This week in “Last Week in BizBall“, speculation that bankruptcy will lead to a reopening of bids for the Rangers, MLB already instituting changes to player development in the Dominican Republic, an update on the vigorous competition for Astros TV rights plus the weekly tidbits.
WILL BANKRUPTCY RESULT IN A REOPENING OF BIDS FOR THE RANGERS?
LWIB the dominant story was the surprise move of the Texas Rangers to enter into a “voluntary” “prepackaged” bankruptcy process to expedite their long stalled sale to a group fronted by Nolan Ryan and Chuck Greenberg. Some interpreted the move as a pre-emptive measure against the long rumoured “involuntary” bankruptcy of Rangers owner Hicks Sports Group (HSG) at the behest of the lenders. However the more common opinion amongst the sports biz punditry was that the move into a “prepackaged” bankruptcy was executed in order to separate the sale of the baseball franchise from a larger and more entangled disagreement between HSG and the lenders. The gambit of using a bankruptcy process to acquire a professional sports franchise is not new. Most recently, former Phoenix Coyotes owner Jerry Moyes and Research in Motion billionaire Jim Balsillie attempted unsuccessfully to transfer ownership of the NHL franchise without the league’s permission via bankruptcy. (The Rangers situation is not analogous, MLB is supportive of the Rangers “voluntary” bankruptcy) Forty years ago an enterprising Milwaukee resident and baseball fanatic named Bud Selig was being stymied by the American League office in his attempts to purchase and relocate the Seattle Pilots franchise. Mr. Selig turned to the bankruptcy courts to achieve his goal. From Andrew Zimbalist’s In the Best Interests of Baseball? The Revolutionary Reign of Bud Selig:
They reached an oral agreement with Bud Selig’s Milwaukee group in October 1969 to sell the team…..The AL, however, refused to approve the sale and instead tried to find a way to recapitalize the team. When these efforts failed, on March 8, 1970, Selig and the Pilots’ owners signed a formal buy/sell agreement. With Seattle’s King County trying to block the team from moving for the 1970 season, the AL still refused permission for the sale. Selig’s lawyers recommended to the Pilots’ owners that the team file for bankruptcy, which it did. The bankruptcy court ordered the sale of the team by April 1, 1970.….On the evening of March 31, the Seattle bankruptcy referee, Sidney Volinn, decided that the team would be sold to Selig’s group….The Milwaukee Brewers began their first season six days later.
So while the use of bankruptcy proceedings to settle disputes over pro sports franchise ownership is not unprecedented, it is rare. As was evidenced by the NBA, NFL and MLB filing briefs in support of the NHL in their legal battle with Moyes/Balsillie, the ability of leagues to decide who owns “their” franchises is of critical importance. But whereas in order to maintain stability leagues will often approve of a transfer of ownership to a group with a lower offer, the bankruptcy courts first and only responsibility is to the creditors. On that note, LWIB many pundits speculated if the Rangers “voluntary” bankruptcy will lead to the reopening of bidding for the franchise. The creditors have long accused MLB and HSG of accepting the Ryan/Greenberg bid over reportedly higher offers from groups headed by Jim Crane and Dennis Gilbert. LWIB, Barry Shlachter reported for The Dallas Morning News on the bankruptcy proceedings being presided over by judge Michael Lynn:
Moreover, Lynn cautioned the Rangers to be mindful of a legal responsibilities to the lenders by being open to talks with other potential buyers while pointedly noting that he was not pushing for any particular course of action.
George Postolos, a sports consultant who worked for Houston businessman Jim Crane when he was a top contending bidder, attended Wednesday's hearing. Postolos declined comment.
The lenders are owed upwards of $600 million, which includes unpaid interest on $525 million since owner Tom Hicks defaulted in March 2009, said Andrew Leblanc, an attorney for the first lien holders, which include Monarch Alternative Capital, Kingsland Capital Management, Sankaty Advisors and Galatioto Sports Partners.
Lynn reprimanded the team's chief financial officer, Kellie Fischer, for waffling on the stand when asked if she would accept a far superior offer from the lenders. "I'd have to do the math," she testified.
