June 27 (Bloomberg) -- The Los Angeles Dodgers filed for bankruptcy protection after Major League Baseball rejected a television deal with News Corp.’s Fox Sports, leaving team owner Frank McCourt unable to make payroll this week.
Major League Baseball Commissioner Bud Selig last week said the 17-year TV-rights deal, which McCourt valued at about $3 billion, would harm the franchise in the long term. Baseball took over the Dodgers’ business operations about two months ago.
“He’s turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today,” McCourt said today in a statement. “I simply cannot allow the commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer.”
The team listed assets of as much as $1 billion and debt of as much as $500 million in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Wilmington, Delaware. Manny Ramirez, who last played for the Dodgers in 2010 and retired in April, is listed as the largest unsecured creditor with a claim of about $21 million. Ex-Dodgers player Andruw Jones has a claim of about $11.1 million.
The Dodgers received a commitment for a $150 million loan from Highbridge Principal Strategies LLC, a JPMorgan Chase & Co. unit, to support operations during the bankruptcy, according to court documents. The loan’s interest rate is the London interbank offered rate, or Libor, plus 7 percent, “provided that at no time shall Libor be less than 3 percent.”
The team doesn’t have enough cash to make payroll June 30 and needs access to at least $20 million to do so, according to court papers. Earlier this year, McCourt obtained a $30 million personal loan from Fox Sports and used $23.5 million of it to fund the Dodgers’ payroll and other expenses, according to court papers.
“Based on the commissioner’s refusal to approve the proposed Fox transaction, LAD does not have sufficient cash on hand to meet substantial payroll expenses that come due on June 30, 2011,” the team said.
The bankruptcy “does nothing but inflict further harm to this historic franchise,” Selig said today in a statement.
“We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of baseball would not be acceptable,” Selig said.
“This is a very expensive loan” for a company like the Dodgers, said Lynn LoPucki, a bankruptcy-law professor at the University of California at Los Angeles. “If the assets are worth the $500 million the debtor claims, repayment is virtually certain.”
Darin Oduyoye, a JPMorgan spokesman, declined to comment. Dodgers assistant treasurer Jeffrey Ingram said in a court filing that the team had “no adequate alternative,” as only Highbridge “was willing to provide a commitment for financing of a sufficient amount and within the debtors’ time constraints.”
The Dodgers will pursue a sale of the TV rights while in bankruptcy, the team said in court documents. The Fox Sports agreement included a $385 million loan, of which $211.5 million was to go toward the team’s operations and working capital, according to court papers.
“The value of those rights is enormous, and when it is able to unlock that value, LAD will be in a position to satisfy all of its existing claims, pay debts as they become due, and generate a substantial return for its equity holder,” the team said.
The team is “very substantially solvent” given the value of the rejected Fox Sports contract, Bruce Bennett, the team’s bankruptcy attorney, said today in an interview in Wilmington. The goal of the Dodgers’ bankruptcy is to buy time to negotiate a new TV rights contract and use the money to exit court protection, he said.
The Dodgers are one of the most storied franchises in American sports. While based in Brooklyn, New York, the Dodgers became the first Major League Baseball team with a black player when Jackie Robinson took the field in 1947. They started play in 1884 as the Brooklyn Atlantics, and didn’t win their first championship until 1955. Even with devoted fans that lovingly called them “Dem Bums,” they joined the New York Giants in moving to the West Coast in 1958.
The Dodgers have won six World Series, tied for fifth-most in baseball. Five of them came in Los Angeles, where Duke Snider, Sandy Koufax, Steve Garvey, Fernando Valenzuela and Kirk Gibson led them to championships.
This year the team hired no marquee free agents in the off-season, and manager Joe Torre, who won four championships with the New York Yankees, stepped down after last season. He led the team to the National League Championship Series in two of his three years at the helm.
The Dodgers are 35-44 this season, 9 1/2 games behind the San Francisco Giants in the National League West.
The team is worth about $800 million, making it the third most valuable baseball team after the New York Yankees and the Boston Red Sox, according to Forbes. The bankruptcy follows the Chapter 11 filing last year of the Texas Rangers baseball team. The Rangers were sold at a bankruptcy auction to a group that included Hall of Fame pitcher Nolan Ryan.
McCourt, a Boston real-estate developer who unsuccessfully bid for the Red Sox, bought the Dodgers from Rupert Murdoch’s News Corp. in 2004 for $430 million. He is fighting with his ex-wife, Jamie, over ownership of the team. A judge last year invalidated an agreement that Frank McCourt claimed made him the sole owner of the Dodgers, leaving the team’s ownership in limbo.
Court documents filed in the divorce case said the McCourts took $108 million in personal distributions from the team from 2004 to 2009, almost half for mortgages and real estate.
“Today’s bankruptcy filing is disappointing and disturbing,” David Boies, a lawyer for Jamie McCourt, said in a statement issued on her behalf. “The rule or ruin philosophy that appears to have motivated today’s filing is bad for everyone who cares about, or has an interest in, the Dodgers.”
McCourt put the Dodgers into bankruptcy as a way to hold on to the team, said Thomas Salerno, an attorney with Squire, Sanders & Dempsey who represented the Phoenix Coyotes hockey team during its Chapter 11 case. Bankruptcy blocks Major League Baseball from taking over and selling the team to a preferred buyer, said Salerno, who isn’t involved in the case.
Baseball may ask the bankruptcy judge to appoint a trustee to take over the Dodgers or seek permission to propose a bankruptcy plan based on a sale of the team, he said.
“He wants to hold on to his team,” Salerno said of McCourt. “The presumption in Chapter 11 is that he does in fact maintain control.”
In April, Selig said he was appointing a representative to oversee the team’s business and day-to-day operations because of “deep concerns regarding the finances and operations of the Dodgers.” He later named Thomas Schieffer, former president of the Texas Rangers, as the team’s monitor.
Meanwhile, McCourt pushed Selig to approve the Fox Sports agreement. He accused Selig in a letter of making “a conscious decision to put the Dodgers in this state of distress.”
The deal “assures the financial health and stability of the franchise for the next two decades,” McCourt said in an interview on Bloomberg Television.
Baseball said it was withholding approval until completing an investigation into the club and its finances. On June 20, Selig said he was rejecting the transaction, saying it was “structured to facilitate the further diversion of Dodgers assets for the personal needs of Mr. McCourt.”
“Given the magnitude of the transaction, such a diversion of assets would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans,” Selig said in a statement.
The case is In re Los Angeles Dodgers LLC, 11-12010, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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