Dodgers Owner Frank McCourt late Friday was denied in his bid to borrow $150M in debtor-in-possession financing from Highbridge Capital Mangagement, and must instead negotiate a loan from MLB, representing another major win for the league in the club's ongoing bankruptcy case. Judge Kevin Gross of U.S. Bankruptcy Court for the District of Delaware, in an often-harsh rebuke to McCourt, ruled that McCourt failed to negotiate with the league and showed his judgment was "clearly compromised" by a $5.25M commitment fee personally owed by him that was part of the Highbridge proposal. "Had the [Dodgers] negotiated with Baseball, a more economically viable loan may have developed -- but at a high cost to the [Dodgers'] decision-maker, Mr. McCourt," Gross wrote in his eight-page decision. "The Court therefore concludes that [the Dodgers'] decision is not entitled to deference as a matter of business judgement." Gross drew his decision along narrow lines, and purposely left aside a broader feud between McCourt and MLB Commissioner Bud Selig, a matter Gross said "will shortly be before the court." To that end, Gross also ruled that MLB's loan to the Dodgers must be "independent of and uncoupled from Baseball's oversight and governance of the Dodgers under the Major League Baseball Constitution." McCourt for weeks has argued MLB's refusal of three proposed TV deals with Fox, as well as Selig's general conduct toward him, have been motivated by a desire to seize the franchise. Gross arguably saved his harshest words for McCourt for a footnote late in the decision that reads: "It is unclear how the [Dodgers] think they can successfully operate a team within the framework of Baseball if they are unwilling to sit with Baseball to consider and negotiate even more favorable loan terms while under the Court's protection."
MLB SCORES ANOTHER RUN: MLB execs, not surprisingly, cheered the decision. "We are pleased the court has agreed with our position with respect to providing the DIP financing and shares our long-standing view that the proposal put forth by Major League Baseball is the best option for the Los Angeles Dodgers franchise," said MLB Exec VP/Labor Relations & HR Rob Manfred. Dodgers attorney Bruce Bennett, meanwhile, sought to put a positive spin on the decision. The ruling "places the Dodgers in a position to achieve debtor-in-possession financing from Major League Baseball, under the Court's control, that is both economically favorable and consistent with the Dodgers' objective of maximizing the value of the estate in the Chapter 11 process." Next up will be an even bigger fight over how the club's cable TV rights are auctioned and sold, an issue that will hold major sway over the eventual outcome of the entire case, and perhaps McCourt's ultimate status as Dodgers owner. Bennett this week plans to file a motion to lay out the proposed process to do that, and said Friday the forthcoming TV revenue will "fully resolve all of the Dodgers' financial challenges." But MLB, as they did during the scuttled Fox deal, will undoubtedly have concerns with McCourt's objectives. A hearing on the TV rights is expected to be held Aug. 16 in Wilmington (Eric Fisher, SportsBusiness Journal). The HOLLYWOOD REPORTER's Andy Lewis reported most sports law experts "think the bankruptcy court is likely to defer to MLB's judgment and not allow McCourt to sign a TV contract that provides money for his divorce." While Friday's ruling "does not necessarily have any legal bearing on the August 16 hearing, Judge Gross' text foreshadows McCourt's difficult legal position" (HOLLYWOODREPORTER.com, 7/22).
FALLOUT FROM FRIDAY'S RULING: In L.A., Bill Shaikin noted Gross' decision "doesn't mean McCourt will lose ownership of the Dodgers during the bankruptcy proceedings, but it was a rebuke to the way he has handled the team's business with MLB." Thomas Salerno, lead attorney for the Coyotes during the NHL team's bankruptcy, said that Gross "could appoint a trustee to handle the Dodgers' financial affairs if he finds additional evidence of what the judge considers actions not in the best interest of the team." MLB also "could ask Gross to appoint a trustee, one of several steps the league is considering." Shaikin wrote the "biggest winner in Friday's developments might have been Highbridge Capital Partners." The money from N.Y.-based hedge fund's proposed $150M loan to McCourt "is no longer owed and thus not at risk, and Highbridge still made $5.5 million in fees from McCourt" (L.A. TIMES, 7/23). In N.Y., Richard Sandomir reported McCourt is "off the hook" for the legal fees to Highbridge, "which he can ill afford, because the judge permitted Highbridge to lend the team $60 million last month in advance of Friday's ruling" (N.Y. TIMES, 7/23).