The right answer, the judge told Fischer bluntly, was to accept the better deal, mindful that her fiduciary duty was to the creditor, not MLB.
With much talk by lenders of the league's strong influence of the team, Lynn made clear who was now in charge.
"Major League Baseball is not in control of this case," he said. "I am."
Ken Belson reported on the same speculation for the New York Times:
…At the same time, the lenders welcome the court’s involvement because they believe the judge is more likely to consider alternative bids for the team.
A bankruptcy court judge in the Northern District of Texas will now hear the case, which includes the possibility of his agreeing to consider alternative bids for the team.
The SportsBiz blog commented that while the Rangers/MLB hope the “involuntary” bankruptcy will stave off any reopening of bidding for the franchise, the creditors will push Judge Lynn in the completely opposite direction.
The bankruptcy is an attempt to force the creditors to accept the deal and forestall the possibility that the creditors could force a sale to one of the other two groups who have bid for the team, at least one of which was a higher bid returning more to the creditors.
….The backing of the Commissioner may be enough to forestall the possibility of another serious bidder entering an auction but Monarch will certainly push the bankruptcy judge hard to determine why this lower value will proveide the best return to creditors, which is one of the stated goals of any bankruptcy proceeding.
Others have correctly noted that if Judge Lynn orders a reopening of the bidding for the Rangers that it does not automatically preclude the Ryan/Greenburg group from prevailing again. Speculation about the interests (past or present) of both Jim Crane and Dennis Gilbert is just that. But unlike Arizona bankruptcy judge Redfield T. Baum, who was reluctant to wade into legal areas concerning league’s rights to control franchise ownership and relocation, should Judge Michael Lynn decide that the rights of creditors take precedence over MLB’s authority to control franchise ownership…..might we see more pro sports owners in bankruptcy court?
SELECT READ MORE FOR IMPLEMENTING CHANGES IN THE DOMINICAN REPUBLIC, THE BATTLE FOR ASTROS TV RIGHTS, AND WEEKLY TIDBITS
MLB ALREADY IMPLEMENTING CHANGES IN THE DOMINICAN REPUBLIC
LWIB Ben Badler reported for Baseball America on Sandy Alderson’s efforts to reform player development in the Dominican Republic. As has been widely reported, Mr. Alderson’s efforts (intrusion?) have been met with opposition (and hostility in some instances) from the country’s buscones. As signing bonuses for international free agents have escalated, so has MLB’s interest in combating widespread age/identity fraud amongst the playing prospects. While most of what has been written has focused on the philosophical debate over reforming player development in Latin America, Mr. Badler informs us that real changes have already been implemented with both MLB‘s Scouting Bureau and Department of Investigations active in the DR.
The biggest date on the international baseball calendar is July 2, the opening of the signing period and the first date upon which 16-year-olds outside of the United States, Canada and Puerto Rico can sign.
This year for the first time, MLB selected 40 of the top unsigned Dominican prospects—a group compiled with input from various sources, including the bureau—who will have to register with MLB in what Alderson dubbed a pilot program for 2010. By 2011, the league is aiming to expand registration to virtually all players in the Dominican Republic.
MLB contacted the 40 players and gave them around seven to 10 days to go to the league's Dominican office with their representation and parents or guardians, provide biographical information, consent to an age and identity investigation and to a drug test. Alderson said 31-32 players registered on the first day, and the league was expecting the rest to register soon. If a player among the 40 selected does not register, Alderson said he would be subject to a one-year suspension. Players registering also were photographed and fingerprinted.
Mr. Badler believes that MLB and the MLBPA are ready to negotiate the implementation of an international draft into the next CBA (expiring in Dec. 11) but isn’t certain that all the details can be agreed to in time for the following year’s draft. He also astutely notes that drafted Dominican players will have much less leverage in negotiations with MLB clubs than their peers in the US who have the option of playing college baseball. Mr. Badler also reports that not all MLB clubs favour an expansion of the Rule 4 draft. In particular, clubs that typically pick in the bottom of the first round and/or have already made large investments in Latin American player development.
