Tuesday, June 28, 2011

First day's motions.

Yesterday, the Los Angeles Dodgers, and four related companies, filed for bankruptcy in Delaware. Because bankruptcy very often, as here, requires immediate judicial intervention into a foundering company's operations, representatives of the Dodgers and Major League Baseball will be in court this morning (if you are on Pacific Time). The purpose of this preliminary hearing is for the debtor--here, the Dodgers--to present its first day's motions.

Ordinarily, the requests made at these hearings are granted, almost as a matter of course. However, baseball has likely been preparing for this day for some time, and does not intend to let Frank McCourt have full operational control of the team during the bankruptcy. The primary issue today is debtor-in-possession (DIP) financing.

McCourt has secured a $150 million commitment from a JP Morgan-owned hedge fund, Highbridge Capital Management, to finance the team until a TV deal can be approved. The Dodgers would have access to $60 million immediately, and the remaining $90 million would be available at specific times moving forward. The DIP financing is not cheap: there is a $4.5 million fee off the top, and the Dodgers will pay 10% interest.

Baseball will likely try to exert its influence on the bankruptcy immediately, offering to fund Dodgers' operations at a cheaper rate and lower overall commitment. While it is nearly unfathomable that either the Dodgers or baseball will take an insurmountable lead today, Judge Kevin Gross' decision will be at least instructive on the deference he will give to baseball's own policies and rules.

Also at issue today will be certain motions from the Dodgers seeking approval of how it spends money during the bankruptcy. In bankruptcy, debtors are often asked to rework their banking practices after the case has been filed. The Dodgers argue that the best way to preserve continuity going forward is for the court to allow them to handle cash, pay players, and address other obligations just as they have in the past.

Unless something dramatic happens and this gets out of bankruptcy very abruptly, we'll do something of a bankruptcy primer later on.

As today's events unfold, a couple misconceptions you should be aware of. First, Manny Ramirez is not the Dodgers' largest creditor. He is the club's largest unsecured creditor. This distinction, while not very important now, will loom large as it comes time for Frank to formulate a plan.

Second, it is very unlikely Jamie McCourt can stop this process from moving forward. Jamie is, today, in no position of power with any of the five filing entities. The Dodgers have not been ruled to be community property. To halt the bankruptcy, she would either need to convince the state court to issue an emergency declaration that she has decision-making power, or the bankruptcy court to dismiss the filing as made in bad faith or so prejudicial to her potential rights as to be inequitable. Those are tall orders.

Monday, June 27, 2011

The Dodgers are in bankruptcy. Now what?

At ESPNLosAngeles.com, I offered some questions and answers on today's news. The link is here:


More here tomorrow morning well before the hearing. We'll get into more technical detail and discuss some of the thornier issues ahead.
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The Los Angeles Dodgers file for bankruptcy.

Much more as the day develops, maybe here, maybe somewhere else. For now, here is one of the five filings made today in the United States Bankruptcy Court for the District of Delaware:

Los Angeles Dodgers LLC

And here is the statement of the Los Angeles Dodgers, released this morning:

Press Release FINAL

I wrote about the possibility of bankruptcy last month. The takeaway was that Jamie probably couldn't keep Frank from putting the Dodgers into bankruptcy, and that this course of action might be Frank's last best chance to force baseball to green-light the Fox deal.

In the time since then, Frank and Jamie McCourt reached a settlement that was almost immediately nullified by baseball's rejection of said TV deal. Bill Shaikin of the Los Angeles Times has reported that Fox would not join forces with Frank should he file bankruptcy, and it is unclear at this point whether the embattled owner has, indeed, won Fox's support.

Much of the chatter so far this morning has focused on the list of the Dodgers' unsecured creditors, prominently featuring former Dodgers Manny Ramirez, Andruw Jones, and even Marquis Grissom. There are other, larger creditors out there, likely including inter-Enterprise debt, but for now a list of players and minor trade creditors is all we've got.

The most interesting part of the filings, to me, is that all five Dodger entities which are now in bankruptcy list between $500 million and $1 billion in assets. Just one, however, shows any significant debt. That one: the Los Angeles Dodgers baseball team.

