Friday, July 22, 2011

Judge rejects McCourt's financing, limits MLB control over Dodgers.

In a federal bankruptcy court sitting in Wilmington, Del. today, Judge Kevin Gross denied Frank McCourt's motion that would have allowed a hedge fund to finance the Dodgers during the club's bankruptcy proceedings. Concluding that a $5.25 million fee owed by Frank personally to the hedge fund if the financing was not approved compromised McCourt's independence and disinterest in the deal, Judge Gross ordered baseball to finance the team instead. My reactions to the ruling are at ESPN Los Angeles. The takeaway:
While Gross did not approve the deal McCourt proposed, he ordered one that will cost the Dodgers less money without appearing to enable a seizure of the club. The Order specifically forbids the financing from including "default triggers for violations of Baseball's rules and regulations."
MLB, of course, won the day on paper. McCourt won the day on paper. McCourt's motion was denied, and baseball will finance the team going forward. Commissioner Selig's office also struck a public relations blow; fans weary of the bicoastal McCourt litigation may look at MLB financing as a sign the McCourt era in Los Angeles is closer to coming to an end.
Whether that proves true depends almost entirely on the disposition of the club's television rights.
There's more analysis of what went into today's decision and further discussion of the TV rights in the article, so I hope you'll check it out.

As for me, I'll be going pretty dark from now until late next week in final preparations for and then taking the bar exam. Thanks for your kind wishes. I may pop into Twitter now and then, but unless something enormous happens, this is likely goodbye for a week.

Monday, July 18, 2011

Paying the bills.

In case you missed it, here's a piece that ran on last Friday about Frank McCourt's request to Judge Gordon for a reduction in his monthly obligation to Jamie McCourt. Essentially, Frank is arguing that doesn't have the means to support the couple's seven homes due to significantly reduced resources thanks to the Dodgers' bankruptcy. The heart of the matter:  

According to [Frank's] filing, Jamie McCourt has refused to rent or sell the properties, which are all titled in her name.
Frank McCourt contends that the Dodgers are his own property and the homes belong exclusively to Jamie. He would have Jamie sell or rent the residences to fund her lifestyle. In the case the court finds that both the team and the properties belong to the McCourts together, Frank has officially requested the homes be sold.
Due to the Dodgers' bankruptcy, the documents state, Frank McCourt's annual income is $5 million, which would not cover the court-ordered obligations to his former wife. Frank McCourt also declared in the filings that he has spent nearly $8 million in the past year on support to Jamie McCourt, compared to about $600,000 for his own expenses.
This issue will be heard in Los Angeles on August 10.
Across the country, Frank's attorneys also filed a motion in the Dodgers' bankruptcy case today. At issue is the source of funding that will see that the club's financial obligations are met until the bankruptcy proceedings conclude, one way or the other. Frank McCourt has arranged for a $150 million debtor-in-possession (DIP) facility through a hedge fund, though it comes with fees and a relatively high interest rate. Major League Baseball has offered its own financing, through the same MLB fund it closed to Frank McCourt prior to the Dodgers' bankruptcy filing. Baseball argues that its financing is less expensive, and therefore more responsible to the club's creditors and the game, generally.
Unsurprisingly, Frank's attorneys disagree. Saying that the court should defer to the Dodgers' business judgment in selecting a DIP financier--as is very common in Chapter 11 bankruptcies--Frank's lawyers characterize Bud Selig as "not driven by the economic motives (or elementary practices) of a standard DIP financier and instead [...] is motivated by non-economic, frankly personal objectives." Translated: the Commissioner wants Frank out, and MLB's proposed financing is merely a trap designed to lead to McCourt's ouster.
That trap operates, McCourt argues, by setting Frank up to fail. "The Debtors also remain justifiably concerned that, if any default occurred, the Commissioner would be unwilling to grant a waiver that might otherwise be available from a lender concerned with profit and repayment of the loan rather than the ulterior and strategic goals of the Commissioner," state Frank's attorneys in today's filing.
A United States Trustee has sided with Major League Baseball, citing concerns over fees and other aspects of Frank McCourt's preferred financing. Ultimately, if Frank is not allowed to proceed with his own financing, the door will be open for MLB to exert a level of control over the Dodgers as yet unattainable due to the protections afforded the club by virtue of its bankruptcy filing.
Courts are typically quite deferential to a debtor's choice of DIP financing. Indeed, the chief purpose of the system is to protect creditors, and an attorney for Major League Baseball has admitted in court that the club's creditors are expected to be paid in full. Frank's attorneys agree, calling the team "wildly solvent." That may be true following the disbursement of the first $60 million of the team's DIP financing, but it was very doubtful immediately prior to filing the case. Indeed, if the Dodgers were technically solvent as of the commencement of the bankruptcy, there might be significant questions as to the good faith of the filing itself.
The outcome of Wednesday's hearing will not necessarily be determinative of the case, generally, or of the future of McCourt ownership of the Dodgers. Even if baseball wins, Frank's suspicion of baseball's motives is well-noted and I would not expect Judge Gross to allow MLB to assume immediate control of Dodgers operations. Should Frank win, he would still have to overcome the significant hurdle of baseball's objection to his marketing of the club's future television rights. Remember, Frank's plan for the Dodgers to emerge from bankruptcy healthy and under McCourt control depends almost entirely on his ability to sell the TV rights over baseball's currently-strict objections. A win Wednesday means he's likely to at least have a chance at that. 
We'll have more, here or elsewhere, tomorrow.

