Aug. 5 (Bloomberg) -- The sale of Texas Rangers at auction may not be clinched by the highest bid, as the offer also must be approved by owners of at least 23 of the 30 Major League Baseball teams and Commissioner Bud Selig.
Those hurdles set the Rangers sale apart from the typical bankruptcy auction, where the highest offer wins, especially as the commissioner has said the “best interests” of the sport favor a buyer group that includes Hall of Fame pitcher Nolan Ryan, the team’s president.
“They want to play king of the universe and say, ‘I hereby approve Nolan Ryan, and we want him to get the team,’” said lawyer Thomas Salerno, who isn’t involved in the Rangers case. “If Major League Baseball is hell-bent on seeing that this team goes to Nolan Ryan, that’s going to happen.”
Bidding for the Rangers was under way yesterday in a Fort Worth, Texas, federal courtroom. Mark Cuban, owner of the National Basketball Association’s Dallas Mavericks, and Houston businessman Jim Crane, are competing against Rangers’ team president Nolan Ryan and attorney Chuck Greenberg.
In the most recent bid round, the Greenberg-Ryan group bid $320 million in cash for the team, $2 million more than the previous bid from Cuban and Crane, Tom Lauria, lawyer for the Greenberg-Ryan group, said in court.
The Cuban group immediately countered with a $15 million higher bid for a total of $335 million in cash, Clifton Jessup, a lawyer for the group said. Both bidders are planning to assume about $200 million in team liabilities.
Lauria tried unsuccessfully yesterday to halt the auction, calling it “a mess.” He said the process was “unfair” and asked that Judge D. Michael Lynn, who is overseeing the Rangers’ bankruptcy, rule on his complaints before bidding continued.
Judge Russell Nelms, who is overseeing the auction in Forth Worth, Texas, declined to stop it. The Greenberg-Ryan group could raise its arguments about the bidding rules later, Nelms said.
The team, now in first place in its division, filed for bankruptcy May 24 and proposed, with the commissioner’s approval, to sell the club to Ryan and Greenberg for $575 million.
A group of hedge funds that own the team’s debt, including Monarch Alternative Capital, objected. Their lawyer, Dennis Dunne, compared Selig during a May court hearing to “a freewheeling medieval chancellor” trying to “dole out property rights as he sees fit.”
Lynn appointed William Snyder as chief restructuring officer to evaluate the proposed sale. Snyder, who held the same position at Pilgrim’s Pride Corp., pushed for an auction, and the Rangers agreed to take offers from buyers acceptable to Major League Baseball. The winner will also need the approval of 75 percent of baseball’s owners.
The Rangers have defended the Greenberg-Ryan deal, calling it the result of a marketing process and citing Selig’s support. Patrick Courtney, a spokesman for Major League Baseball; Kevin Sullivan, a spokesman for Greenberg and Ryan’s company; and Mark Semer, a Rangers spokesman, all declined to comment.
If baseball’s owners reject the auction’s winner, the second-highest bid is to be submitted for approval, Snyder said in an interview. The judge may also consider whether the owners acted in good faith, according to court documents.
“There is no guarantee that the person who wins the auction in bankruptcy will be the person that is approved,” Louis Strubeck, an attorney for Snyder, said in an interview.
Tom Hicks bought the Rangers for $250 million in 1998 from a partnership that included former U.S. President George W. Bush. The team suffered “cash flow deficiencies” beginning in 2005, forcing Hicks to provide it $100 million of his own money, according to court documents. Last year, HSG Sports Group LLC, Hicks’s holding company, defaulted on $525 million in loans.
Search for Buyer
The team turned to New York-based Major League Baseball for a $15 million loan, later increased to $25 million, and began to search for a buyer, with MLB requiring a deal in place by Jan. 15, according to court documents. In November, three suitors submitted final bids.
The team first picked Greenberg-Ryan, only to later identify Crane’s bid as the highest, according to e-mails filed in the bankruptcy case.
According to those e-mails, attorney Glenn West of Weil, Gotshal & Manges LLP, who represented the Rangers, wrote to lawyers for Major League Baseball on Dec. 31, saying Crane’s offer was “clearly economically superior.” He said the team wanted to continue talking with both bidders.
“You have our permission to negotiate only with the Greenberg group,” Tom Ostertag, general counsel for Major League Baseball, responded, citing an agreement between baseball and the Rangers, according to the e-mails. “None of the losing bidders should be part of any negotiation at this point.”
Call to Bank
West responded that the agreement with Major League Baseball didn’t require exclusive negotiations with Greenberg-Ryan. He also contacted JPMorgan Chase & Co., the Rangers’ lead lender.
“We need help here,” West wrote the bank, according to court filings. “Unless the lenders weigh in, we are going to be stuck negotiating a deal that is clearly worse than Crane’s.”
The lenders refused to approve the Greenberg-Ryan deal.
In an April letter to New York-based JPMorgan filed with the bankruptcy court, Selig expressed his disappointment. The terms of the loans to Hicks required the lenders to sign off on the sale because the commissioner’s office had deemed it “in the best interests of baseball,” he wrote.
“I expect lender consent and full cooperation with the closing of the transaction,” the commissioner wrote.
Selig, 76, became a baseball owner in 1970 when he led the group of Wisconsin businessmen that bought the Seattle Pilots out of bankruptcy and moved the club, renamed the Brewers, to Milwaukee.
He became commissioner in 1998, and in 2001, he helped facilitate the sale of the Montreal Expos from its majority owner, Jeffrey Loria, to Major League Baseball itself for $120 million. In the three-team deal, Loria wound up owning the Florida Marlins and the Marlins’ former owner, John W. Henry, got the Boston Red Sox.
Baseball executives aren’t the only gatekeepers of team ownership. The National Hockey League asserted control over the sale of the Coyotes during that team’s bankruptcy in 2009. The owners rejected an offer by James Balsillie, co-chief executive officer of BlackBerry maker Research In Motion Ltd.
The bankruptcy judge blocked Balsillie’s bid, saying his plan to move the Coyotes might undermine the league’s right to control where teams play. The NHL eventually agreed to buy the Coyotes for about $100 million less than Balsillie offered, according to Salerno, of Squire Sanders & Dempsey LLP, who represented the Phoenix Coyotes hockey team in bankruptcy.
Leagues and Bankruptcy
“All leagues assert their powers, but they’re all subject to a determination of a bankruptcy court as to what’s in the best interests of debtors and creditors,” said Jeffrey Kessler, co-chairman of the sports litigation practice at Dewey & LeBoeuf LLP in New York who represented Balsillie in his bid for the Coyotes.
Salerno said league and owner control “completely skews” the bankruptcy process.
Snyder, the Rangers’ restructuring officer, said last week in bankruptcy court that he backed an unspecified “enhanced” bid from the Greenberg-Ryan group conditioned on canceling the auction. Lenders opposed the move, and the judge ordered the auction to move forward.
“I do not believe that Major League Baseball has the intent of frustrating this process any longer,” Judge Lynn said at a hearing last month. “If they want Greenberg-Ryan to get the team, that’s dandy. But it will go to the highest bidder.”
The case is In re Texas Rangers Baseball Partners, 10-43400, U.S. Bankruptcy Court, Northern District of Texas (Fort Worth).
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