Tuesday, June 21, 2011


In yesterday's piece, which ran at ESPNLosAngeles.com, I discussed certain Dodgers financing arrangements designed, among other reasons, to make an MLB forced takeover or sale of the club unpalatable. I summed up the basics in this paragraph:
Sources familiar with McCourt's strategy indicated Monday that significant sources of Dodgers revenue would not be available to Major League Baseball or another owner without McCourt's consent. These are said to include a $21 million annual lease obligation owed from the team to a McCourt entity for the club's use of the parking lots surrounding Dodger Stadium and any ticket revenue in excess of the $6-7 million per year of service on certain McCourt debt, according to the sources. This year's figures were not available, but the surplus cash after debt service exceeded $60 million in 2005. Both of these revenue streams are slated to stay with McCourt for at least 20 more years.
Let's tackle this stuff in a little greater depth. To begin with, note that the team and the land were sold to the McCourts as separate pieces in the context of a single transaction. My sources tell me baseball was not happy with this arrangement, but still reluctantly approved it. What happened next?

Frank held the land currently used for Dodger Stadium parking with a business entity with no direct relationship to the Dodgers. That entity flows up to other McCourt entities, but never back down to the Dodgers. Frank then caused the Dodgers to enter into a long-term lease under which the Dodgers owe the entity--Blue LandCo--$21 million annually for the use of the parking lots. This money does not go back into the team. This is illustrated in blue below:

The green line represents the lease payments; the organizations are not connected on the original flowchart. So the upshot here is that, for at least the next two decades, the team owes a non-team, Frank McCourt-held company $21 million per year as rent on the parking lots. 

The tickets piece is less straightforward, but more significant. Frank caused the Dodgers to transfer the right to sell non-premium tickets to a non-Dodgers entity, simplified on the chart as Tickets. That entity then took out nine figures of debt secured by revenue from non-premium ticket sales. Service on that debt runs at about $6 to $7 million annually. This is represented in red below:

As above, the green line represents a relationship between the Dodgers and, here, Tickets. There is no underlying black line. The Dodgers transferred the rights to sell non-premium tickets to that entity, although I do not understand the Dodgers to pay Tickets any money.

And here's where it gets interesting: Tickets is entitled to keep all non-premium ticket sale revenue beyond its $6-7 million annual debt service. In 2005 alone, the excess revenue above that debt service was more than $65 million. That's money from ticket sales that, unless Frank McCourt so decides, never gets to the Dodgers. And it is also a contractual relationship that, Frank's side will argue, baseball cannot modify.

The takeaway: Frank is essentially painting a picture that baseball, should it take over the Dodgers, would not have access to very significant revenue streams. The rest of baseball's owners would be footing a great load of the bills. A new owner, purchasing the Dodgers at some sort of forced sale, would have to also buy out Frank's contractual relationships above or run the franchise without them.

I don't know if these mechanisms were designed with this sort of scenario in mind. There are all kinds of valid reasons businesses allocate revenue in facially-illogical ways. It could well be that tax implications drove these decisions, or creditors preferred assets and liabilities arranged just so.

But it could also be that Frank McCourt always wanted it to be harder to make him go away than it is to let him stick around. I don't know if we're there yet. Only Bud Selig does, for sure, and he seems willing to go to 
the mat. It won't be pretty.

Monday, June 20, 2011

Selig blocks Fox deal.

Over at ESPN Los Angeles, I wrote about the day's events. Hope the link works the first time this time.


If it doesn't, comment or email me.
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Friday, June 17, 2011

On Bud Selig's coming decision.

Over at ESPN Los Angeles, I wrote about the commissioner's hugely influential role in how the remainder of the divorce shakes out. I'm posting from my Blackberry, so I can't make the link streamlined, but here it is.


I'll be on Fox Sports Radio in about 20 minutes, and then ESPN Radio out of Honolulu later this evening. Remember to keep track of my Twitter updates using the box on the upper left side of this page.
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Live Chat, featuring Molly Knight

Few questions remain.

