A World Series as exciting as any in memory ended two weeks ago. Notwithstanding the end of the season, the Los Angeles Dodgers’ chapter 11 case offered the promise of more baseball-related thrills. Dodger’s owner Frank McCourt and Major League Baseball (“MLB”) Commissioner Bud Selig appeared headed towards an epic courtroom showdown that promised to rival the high drama of the cliffhanger auction in last year’s Texas Rangers’ bankruptcy. However, the settlement last week between McCourt and MLB peremptorily ended the battle.
The Dodgers’ bankruptcy reflected a desperate effort by McCourt to remain in control of the team despite his personal financial woes and the embarrassing allegations that emerged in the wake of his divorce from his wife (and co-owner). The apparent strategy was to use the protections of bankruptcy as a shield to prevent Major League Baseball from exercising its right to remove him from control of the Dodgers for long enough to effect a sale of the team’s media rights. Such a sale almost certainly would have enabled McCourt to propose a plan that would have paid all of the Dodgers’ creditors in full, and attempt (over MLB’s certain objection) to assume the agreements pursuant to which the Dodgers’ are permitted under the Major League Baseball Constitution to operate as a MLB franchise (the “MLB Agreements”).
[The team’s bankruptcy lawyers] will probably be able to stave off a quick takeover of the Dodgers by Major League Baseball, and to turn aside the demands that the case be dismissed or that a trustee be appointed to run the team. They should also succeed in buying McCourt enough time to negotiate a sale of the team on favorable terms. But McCourt’s true goal here – to use the Chapter 11 process to keep permanent control of the team – appears to be beyond the reach of any lawyer. The Major League Baseball Constitution, pursuant to which McCourt acquired and holds the Dodgers’ franchise rights, in the end vests too much power in Commissioner Bud Selig and the other owners. Even assuming that McCourt can come up with a plan to pay off the Dodgers’ creditors, the Dodgers’ bankruptcy will almost certainly only delay the inevitable exercise of power by Major League Baseball to terminate McCourt’s right to operate the franchise.
The Dodgers did proceed with a motion to establish auction procedures for the sale of media rights, and MLB responded by seeking to compel a sale of the team. MLB’s papers emphasized the futility of allowing McCourt to proceed with a sale, arguing that he would never be able to cure the breaches of the MLB Agreements.
A hearing on both matters was initially scheduled to be heard on October 31, and was then postponed until late November. One can only speculate as to why McCourt abandoned the fight when he did. It is possible that a damaging new piece of evidence came out in the discovery leading up to the hearing. It is also possible that McCourt finally realized the scope of the odds against him, and that following a sale, as MLB described in its pleadings, “Mr. McCourt will likely receive hundreds of millions of dollars, placing him in a position to pay all of his personal debts, and be left a very wealthy man.”