Selig blocks Fox deal.

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

http://sports.espn.go.com/los-angeles/mlb/news/story?id=6685326

If it doesn't, comment or email me.
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Sent via BlackBerry

On Bud Selig's coming decision.

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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.

http://sports.espn.go.com/los-angeles/mlb/news/story?id=6674247

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.

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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.
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The McCourt settlement.

Term Sheet

On Bryan Stow.

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

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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.
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Could Frank McCourt file bankruptcy?

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Bill Shaikin has an interesting, informative piece in the Times today. The topic: Frank McCourt's motives and methods for potentially putting the Dodgers into bankruptcy. Some key notes from a loaded article:

Bankruptcy could provide McCourt with the authority and funding to remain in control of the Dodgers, at least in the short term, experts said.

[...]

Alan Gover, an attorney with White and Case, the firm that represented the incoming owners of the Texas Rangers through that club's bankruptcy process last year, said, "Behind any bankruptcy filing by Mr. McCourt would be a strategy to maintain control of the club."

Bankruptcy courts need not yield to MLB rules. One high-ranking major league executive, speaking on condition of anonymity because of the potential for litigation, expressed surprise McCourt did not file for protection as soon as Selig announced his intervention.

McCourt's argument to a bankruptcy judge would be the same one he has made to MLB executives and in media interviews: The Dodgers' financial problems would be resolved with the approval of a long-term broadcast contract with Fox.

That contract has been with Selig for five weeks, even with the Dodgers in danger of missing payroll. If McCourt were able to convince the bankruptcy judge that he could repay his creditors if the Fox contract were approved, the judge could grant approval over Selig's objections.

I spent much of my day talking to experts in corporate and bankruptcy law, because this situation raises issues above my pay grade. I approached the topic by asking questions both to myself, to guide my own research and explore what I already know, and to those with decades of experience in the field. Here are some of the main questions raised by the possibility of a bankruptcy in this matter.

1. Why file bankruptcy?

The immediate benefit of filing bankruptcy is an automatic stay barring all creditor attempts--active or passive--to coerce the debtor into paying debts. If Frank runs out of cash and can't pay a bank that loaned him money, for instance, the stay would prevent that bank from seizing the collateral Frank put up to secure the loan.

As Bill notes, filing for bankruptcy might also be Frank's best method to force baseball to accept his proposed Fox TV deal. In a Chapter 11 bankruptcy, Frank would essentially propose a plan to reorganize Dodgers operations primarily by using the massive Fox pact to get back on solid ground. The creditors would be put into groups and asked to vote on the deal. If enough creditors voted to approve the deal--and that, in itself, isn't a simple process--the bankruptcy court might have the authority to approve the deal despite baseball's objection.

Now, there are all sorts of problems with that. Baseball might immediately seize all Dodgers operations the moment Frank files. Baseball might itself be a creditor of the club, and use that status to block the plan's approval. Baseball might lean on the Dodgers' various creditors to reject the plan. And baseball would certainly argue that, under its rules, it has the power to keep Frank from selling the club's TV rights. These would all be fights, and there would be more. For now, I'm just trying to get information out there.

2. What would a bankruptcy mean for Jamie?

From my vantage point, nothing good. In a bankruptcy commenced after the filing of a divorce but before the division of the marital estate's assets, all community property of the marriage is part of either party's potential bankruptcy estate. Put in English: even if Jamie, as most expect, wins a determination that the Dodgers are indeed community property, creditors of the Dodgers--and possibly Frank--would get paid before Jamie sees a dime from the division of community property.

This means the team could be sold and none of the proceeds would be due Jamie until each and every creditor has had its fill. Remember, Judge Gordon has not even conclusively ruled the Dodgers to be community property yet; all he's really done is invalidate the MPA. And Jamie would not become a creditor of Frank or the Dodgers until entry of a judgment declaring she's entitled to half the value of the assets. Basically, Jamie's options are to either prevent Frank from filing for bankruptcy or to have a filing dismissed quickly.

Jamie, according to one of Shaikin's sources, might approve a bankruptcy plan that contemplated a quick sale at auction to the highest bidder. However, Frank's motivations in pursuing bankruptcy protection would be, according to another of Shaikin's sources, focused on the fight to keep control of the Dodgers through the execution of a long-term TV rights deal. Frank has not expressed a willingness to sell the club unless no other options remain. And he's shown no qualms about scorching the earth in pursuit of his goals.

3. Would Jamie be able to stop it if she tried?

One key consideration is the actual identity of the person or entity filing for bankruptcy. There is very little Jamie could do to prevent Frank from filing bankruptcy in his personal capacity. That's unlikely, though, as it would trigger all sorts of bad things for him, both from creditors and baseball. It's far more reasonable to expect that if there is a bankruptcy in this situation, it will be filed by one or more of the entities making up the Dodgers Enterprise.

If you scroll down this page (or click here), you'll see the Dodgers organization flow chart. Everything under TMBLP, including the companies that own the Dodgers and Dodger Stadium, is a single-member limited liability entity. The process for each of those entities to file bankruptcy protection depends on the way it was set up, but it is extraordinarily likely that Frank McCourt has himself the power, on paper, to send any of those entities into bankruptcy.

Jamie has spent the last 18 months, and will perhaps spend the next 18, contending that she is a half-owner of the Dodgers Enterprise, and she would argue here that Frank does not have the unilateral authority to file bankruptcy on behalf of, say, the Dodgers. However, to block such a filing or prevent it from moving forward, 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. None of these are easy.

Long story short: Frank has, on paper, the authority to file bankruptcy on the Dodgers' behalf. The long-term effect of a Dodgers bankruptcy seems unfavorable to Jamie. And her avenues to prevent that harm from coming to pass are not especially promising.

4. Can you wrap this up?

Working on it. Tough crowd.

Presuming he is unable to make the May 31 payroll, as has been reported, Frank McCourt may look to seek bankruptcy protection. This might enable him to maintain control of the Dodgers through a sale of the club's TV rights to Fox for nearly two decades and receiving cash and a stake in Prime Ticket in return. If he is unsuccesful in passing that deal through a bankruptcy, Frank would still be in a position to feed the Dodgers Enterprise's creditors before forking over half the couple's net worth to Jamie.

There's a certain symmetry to that: Frank contended all along that Jamie drove the creation of the MPA because she wanted protection from creditors in case the Dodgers failed. Well, here we are, and the Dodgers sure seem to be failing. The club now faces a severe liquidity crisis at least in part because Frank and Jamie McCourt diverted over $100 million to themselves instead of paying down debt or freeing up capital for revenue-generating projects. Having spent the better part of two years breaking up, they might now be in the uncomfortable position of working their way through the club's bankruptcy together.
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Schieffer's role with the Dodgers.

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Working on something for over here that will run today or tomorrow (probably tomorrow at this point). For now, I offered my thoughts on Tom Schieffer's tasks during these first few weeks with the club over at ESPNLosAngeles.com.

Why there, you ask? Because Molly stole the show here yesterday, and I had to at least attempt to respond in kind. Consider yourself warned, Knight.
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05.03.11 Live Chat

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Join Molly Knight and I (and perhaps more guests to come) for a live chat during Frank McCourt's 3:00 p.m. Pacific appearance on ESPN 710 out of Los Angeles. We'll be getting started a little before 3:00.