Below, you'll find the term sheet signed this morning  by both Frank and Jamie McCourt, in which the warring couple agrees to a settlement. Peruse through it at your leisure, but here are the two major outstanding questions, resolution of which will set the franchise's course over the months and years to come.

1. Will Major League Baseball approve the Fox deal?

The key to the settlement agreement is MLB's approval of a near-$400 million TV rights deal with Fox. Of that money, $10 million would go to Jamie directly, $50 million would be placed in a lock box (more on that in a moment), and about $80 million would go to paying off debt on Dodgers land.

Baseball has been reluctant to approve the deal, which formerly did not have Jamie McCourt's approval. Her newly given consent, however, does not mean MLB will automatically rubber-stamp the deal. Baseball is still investigating Dodgers finances and operations, and will not approve the deal until and unless it deems the franchise to be in good hands.

If Baseball does not approve the deal by June 30, the club is in danger of missing payroll. Should that happen, Baseball seems likely to meet the Dodgers' financial obligations and fully seize the team. I will be writing more about the considerations going into Baseball's decision this afternoon, but suffice it to say it is far from a slam dunk. Oddly, should Baseball block the deal, Frank and Jamie will find themselves allies in litigation, after twenty months of opposition.

2. Pending MLB approval of the deal, there will be a one-day trial on August 4 to characterize the Dodgers assets at Frank's separate property or the marital estate's community property.

Once feared to last weeks and weeks, the final litigation in the McCourt divorce will take just one day, as Judge Gordon determines whether the Dodgers being titled in Frank's name alone is a basis sufficient to characterize the team as his separate property. From there, it's pretty easy:

If Frank wins: He keeps the team, hands over the $50 from the lock box, and pays Jamie $45 million within two years of Judge Gordon's ruling. Importantly, he also indemnifies Jamie from any tax liability associated with the team. Jamie gets her money, has no claim to the Dodgers, and the club moves forward owned solely by Frank McCourt.

If Jamie wins: The team will be sold and the assets divided. End of story.

Much more as the story develops, including expanded thoughts on the meaning of the shortened trial. The takeaway is that Commissioner Selig is now the most important figure in the McCourt divorce. His decision to allow or block the Fox transaction will clear the path for this story to be over by the end of the Summer.

The McCourt settlement.

Term Sheet

Thursday, June 16, 2011

On Bryan Stow.

I should say from the outset that I do not know that my feelings on this matter are correct. I do not actually know that I can precisely put my feelings here into the right words. I also do not demand that you agree with me. I do not even expect you too. I might, indeed, be surprised if you do. But this has been gnawing at me for a few weeks now, and yesterday evening's Shaikin report brought it to the forefront:

I am not entirely comfortable turning Bryan Stow's savage beating at the hands of Dodger "fans" into a point of argument in the ongoing drama surrounding Frank McCourt's ownership of the Dodgers.

Some quick background: yesterday, Bill Shaikin reported that Tom Schieffer's investigation into Dodgers operations goes beyond the team's books. It stretches, Shaikin notes, to interviews conducted with former employees on, among other topics, stadium security. Such is the extent of Baseball's concern that it sent a six-person tax force to evaluate these issues on-site.

Now, I am all for addressing too-real dangers of being in the wrong place at the wrong time at Dodger Stadium. I am also all for holding the appropriate people accountable for their actions via both civil and criminal legal processes. That may very well include the Los Angeles Dodgers. Stow's family has already sued the club, and I would not be human if I did not hope that the club's liability to Stow, if any, be resolved quickly and justly.

All that said, I can't get all the way on board with using this tragedy to support the boisterous (and still growing) call for Frank McCourt's ouster. It is very difficult to explain why I feel this way. I've edited this piece more than perhaps any other I've written. But I think my gut opinion on this issue comes from two places: one is the logical and methodical side of my brain, and the other is purely emotional.

First, I think it's important to remember that people did this to Bryan Stow. People I do not know, but who I am certain I do not like. People who see a black-and-orange clad fan, and, through some combination of ignorance, substances, anger, and lack of respect for themselves and others, beat that fan to as close as someone who is alive could be to being dead. I do not think that, when you're dealing with people so obviously immoral and perhaps inhuman, you can ever systemically eliminate the risk of something like this happening.

