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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