This morning in a Ft. Worth courtroom, U.S. Bankruptcy Judge Michael Lynn could rule on the bid procedures for an open auction for the Texas Rangers. Today marks three days of hearings in which creditors for Hicks Sports Group, the holding company for the Rangers that has fallen $525 million in debt, have admitted that they would rather see the group led by Chuck Greenberg and Nolan Ryan out of the picture completely in the auction, and where Nolan Ryan, who is currently president of the club, said that the bankruptcy case has impacted the ability of the Rangers to make player moves. It’s possible that given all that is in play, a fourth day (Friday) could be added to allow Lynn to make his decisions.
But, today is scheduled to be a key date on the calendar for the often times acrimonious case. While this case has been exceptionally difficult to predict, here’s some topics to consider today:
Does the Greenberg/Ryan Group Drop Out After Aug. 12?
Chuck Greenberg said at the hearing yesterday that investors within his group have said that they are unwilling to extend their funding agreements past the Aug. 12. William Snyder, the chief restructuring officer said yesterday that having the Greenberg/Ryan group in play was beneficial to the auction while creditors have said that the date is arbitrary. It’s likely that the judge will see that the Aug. 12 date is relevant and keep it in mind as he makes his decision and ask….
Will the Aug. 4 Auction Date Stand?
Creditors wanted an open auction, but say that the scheduled date of Aug. 4 doesn’t allow them enough time to get the requisite funding together. Greenberg says that Aug. 12 investors will drop. This case has seen key hearing dates reset so many times, those following the proceedings have likely gotten a case of whiplash. Still it is possible that Judge Lynn could add a few extra days to allow bidders to get in the mix. However, Kevin Cofksy, the managing director of Perella Weinberg who is testifying Thurs. morning said that bidders he is aware of are not put off by the Aug. 4 date. Either way, one should expect the auction to occur on or close to Aug. 4.
How Does the Land Deal Factor In?
There is 154 acres of land around the Ballpark that currently is in play with the Greenberg/Ryan group for $75 million. Greenberg said at Weds.’ hearing that, “We’re not allowed to close on the (team) unless we close on the sale of the land.”
What About the Lease on the Ballpark?
Another factor, be it Greenberg/Ryan, or any other winning bidder is a pending lawsuit by JPMorgan Chase saying that the lease for Rangers Ballpark at Arlington was fraudulently transferred to the Rangers. No bidder would be interested in purchasing the club without the lease. It would be analogous to purchasing a business and its employees but not having office space to house them. The lease is key, and is likely to surface at today’s hearing.
Is Mark Cuban Serious About Purchasing the Rangers?
Cuban said he was investigating getting into the mix on the Rangers sale, but wouldn’t say definitively. This morning, his lawyer is at the hearing, meaning the Dallas Maverick owner is serious about matters and should be in play at the auction.
How Will MLB’s Ownership Approval Play Into Matters?
Today’s hearing will have MLB’s Constitution and other governing rules as part of the discussion. MLB has seen sales go to bids that were not the highest (the Red Sox), and there have been other leagues that have seen lower bids accepted when other league issues were in play (Phoenix Coyotes and their possible relocation). Lynn has said that not accepting the highest bid would be acting in bad faith, but that doesn’t mean he’s not going to consider the implications of league approval. Look for interesting comments from Lynn today on this subject.
Will Dragging the Case Out Really Impact Player Procurement Activities for the Rangers?
Lynn has said that the league loan of $21.5 million should allow the Rangers to function during Chapter 11 proceedings, but let’s look at the calendar… Sal Galatioto, one of the lenders in the Rangers case said on Tuesday that it would take between 70 and 90 days for some bidders to get the needed funding together. At that point, you could then schedule an auction. Once the auction would take place, MLB would have to approve the ownership transfer, which they said could take up to 3 months to discuss, if the winning bidder is not the Greenberg/Ryan group. That could put the ownership issue in limbo until just before Spring Training. The $21.5 million loan by MLB will not be enough to fund the club for that long of a period. If this example were to come to fruition, the Rangers would be hamstrung in the off-season, unless more funding were made available to the club, something MLB would seem to only do begrudgingly at this point.
Has Jim Crane Been Stymied by the Exclusive Arrangement Greenberg/Ryan Has?
Creditors have argued that other bidders, namely Jim Crane, need more time to gain funding as the exclusive agreement for Greenberg/Ryan has stymied his ability to gain the needed funding to make a meaningful bid. Yesterday, on cross examination, Andrew Lablanc asked Chuck Greenberg if he had ever granted permission to Jim Crane to speak with lenders, to which Greenberg replied that he hadn’t because he had been under the assumption that Crane had been in talks with the lenders before and after the Rangers went into bankruptcy. While it is unclear if Crane was involved before Chapter 11, he did sit in on a mediation session with Wiliam Snyder, a sign that the creditors have been working with Crane.
Will the Creditors Really Get More Than What Greenberg/Ryan Had on the Table?
Let’s look back at that timeline above… Interest on the HSG debt is growing at about $4 million a month. At one point, before the Rangers went into involuntary bankruptcy, the sides were roughly $30 million apart. So, since mid-May, interest has grown by around half the $30 million gap, and that does not include the mountain of legal fees being paid out in the case. If the Greenberg/Ryan bid is not the winner and the deal not finalized by Aug. 12, using the timeline outlined, there could be an additional $20 million or more in interest on the debt. Unless the winning bidder is far in excess of the original Greenberg/Ryan offer, the creditors are going to take a bath on the Rangers sale.
What About the Hundreds of Unsecured Creditors?
There are hundreds of small businesses that comprise the unsecured lenders in the Rangers case. These are businesses that have yet to get paid by the club since it went into bankruptcy. The case has already dragged on longer than it should have… going even longer impacts these creditors further.
Is This Going to Be Over When the Auction Is Completed?
Maybe. Expect lawsuits to be filed depending on how this all lands. The creditors, should Greenberg/Ryan win the day, will look for an appeal, but a stay would have to be ordered by Lynn, and that seems very unlikely.
In a nutshell there’s not a nutshell big enough to encapsulate the saga that is the Texas Rangers bankruptcy case. So many court documents have been filed (412 to date and climbing for the voluntary bankruptcy case, alone) that we may need to redefine “motion sickness”. Today is but one more day in the saga. The landscape is likely to change again, but what does seem clear is an auction is going to take place, with Lynn doing further tweaks.
Look for updates as they become available
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to Forbes SportsMoney blog. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.
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