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SBJ/July 11-17, 2011/FranchisesPrint All
A federal bankruptcy judge is unlikely to let MLB seize the Los Angeles Dodgers franchise, legal experts said last week. But at the same time, the court will almost surely not allow owner Frank McCourt to personally reap a windfall from a potential sale of the team’s media rights.
With now bitter rivals MLB and the team preparing for next week’s court hearing in Wilmington, Del., on the immediate future of the club, it seems unlikely the league will be able to seize the franchise if it tries.
Dodgers owner Frank McCourt was thwarted by MLB in his efforts to sell the team’s media rights.
MLB executives last week declined to comment on speculation they would seek to seize the Dodgers, but industry sources close to the league said MLB still considered seizure “a live option.”
The case, beyond deciding the future of one of sport’s most hallowed brands, is shaping up as a test of a sports league’s powers within bankruptcy. Last year similar issues were raised when the Texas Rangers were sold during a court-ordered bankruptcy auction. But MLB’s preferred bidding group, led by Chuck Greenberg and Nolan Ryan, won, negating a standoff with the court had the league turned down the rival group led by Mark Cuban.
Now the issue of MLB’s powers in bankruptcy is again coming to the fore. MLB on June 20 turned down McCourt’s bid to sell his team’s media rights to Fox Sports Net, saying too much of the proceeds were flowing directly to the owner, who needs the money to fund his divorce from his estranged wife, Jamie. The Dodgers contend MLB Commissioner Bud Selig is unfairly targeting the club out of personal animus, arguing last week that other fiscally troubled teams such as the New York Mets have received “velvet-glove treatment” from the league.
The Dodgers on June 27 filed for bankruptcy protection, a move seen in baseball circles as a method of circumventing the commissioner’s decision, as well as the league’s constitution. The team tried to include in its proposed debtor-in-possession financing an agreement to sell media rights, but the provision was stripped out because of MLB objections.
Now, the only way for McCourt to sell the club’s media rights is to ask the court for permission. Selig in his June 20 decision said the rights, which are worth billions of dollars, should not be sold until the current deal expires in 2013.
“A bankruptcy judge will be very loath to overrule the commissioner of baseball,” said Ken Rosen, head of Lowenstein Sandler’s bankruptcy practice. Judge Kevin Gross is going to ask himself, Rosen continued, “‘Am I going to open up a door that any baseball team that dislikes what the commissioner of baseball has done is going to be able to use the bankruptcy court as a court of appeals effectively?’ And bankruptcy judges do not allow themselves to be treated as courts of appeals.”
Gross will hear arguments next week on whether the Dodgers should be able to continue to borrow from a hedge fund, Highbridge Capital Management, that has already lent the club $60 million. MLB plans to offer its own financing instead, which the Dodgers have argued is a way for the league to take over the team.
Gross last week ruled in favor of MLB on a key discovery issue, denying the Dodgers’ attempt to compel the league to produce an array of documents relating to the club, other financially troubled franchises such as the New York Mets and five years’ worth of local television deals, among other matters. The Dodgers sought the large discovery to show an alleged pattern of mistreatment by Selig. But Gross in his ruling said, “This is clearly in my mind not an appropriate occasion to turn this hearing into a trial on the commissioner.” The ruling also canceled out nearly all of a series of depositions the Dodgers planned for senior MLB executives, including Selig.
Saputo: That was one of the questions [BMO] had when they were looking at us. But [BMO] positions themselves as the official soccer bank in Canada, so it would be very difficult for them to not have a presence with Montreal. Obviously the stadium [sponsorship] was not available in our case but the jersey was, so they decided to go with that. More importantly, their role with the Impact is to help develop the game in Quebec. What I like about the activation process is that it puts the Impact brand out there along with BMO. I honestly don’t think there will be confusion. And I think BMO is now the largest sponsor and promoter of MLS.
■ Major League Soccer clubs tend to build their fan bases off either families with youth soccer players or young adult soccer fans in the 18-34 age group. Which group would you say makes up the majority of the Impact’s fan base?