With both MLB’s Scouting Bureau and Department of Investigations both active on the ground, the buscone culture in the Dominican Republic as it has existed appears over. Going forward, whether MLB works in conjunction with the buscones or renders them irrelevant by establishing a system of leagues and instructional programs remains to be seen.
UPDATE ON COMPETITION TO ACQUIRE ASTROS TV RIGHTS
In March LWIB reported that revenues from RSNs are increasingly important to franchises. Cited in that instalment of LWIB was a report from John Ourand of the SportsBusiness Journal on the vigorous competition between Fox Sports Net, Comcast and AT&T over the future local rights to Astros and Rockets games.
LWIB, Mr. Ourand provided an update on the negotiations, reporting that Comcast is the frontrunner to acquire the rights presently held by Fox Sports Net:
Comcast has emerged as the clear front-runner in the bid to obtain local TV rights for the Houston Astros and Rockets, according to several sources.
Comcast executives are expected in the next few weeks to fly to Houston, where they could finalize the deal. That agreement would lead to the launch of a new regional sports network in the market starting with the 2012-13 NBA season.
In order to make the deal, the teams are expected to exercise an out-clause to their long-term rights deals with Fox Sports Houston. Exact terms of those deals are not known.
Comcast’s bid would have the Astros and Rockets owning a combined 70 percent to 80 percent of Comcast SportsNet Houston, with Comcast holding the balance.
Mr. Ourand notes that Comcast has established similar partnerships with the Giants in CSN Bay Area, the Mets in SportsNet New York and the Cubs, White Sox, Bulls and Blackhawks in CSN Chicago. Mr. Ourand also notes that the deal is consistent with Comcast’s strategy to establish an RSN in markets where they are the dominant cable provider (such is the case in the Houston market).
David Barron of the Houston Chronicle picked up on Mr. Ourand’s report and provided further context and analysis in two reports here and here. (HT Fang’s Bites) According to the second report, “Fox is said to be paying in the mid-$40 million range each year to the Astros and Rockets…” No speculation concerning the amounts the Astros and Rockets will receive in the new (or renegotiated if Fox Sports Net is the successful bidder) deal but given the heated competition between Fox Sports Net, AT&T and Comcast it is certain to be considerably more.
THE WEEKLY TIDBITS
- Ever since it was revealed that Mets owner Fred Wilpon was a client of Bernie Madoff there has been speculation surrounding the financial well being of his baseball franchise. Those concerns should be alleviated with the news that the Mets recently refinanced $375 million of debt. LWIB Daniel Kaplan reported for the SportsBusiness Journal, “The New York Mets holding company is close to refinancing $375 million of debt, sources said, underscoring that despite the team’s troubles at the gate and concerns about the franchise’s owners, the Wilpon family, having lost money in the Bernie Madoff investment scandal, the club continues to perform well financially.
- Stuart Levine reported for Variety (HT Fang’s Bites) on the continuing migration of sports to cable from “over the air” TV. Is the World Series next? “Fox, which airs the World Series, and Turner share baseball's postseason pact through 2013. Following that, there is the real possibility of at least part of the Fall Classic coming to cable.” That seems entirely plausible, but how will politicians react? Should all Americans be able to view the World Series on “free TV”? In a similar vein, Dan Caesar reported for the St. Louis Post-Dispatch that the Cardinals could be moving all their local TV broadcasts to Fox Sports Midwest. Mr. Caesar reports on the years long trend of fewer and fewer Cards games available on “free TV”. This season there are 19 Cards games available locally “over the air”.
- Fox’s experiment with moving Saturday baseball to prime time was a huge hit….or was it? Mets/Yanks in prime time boosted the numbers, but are they still a disappointment? The Sports Media Watch blog provides some analysis courtesy of SportsBusiness Daily
- Dan Steinberg of the Washington Post reported that a start by Stephen Strasburg last week drew only slightly fewer viewers on MASN than Nationals’ broadcasts averaged last season. (HT The Sports Media Watch Blog)
Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.
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