Now, did Frank McCourt do everything reasonably prudent to mitigate the risk of this happening? It is sure damning that, at the time of the incident, the club did not employ a full-time head of security. As well all know too well, it is not like there were no indications of serious problems with security in (and particularly around) the stadium. It is very sad to say that this incident probably did not shock anyone who has spent much time in Dodger Stadium parking lots during Giants series.

And the potential failure to adequately provide for fan safety is, I think, very much fair game for MLB's investigation into how Frank McCourt has run the Dodgers. If cutting security costs was done without sufficient exploration of the cuts' impact on fan safety, that's another reason to believe that Frank McCourt may not be the right person to helm the ship going forward. If such cuts were made because Frank and Jamie wouldn't even travel first class--no, they needed to travel by private jet--then yeah, that's obviously bad.

But I just can't help myself from having a negative reaction every time I perceive someone as making a direct link between the premise (Bryan Stow was savagely beaten after the Dodgers made cuts in security spending) and the conclusion (MLB needs to force Frank out). There's just too much in the middle we don't know. There's too much in the middle that truly determines whether the link is real. The conclusion is so powerful, so damaging--that Frank McCourt played an integral role in a series of events that resulted in a man's near-death--that I am just uncomfortable taking it as truth without much more information.

By nature, I guess, I am just suspicious of conclusions drawn on the recent occurrence of an extreme event. I am especially suspicious of such conclusions when employed for use in furthering an agenda; here, using Bryan Stow's awful fate as a major factor in MLB's seemingly-inevitable determination that Frank is unfit to own the Dodgers.

It might be true. There is certainly voluminous evidence that Frank and Jamie did not run the Dodgers as we, or Major League Baseball, would have the club run. And I've still done a terrible job here putting my thoughts into words: I do not mean to relieve Frank of any responsibility when it comes to what happened to Bryan Stow. I do not mean to say that Frank's potential failure to take all reasonably prudent steps to create a safe fan environment should not be a factor in MLB's investigation.

So maybe the emotional approach will make my feelings clearer: I do not want Bryan Stow's story to somehow be cheapened by becoming a front in the ongoing battles between Frank McCourt and Major League Baseball, and Frank McCourt and fans of the club. I do not want the tragedy of what happened to Bryan Stow to be somehow dulled by turning his story into something agenda-carrying groups--MLB, Frank McCourt, ourselves--use to make a related-but-not-immediately-so point.

I worry that, the more we use Bryan Stow's beating to call Frank a negligent owner, and the more Frank has to defend the club's actions and attempt to show that security was adequate, the less Bryan Stow's tragic fate stands on its own. It gets turned into something else. And maybe that something else is something bigger. Maybe it ends up being emblematic of Frank's failure as the owner of the Los Angeles Dodgers. Maybe it is the stark and overwhelmingly obvious impetus forcing the Dodgers to finally make Dodger Stadium as safe as it ought to be.

But maybe it also makes us feel less sad about what happened to Bryan Stow. This is the wrong word, but when you politicize an incident, you risk stripping that incident of its own emotional weight. And I, personally, would feel that something would be lost about the individual tragedy that is Bryan Stow's story if it becomes something else, even if that something else is something bigger.

But you can't have it both ways, I guess, and the future of fan safety at Dodger Stadium is, regrettably, more important than any one fan, regardless of the colors he wore. So as Bryan Stow's story becomes something bigger, which seems inevitable, I hope the last couple paragraphs will remind me to always be sad about Bryan Stow himself.

Tuesday, June 14, 2011

Another payroll, another life raft. But is it the last one?

For months now, speculation has run wild that embattled Dodgers owner--or co-owner, as Jamie McCourt would like you to know--Frank McCourt has flirted with insolvency. He has seemingly tapped just about every potential source of cash available to him. In the past, he's pledged revenue from future ticket sales to secure massive loans, a significant part of the proceeds of which was lopped off the top and given directly to the McCourts. Later, following last Fall's trial, news broke that Frank had taken advances from Fox, attempted to pledge the club's future television rights as collateral, attempted to outrightly sell those same rights, and (most recently) took advances from corporate sponsors in order to meet payroll.