Saputo: The success of the Impact has been primarily because of youth and families. It’s the Caravan crowd who comes to the game in their minivans. Mom and dad and the kids are all involved in soccer. We also understand the success of MLS franchises like Toronto and Philly or Seattle who attract the 18-35 crowd. It’s important not just from helping them understand the game but also you’re selling more beer and food and creating more of that fan experience. We don’t want to alienate the fans who have supported us since day one, but at the same time we want to get more of the 18-35 crowd.
■ How do you hope to attract the young adult crowd while not alienating the families?
Saputo: We have a partner to create a family zone at the stadium where families will be far from the die-hard fans who love to party. We realize that if you’re going to be successful you have to go after the 18-35, so we need to set up the stadium to be hospitable for them, and we also need to set up the stadium to be hospitable for the corporate world. We have been building luxury suites and corporate suites. But to actually bring in the corporations we have a challenging task at hand.
■ Now that you have taken the step up to MLS, how will you position the Impact in the Montreal sports market?
Saputo: In Montreal, we are lucky that there aren’t a whole lot of other teams beside the [CFL] Alouettes and the [NHL] Canadiens, and we are lucky to have a big history in this city already. The most important thing for us is to put a team on the field that Montrealers can relate to, in the sense that they are hard working and competitive. I’m not going to promise that we win a championship in our first year. Another thing is that Montrealers love big events, like Formula One or tennis or the jazz festivals, so we are going to do our part to make the games feel like big events.
■ Talk about the alignment between the Saputo and Impact brands. How will you promote Saputo products with the team?
Saputo: When we launched the Impact, Saputo was the owner. Then Saputo became a publicly traded company, and it became more of a sponsor than an owner. Now it is a partnership, and I am the majority owner and my brother is a partner. One of the things we try to do is not to confuse the two brands. Saputo is a multibillion-dollar corporation. The Impact is a soccer club, and it stands on its own. If Saputo wants visibility, it will be involved as a partner with the club. We have not defined as of yet what level that will be. [Saputo] was very gracious to allow BMO to buy in as the jersey sponsor, but it will continue to be present with the team. One of the things we see for Saputo is to get move involved with MLS to promote the products and brand through Toronto and Vancouver eventually.
The NBA lockout has brought league business to a screeching halt, but it is not derailing the expected sale of Philadelphia 76ers.
“I think, frankly, this has been baked in from the beginning,” said NBA Deputy Commissioner Adam Silver, when asked whether the lockout would affect any team sales, especially the expected sale of the Sixers to a group led by Joshua Harris, senior managing director of Apollo Global Management.
The source said neither the lockout nor the potential of lost games was ever factored into the terms of the franchise sale, valued at $280 million.
“There has been no impact at all from the lockout,” said the source. “Nobody is giving anyone any outs.”
The Sixers, owned by Comcast-Spectacor, have been in negotiations for months with the Harris-led group, which also includes David Blitzer, senior managing director of The Blackstone Group, an investment advisory company.
An Apollo Group Management official declined to comment.
Comcast-Spectacor President and COO Peter Luukko confirmed through a spokesman that discussions about the team’s future are ongoing but would not comment.
Comcast-Spectacor also owns the NHL’s Philadelphia Flyers and the teams’ shared Wells Fargo Center home. None of those assets is involved in the Sixers sale, so the $280 million price is purely for the franchise, serving as a tenant in the arena. That is largely the reason the price is below the recent sale price of the Golden State Warriors, at $450 million, and that of the Detroit Pistons, which sold last month for a reported $325 million.
After an asset-sale agreement is reached, NBA owners must vote to approve a team’s sale. Despite the wide gulf between the league and the National Basketball Players Association in reaching a new collective-bargaining agreement, the uncertainty surrounding the league isn’t expected to change the approval process of the deal.
“The league is not going to stand in the way of a [Sixers sale] during the lockout,” a source said.
Galatioto Sports Partners is representing Comcast-Spectacor in the deal. Sal Galatioto, president of GSP, would not comment.
The Sixers, who this past season lost to Miami in the first round of the playoffs, ranked 25th out of the league’s 30 teams in attendance during the regular season, averaging 14,752 fans at the 20,328-seat Wells Fargo Center.