LOS ANGELES – If Frank McCourt wants to keep the Dodgers, he may be able to do so by declaring bankruptcy, the Los Angeles Times reports.
Seems odd, doesn’t it? Declare bankruptcy and keep the team, but that’s the challenge at play as MLB moves closer and closer to trying to strip McCourt of his power as he currently is unable to meet May payroll for his players. If McCourt declared bankruptcy, he would be able to go before a judge and contend that his $3 billion deal with Fox that is currently gathering dust on Bud Selig’s desk is what is needed to repay his debtors. The court could rule that the deal needs to be approved, because the whole point of bankruptcy court is to ensure that lenders are paid back.
“You can’t tell somebody you can’t get paid back,” a sports investment banker, who wished to remain anonymous, said. “The one right a debtor has is the right to pay back his lenders.”
The possibility of a bankruptcy filing may be why Bud Selig appointed a trustee to go through the Dodgers’ financials. A source said that Selig hopes to learn whether McCourt would default on loans to companies controlling Dodger Stadium and surrounding land should he file for bankruptcy.
On the face of it, McCourt would have strong positioning in bankruptcy court and would be considered a heavy favorite to eventually win out. However, he may run into problems with his lenders, who may not want to get on baseball’s bad side. They could refuse McCourt’s reorganization plans in a tacit move to freeze McCourt out of the game in order to keep its business with baseball and the other 29 clubs.
“If the creditors were completely supportive of Mr. McCourt, he would be in a pretty strong position,” said Rob Kampfner, an attorney for White and Case, the firm that represented Nolan Ryan’s group in winning a bankruptcy court bid for the Rangers. “But they’re probably inclined to see their portfolio in a much larger sense than people that sell pencils to the Dodgers.”
Should the creditors not approve McCourt’s plan, he would have to give up the team but would have a better chance of getting the most bang for his buck via bankruptcy court. While MLB must still approve all new owners, the road toward doing that is far easier in bankruptcy court. Selig’s influence is widely felt during team purchases as he essentially handpicks new owners, but that influence zeroes out in bankruptcy court, which would allow McCourt to sell to the highest bidder and ensure top dollar in an auction.
However, McCourt’s ex-wife, Jamie, may have a say in the proceeds. Jamie could argue that Frank cannot take the team into bankruptcy without her approval as she owns half the team, as a person familiar with her thinking said. However, she would likely not stand in the way of the filing, given it would end up boosting the price of the Dodgers.
Baseball does have one last line of defense as it could exercise a “voluntary termination” clause that the MLB constitution has in place in case of any bankruptcy filing. However, baseball would open itself to criticism and litigation if they did so as that clause was not used during last season’s Rangers bankruptcy filing.
Regardless of how the bankruptcy filing plays out, McCourt would have a stronger hand to play against Selig as he would have a strong chance of retaining the team and if he didn’t, would be able to maximize the amount the team is sold for while thumbing his nose at Selig one last time.