That last step, which I have been told by several knowledgeable people to have been previously unheard-of in the baseball world, will allow Frank to meet tomorrow's payroll obligation. However, only yesterday, it was reported by two stalwarts of the saga's coverage that the next looming payroll date, June 30, posed even greater problems than such days have in the past. The reason: over $8 million is due former Dodger Manny Ramirez as part of his agreement to defer salary.

If, as Bill Shaikin's sources suggest, the Dodgers truly have "no chance" to meet their June 30 obligations, it would be somewhat fitting that the last straw is the coming-due of a deferred debt; indeed, the McCourt Era in Los Angeles may be best-remembered for an unsustainable pattern of debt-incursion and a cascading series of small crises seeming nearly certain to lead to an imminent failure of the club as a going concern.

Of course, Frank McCourt doesn't believe such doom to be as inevitable as most folks think. Frank is still insistent that, if Major League Baseball would simply approve a massive television deal he has ready to sign with Fox, then both the Dodgers' immediate and long-term liquidity issues would be rendered moot. And, assuming Jamie would approve of such a deal--all indications are she would not--Frank would not be wrong, per se.

But it's widely and reasonably believed that Major League Baseball has determined that McCourt ownership is no longer viable, and it will not hurry its investigation and face the prospect of actually having to rule on Frank's proposed TV deal. For months now, Frank has been playing chicken with MLB; he's doing his best to establish his position in future litigation that Major League Baseball caused the coming failure of the Dodgers, and that its refusal to (a) finish its investigation--which Frank will call a sham--and (b) approve the TV deal should render it liable to Frank.

You didn't think we'd get out of this without more law suits, did you? Still, it seems obvious that, should Frank be unable to make the end-of-the-month payroll, Baseball will immediately seize complete control of the Dodgers and McCourt ownership will be almost certainly at an end. Yes, Frank might extract some blood from Baseball further down the line, but it is nearly impossible to imagine a scenario in which he is restored to the owner's box.

After that, I see two scenarios as more likely than the others. First, Baseball might assume all the club's assets and liabilities, paying the club's marital estate the net worth of the franchise. Then, Baseball would run the club as a ward of the state, taking its time to find an appropriate long-term buyer for the team. Frank--and perhaps Jamie--would litigate every aspect of this: the seizure, the valuation, the amount and manner of compensation, and every other conceivable point.

The second possible scenario is one we've discussed in this space before: bankruptcy. In such a scenario, Baseball might itself or through an ally finance the Dodgers during the pendency of the bankruptcy proceedings; upon a showing that jumping ahead of the majority of the franchise's creditors is the only way the  Dodgers can obtain financing during the bankruptcy, Baseball could assume a super-priority status. In English:  Baseball would get paid back before nearly all of the club's other creditors. The club would eventually be sold at auction, and Frank (and Jamie) wouldn't see a significant dime until and unless all creditors were paid.

Other possibilities include a quick settlement between Frank and Jamie, followed by a quick sale to someone ready to put cash on the table. While the former proposition is possible, we should all know by now that Baseball doesn't move especially quickly. Perhaps if the McCourts were able to produce a buyer, Baseball would finance the club's operations during the league's vetting process, on the condition that it will seize the club if the sale falls through. And, of course, there is still the matter of actually producing a viable owner. Dennis Gilbert seems like a possibility, but these deals don't get put together overnight.

And we can't ignore the possibility that Frank McCourt finds some more change in the couch and makes the June 30 payroll after all. We've been to the brink before, and while this one sure seems like the direst situation Frank's faced yet, he's got a lifetime of unlikely successes under his belt.

After each of these flirtations with complete failure, however, the fan unrest grows louder and louder. If Dodgers diehards wake up the morning of July 1 with the club ten games out of first place and the saga that has chewed up the last two years no closer to resolution, I suspect the already-toxic relationship between the club's owner and its fans to reach new depths. I get the sense that, above all else, fans just want this to be over. Yes, the recovery process is going to be long, painful, and fraught with uncertainty. But the healing can't begin until the bleeding stops.