Monday, July 18, 2011

Paying the bills.

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In case you missed it, here's a piece that ran on ESPNLosAngeles.com 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.
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47 comments:

  1. I'm with Frank on this one .. Selig is clearly making decisions to squeeze him. He may think the Fox deal is bad business, but that is only true if one assumes rights will go up forever. How did that work for housing prices? If OTOH, one thinks that the TV rights pricing will plateau, this is a good deal.

    If I were another owner I would be very concerned .. what happens to me if I get on Bud's bad side?

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  2. The Fox deal is bad because Frank gets a big piece of it up front to deal with his own insolvency. It's really just another hit of fiscal meth.

    I don't care what it takes to get this man out.

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  3. The Fox 17 year TV deal is really, really bad. It locks down payments for years, no matter if the Southern California grows or not. It is also just upfront payments that has the incentives, but after that, it becomes regressive.

    As much as Frank McCourt has said some very paradoxical things about what he would do about the upfront payments. There is nothing from stopping Frank from using all the money after signing the Fox TV Deal for his own personal use..

    I also found it interesting that Frank’s legal team didn’t delete the MLB assertion that the McCourts, (both Frank and Jamie) took out close to $175 million to a possible $200 million out of the Dodgers organization. (or as Frank is trying to spin, he only “took out” $30 million from the team..

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  4. Although Bankruptcy Court's normally defer to DIPs in these scenarios they defer even more to the judgement of the US Trustee in my experience so my guess is the MLB options is taken.

    By the way are these filings online anywhere?

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  5. Can you post a copy of the latest filings?

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  6. Getting so tired of Franks double speak, lies, hypocrisy and flawed logic.

    So, according to Frank he owns the Dodgers and Jamie owns the houses, but Jamie should sell the houses but Frank shouldn't sell the team?

    I am no Jamie apologist, but for Months Frank's side has made outlandish statements like this (for example, He files for bankruptcy then thinks he should have the ultimate right to choose where financing comes from). How can Frank's lawyers even do anything with a straqight face anymore?

    Oh yes, they can do it with a straight face because they know they are going to be making millions off this guys multiple legal battles. At the end of the day, maybe he'll have to sell the team to pay those bills.

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  7. As the Senator said in Silence of the Lambs, "Take this thing back to Baltimore!"

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  8. Frankie would have made more money selling the team and getting out from under this mess. The Fox deal was bad business because Time Warner offered more money at the outset, but that fact consistently gets muddled. The McCourts only put up $200MM of their own cash and have supposedly withdrawn $500MM in equity from a team with a reported value of $750MM. At some point, the hammer is going to come down... just how long can they keep pimping the Dodgers to justify their extravagant lifestyle? I hope upon their divorce settlement they leave LA.

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