24.
“I am in charge, not MLB,” Judge Michael Lynn told the North Texas federal bankruptcy court last month, a sentiment he echoed repeatedly during the trial.
That sets Lynn opposite the judge in the Phoenix Coyotes’ 2009 bankruptcy case, said Thomas Salerno, co-chair of the international financial restructuring group for law firm Squire Sanders. Salerno handled the bankruptcy filing of the Coyotes and battled with the NHL. The judge there accepted the NHL’s position that proposed buyer Jim Balsillie, the founder of Research in Motion, did not meet the league’s standards for ownership.
But just as Lynn’s actions have seemingly taken on MLB, which has supported Greenberg, so too the judge has not pleased the lenders. Lynn took nearly two months into the bankruptcy process to set an auction, doing so on July 13, and then ruled it would occur in three weeks’ time because Greenberg’s financing and equity would dry up Aug. 12.
The lenders contend that three weeks is not enough time, and that assertion would likely form the basis of their appeal.
“When you have an accelerated time frame, it tends not to achieve the best price,” said Gary Eisenberg, a creditor-side bankruptcy partner at Herrick, Feinstein. Eisenberg added, though, that the judge does not necessarily have to come up with the best price, only a fair process. And the emphasis, he said, is on finality.
It’s unclear exactly where the lenders would appeal, should they pursue that option. Salerno said the first place they would go is to the bankruptcy court itself, and presuming the appeal is turned down there, the next option would be district court.
A lender source said the appeal would be directly to the U.S. Court of Appeals for the 5th Circuit in New Orleans.
Lynn has tried to mitigate the circumstances of the accelerated bidding. In addition to trying to send the message that MLB is not in charge of the process, he will allow bidders to come forward without full funding and he will allow bidders to choose the assets on which they will bid. That means controversial items like the ballpark lease, parking lot land, and indemnifications for MLB and Hicks, elements that are part of the Greenberg deal, do not have to be in new bids.
Meanwhile, whether Cuban, Crane or another potential bidder, Jeff Beck, shows up on Wednesday, or it’s just Greenberg and Ryan, MLB will witness something rarer than a perfect game or an unassisted triple play: a court auction of one of its franchises.
Seventeen years ago, Peter Angelos bought the Baltimore Orioles out of bankruptcy. In 1970, the short-lived Seattle Pilots were acquired out of bankruptcy. The buyer? A Milwaukee car dealer named Bud Selig. He moved the franchise to Milwaukee to become the Brewers, and he, of course, later became MLB commissioner.