Frank McCourt has filed for Chapter 11 bankruptcy protection this morning for the Los Angeles Dodgers, Dodger Stadium and three related holding companies in an attempt to keep control of the team in the face of a potential takeover from Major League Baseball.
Chapter 11 bankruptcy provides corporations protection as they attempt to restructure their finances. It prevents creditors and others from foreclosing on their debts. In the case of the Dodgers, McCourt says Bud Selig's refusal to approve a loan from Fox to essentially prepay for media rights forced him to seek protection in an attempt to retain control of the team.
The move also allowed McCourt to arrange $150 million in Debtor-in-Possession (DIP) financing, more than enough to cover payroll at the end of the month and other obligations in the short term. There are some risks to this: the lender basically goes to the beginning of the queue in a line of creditors and has the power to approve or disapprove any bankruptcy settlements. In practical terms, it adds another layer of complexity to the Dodgers' troubled finances and makes it more difficult for Selig to take control of the team and all its related assets. The move, however, does not make things simpler for McCourt and Jamie McCourt as they attempt to split their assets in divorce court.
The Dodgers are the second MLB team in three years to seek bankruptcy protection. The Texas Rangers ended up in bankruptcy while Tom Hicks negotiated a sale of the team to investors led by Nolan Ryan and Chuck Greenberg. Those with long memories will remember Bud Selig plucking the Seattle Pilots out of bankruptcy and moving the franchise to Milwaukee.
Here's the press release issued by the team:
The Los Angeles Dodgers filed for protection under Chapter 11 of the U.S. Bankruptcy Code in order to protect the franchise financially and provide a path that will enable the Club to consummate a media transaction and capitalize the team. Dodger owner Frank McCourt cited Major League Baseball Commissioner Bud Selig’s refusal to approve the Fox transaction as the cause for the Chapter 11 filing.
“The Dodgers have delivered time and again since I became owner, and that’s been good for baseball,” McCourt said. “We turned the team around financially after years of annual losses before I purchased the team. We invested $150 million in the stadium. We’ve had excellent on-field performance, including playoff appearances four times in seven years. And we brought the Commissioner a media rights deal that would have solved the cash flow challenge I presented to him a year ago, when his leadership team called us a ‘model franchise.’ Yet he’s turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today. I simply cannot allow the Commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer. It is my hope that the Chapter 11 process will create a fair and constructive environment to get done what we couldn’t achieve with the Commissioner directly.”
The Los Angeles Dodgers have tried for almost a year to have Commissioner Bud Selig approve a transaction, which would assure that the Los Angeles Dodgers would be one of the strongest capitalized franchises in Major League Baseball, both now and for years to come. Indeed, for months, the Dodgers have sought approval from the Commissioner of a multibillion dollar media rights transaction negotiated between the Dodgers and FOX, which would immediately infuse hundreds of millions of dollars of capital into the Los Angeles Dodgers. The Commissioner’s office last week rejected the deal, despite having been made aware by the Dodgers since the spring of 2010 of the franchises’ cash projections and in turn liquidity needs for 2011.
“The deal with Fox demonstrates that the Dodgers have enormous value which substantially exceeds the team's current and future liabilities,” said Bruce Bennett, bankruptcy counsel from Dewey & LeBoeuf. “The team is entering the bankruptcy case with enough committed financing to meet all of its short term expenses and to successful reorganize. The media rights will, one way or another, generate enough value to facilitate a reorganization."
Operating under Chapter 11, the Los Angeles Dodgers have received a commitment for $150 million in Debtor-in-Possession (DIP) financing. This financing will enable the Dodger organization to fully meet its obligations going forward. There will be no disruption to the Dodgers day-to-day business, the baseball team, or to the Dodger fans.
Under Chapter 11, the Dodgers will continue to operate in the ordinary course of business. Pursuant to that authority, and additional authority the Dodgers have sought in motions filed today with the bankruptcy court: All salaries of Dodger employees will be paid and all Dodger employee benefits will continue. The Dodgers will operate within their existing budget to sign and acquire amateur, international and professional players. Ticket prices will remain the same and purchased tickets will continue to be honored. All amenities at Dodger stadium will continue in place, and promotions will continue as usual. Dodger vendors and suppliers will be paid any post-petition amounts in the ordinary course, with the intention of paying any pre-petition amounts in full prior to or at the conclusion of the bankruptcy case.
McCourt concluded, “The Chapter 11 process provides the path on which to position the Los Angeles Dodgers for long-term success. The process will allow us to focus on maximizing value in a manner that is transparent and driven by the best interests of the Los Angeles Dodgers and our fans.”
Chapter 11 filings were also made for LA Real Estate LLC, an affiliated entity which owns Dodger Stadium, and three other related holding companies.
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