The Los Angeles Dodgers and four affiliated companies have filed for bankruptcy. In order to understand the how and why of the Dodgers financial problems, I can’t recommend this article from It’s About The Money Stupid enough. The piece goes through the history of Frank McCourt’s ownership of the team and explains quite succinctly how he’s divided the franchise up and leveraged all of the pieces to finance his own extravagant lifestyle.
Once McCourt had control of the Dodgers’ credit card, he continued to use it, this time to finance his family’s cost of living. Then Dodgers’ Executive Vice President Jeff Ingram (now team Vice Chairman) testified that the Dodgers built their team budgets around the personal cash demands made by the McCourts – from a financial standpoint, the team’s top priority was to raise the funds required by the McCourt family. Ingram described it like this: the “family and business checkbooks were largely one and the same.” Ingram actually testified that the family used the team like a “credit card.”
After attempting and failing to attain MLB approval to sell the Dodgers television rights to FOX in exchange for the money it would take to meet payroll, McCourt has filed for bankruptcy protection and now taken out a “pawn shop” loan from Highbridge Capital Management for $150 million. I’m far from an expert in these matters, but from what I’ve been told, this loan, because it was taken out after filing for bankruptcy, goes to the front of the line when creditors start lining up to get paid, creditors that include Manny Ramirez, Andruw Jones, Juan Pierre and even Vin Scully.
As former commissioner Fay Vincent describes here, this is largely uncharted waters for Major League Baseball. The purpose of bankruptcy is to get creditors paid, and it puts the Bankruptcy Court in charge of any action involving the Dodgers regardless of how the Commissioner’s Office might feel about it.
The bankruptcy procedure is fully spelled out in the Federal Bankruptcy Code and, with the filing, absolute control of the Dodgers now passes to a Federal Bankruptcy Judge. Virtually nothing can be done without court approval. It is that judge and not the Commissioner who will begin to issue the commanding decrees. The Commissioner will be an interested party and any judge will listen to him, but his control is now subject to a higher authority.
Assuming the proceedings are neither suspended nor dropped altogether, the case eventually will require Frank McCourt to present a plan for repaying the team’s creditors while, he hopes, retaining ownership. That plan would be put to a vote of the creditors, and there are specific bankruptcy code provisions for approving or rejecting that plan. Upon the creditors’ approval, the plan would go to [Judge Kevin] Gross for a final decision. At every step, the creditors’ interests trump all others, and the successful development and approval of a plan depends on satisfying those interests.
After Major League Baseball initially stopped it, this would seem to be McCourt’s best strategy for getting a television deal in place, but there’s a hiccup there. FOX has already said that they would withdraw their original offer if McCourt used bankruptcy hearings to force MLB’s hand.
Frank McCourt and his representatives have made it clear in recent weeks that the club requires a capital infusion to remain solvent. The most significant untapped source of cash is the right to televise the team’s games after the 2013 season. Baseball has rejected a deal that would solve the club’s liquidity problem and allow the McCourts to settle their divorce. Frank McCourt’s strategy in bankruptcy is to force through a sale of the television rights for a package providing both short and long-term stability. Whether Frank McCourt owns the Dodgers after the bankruptcy proceedings depends on his ability to sell those rights.
However, if FOX refuses to negotiate an extension, it could allow McCourt, because of the bankruptcy, to dissolve their current contract and seek an alternative television network who is willing to, pardon the pun, play ball.
It’s a mess. It’s a real mess that won’t get resolved anytime soon. And Bud Selig is none too pleased over the bankruptcy filing.
The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise.
After all of this, there’s no guarantee that bankruptcy will even translate into a sale of the club, which is what everyone in baseball wants. The entire situation is reminiscent of having someone rent a room from you, borrow money on the room to pay the rent and then refuse to vacate when they can’t pay the rent any longer.
And The Rest
The Cleveland Indians have called up Lonnie Chisenhall. He’s already gained entry into the baseball name hall of fame before playing his first MLB game.
Adam Dunn has gotten to 100 strikeouts in only 67 games. That’s a lot of swinging and missing.
With Justin Morneau out with an injury, Joe Mauer is taking reps at first base.
The Milwaukee Brewers are calling on Mat Gamel ahead of two interleague series in AL ballparks.
The Kansas City Royals are going to try out a six man starting rotation for the next little while.
Hardball Talk takes a look at what all of the first round picks from a year ago are doing.
What if someone told you that the New York Mets were the best running team in baseball. Sandy Alderson would likely thank Jose Reyes.
The best thing and the worst thing about Dusty Baker is his calmness.
Sabermetrics and the Baltimore Orioles. Hahahahahahahahahahahaha.
It can be a long road back for pitchers seemingly past their prime, but still under 30.
The numbers suggest that GM Andrew Friedman’s trades have helped the Tampa Bay Rays.
The New York Times goes in depth for reunion day at Yankee Stadium.
Ron Darling, destroying the stereotype of neanderthal baseball player, proudly supports gay marriage in New York.
Today in shocking: the New York Yankees may be buyers at the trade deadline.
Take your ageism and shove it, or baseball managers will beat you up.
Finally, watch this video closely around the twelve second mark. Troy Tulowitzki gets two hits in one swing.