In my last report two weeks ago, I talked about how Major League Baseball had turned down the Los Angeles Dodgers television deal. The money from that deal probably would have seen team owner Frank McCourt through his financial difficulties. With payroll looming, it looked like a foregone conclusion that McCourt wouldn’t be able to come with the money and we’d see MLB swoop down and take the team from him. Then on Monday, June 27, all hell broke loose.
In what many felt was a surprise move, Frank McCourt took the Dodgers into bankruptcy. As always, there’s some benefits and some disadvantages to a move like this. The biggest benefit is that it buys McCourt some time. If he had done nothing, he probably would have lost his team last week—although he still might have had some ways to fight a takeover. The bad news about the bankruptcy filing is that now his fate is in the hands of a Delaware bankruptcy judge. Still, what he’s created is one of the highest stakes game of chicken we’ve ever seen.
McCourt was also able to find some financing while he’s in bankruptcy in order to keep the team afloat, but even that comes at a high price. With an interest rate around 10 percent and a nice fee, Highbridge Principal Strategies, a hedge fund unit of J.P. Morgan Chase & Company, is going to provide the team with a $150 million loan. That will allow McCourt some time but it also leaves an opening for MLB. It’s offering up bankruptcy financing that’s a lot cheaper, and if it can get the judge to approve it, it allows the MLB to get its foot further in the door and could perhaps more easily take over the team because of its additional vested interest in the franchise.
The court has set 10 different hearing dates, with the first being on July 20 and the final one being on Jan. 25, 2012, so this isn’t going to be resolved anytime soon. The first order of business for that first hearing date will be to determine whether McCourt will be allowed to finance the team or whether the judge will allow MLB to do so. In the meantime, the speculation is that the league is going to ask to have McCourt’s franchise rights taken away or, at the very least, have Tom Schieffer put back in as the team’s trustee.
MLB has to be worried about this not because it might lose, but because during the legal process it may have to reveal some facts it would rather keep secret. One of the big issues that will probably come up is why the Dodgers were treated differently than the New York Mets. Team owners for that team recently sold a part of the team with a sweet three-year option for the purchaser, because they have a $1 billion target on their back—because of the alleged involvement with Ponzi-schemer Bernie Madoff. Rather than scooping up that team as well, MLB allowed the Mets to sort through their own mess.
Other teams have gotten away with things—like carrying more debt then they’re allowed under the league’s rules. Those teams could also be examined more closely—and if we know anything about MLB, it’s how it likes like to keep things as secret as it possibly can.
In finishing this up, we’ll see a lot of tests. Will McCourt be able to circumvent the league’s rules with his bankruptcy filing and in effect allow other owners to do the same in the future? Will MLB prevail and, if it does, what will be the price? Will this have any kind of bearing on the upcoming collective bargaining negotiations that should be starting up soon? Stay tuned, folks.