Friday, July 15, 2011

Updated McCourt Enterprise org chart.

Tuesday, July 5, 2011

The information battle begins.

Barely a week after sending the Los Angeles Dodgers into bankruptcy, Frank McCourt has commenced with his effort to make baseball open its books. In a motion and supporting papers filed today in the United States Bankruptcy Court for the District of Delaware, McCourt's attorneys lodged requests for a wide range and deep volume of information. Among the Dodgers' requests:

  • Pretty much everything to do with Major League Baseball's investigation of Dodgers' operations.
    • McCourt is especially concerned with the details behind the MLB-appointed monitor, Tom Schieffer, and even asks about Schieffer's potential interest in acquiring a portion of the Dodgers. Frank's filings also indicate a suspicion about Joe Torre's communications with Major League Baseball concerning Dodgers operations.
  • Frank McCourt seeks information regarding baseball's rejection of the Fox deal.
    • The Dodgers asked baseball for details of other teams' TV deals. Specifically, McCourt wants to openly compare the proposed Fox deal to those entered into by the Mariners, Rangers, Astros, Mets, and one currently being explored by the Padres. McCourt's goal is to show that the Fox deal was favorable to the Dodgers and that Selig's rejection was motivated primarily by a desire to force Frank McCourt out of baseball.
  • The Dodgers also want information about steps taken by baseball to squeeze McCourt financially.
    • In addition to denying McCourt the Fox deal, the Dodgers' filing also indicates that MLB cut off the Dodgers from the MLB-offered seasonal line of credit. McCourt also claims that in the weeks leading up to the Dodgers' bankruptcy filing, baseball changed its rules for obtaining debt financing, forcing Frank's hand further. Frank also asked baseball to turn over any documents about MLB's plans to remove McCourt as owner or even terminate the franchise altogether. 
  • Finally, McCourt also wants baseball to reveal its handling of other teams in periods of financial stress.
    • Frank wants to know about baseball's approval of the Rangers' prepackaged bankruptcy, how baseball dealt with the Mets during their recent struggles, and baseball's action (or inaction) concerning other teams in violation of the sport's debt service rules.
McCourt's goal in these information requests is two-fold. First, he wants to begin establishing his claim that he has been treated wrongfully by Bud Selig and the Commissioner's office. Second, he would like to make this process as painful as possible for MLB. Forcing baseball to open its books might be painful, indeed.

For its part, attorneys for Major League Baseball have also filed their own extensive requests for document production. Baseball seeks information primarily on the debtor-in-possession (DIP) financing McCourt arranged to get the club through its bankruptcy. MLB, of course, seeks to persuade the court that the financing is on highly unfavorable terms, and that the interest and fees charged are unfair to the team's creditors. 

Baseball also seems to cast doubt upon the McCourt camp's assertion that it went to enough effort to secure affordable financing. Additionally, MLB seeks more detailed information on how the Dodgers are budgeting cash over the next few months.

Fans accustomed to the McCourt divorce's slow trek through court might be surprised at how fast the bankruptcy is unfolding. Indeed, both Frank McCourt and MLB's document production requests call for full responses very soon. The scope of discovery is a fight of its own, but the haste with which the sides are proceeding is indicative of the urgency of the situation. Either Frank McCourt gets a TV deal pushed through, and relatively quickly, or he'll have a hard time preparing an approvable plan to emerge from the bankruptcy.

One of the more interesting developments on the horizon is a liquidation analysis of the five McCourt entities currently in bankruptcy. Prior to gaining approval of any plan, the Dodgers must make a showing of what the creditors would receive if the assets of the five companies were sold at auction. The Dodgers' plan will then be judged by the extent to which it is more beneficial to creditors. It is in this liquidation analysis, at the latest, that McCourt and MLB might first square off on the related-company transactions implicating the Dodger Stadium parking lots and the right to sell non-premium Dodgers tickets.