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Home Maury Brown Why Dodgers Bankruptcy Hearing Signals End of McCourt

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Why Dodgers Bankruptcy Hearing Signals End of McCourt PDF Print E-mail
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Written by Maury Brown   
Wednesday, 29 June 2011 13:15

Dodger divorce

On the surface, it’s easy to see why one would think Frank McCourt scored a victory in a Delaware bankruptcy court hearing yesterday. After all, McCourt’s lawyers got the courts to agree to $150 million in debtor in possession (DIP) financing to ferry the Dodgers through bankruptcy.

But, if you’re looking at the end game for McCourt, the hearing yesterday it’s akin to being given a small piece of balsawood to hang onto in a turbulent sea.

McCourt gets $60 million from Highbridge LLC, a hedge fund owned by JPMorgan. A hearing on July 20 will determine whether MLB or Highbridge will finance the remaining $90 million.

The thing is, the DIP financing was going to come one way or another. One can’t imagine MLB terribly giddy about loaning McCourt $150 million at a reduced interest rate. But, in order for players, announcers, vendors, staff, and matters such as revenue-sharing obligations and entering money in escrow for deferred compensation to take place, the money was going to come from somewhere. After all, not having player salaries addressed – deferred comp or otherwise – would be in violation of the CBA. Once in a blue moon (Tom Hicks and the Rangers) is about all the MLBPA is going to stomach. The league got a win as the exit fee of $4.5 million for Highbridge was reduced to $250,000.

But, the end game – the matter that counts the most in terms of Frank McCourt’s tenure as owner of the Dodgers – hinges on the auctioning off of the club’s television rights that are currently controlled by FOX. The league prior rejected a proposed $3 billion extension saying that upfront monies from the deal would not be used to advance the value of the franchise, but rather pay down debt the McCourts irresponsibly put themselves in. Using money from the TV deal to pay off Jamie McCourt and legal fees associated with their divorce after siphoning off $100 million for personal enjoyment was not acceptable, especially in light of the fact that leveraging the TV deal would further drive the value of the Dodgers into the ground.

By the court decoupling the TV auction aspect from the DIP financing, the best that McCourt can hope for is that it is addressed at the tail end of the bankruptcy proceedings. And, that may academic as Judge Kevin Gross presiding over the case held up a copy of the league constitution (SEE IT HERE) and said, “it has an impact here.”

An important sidebar to Tuesday was the fact that McCourt did not notify anyone in advance of the filing. That included the league, Jamie McCourt who is objecting to Frank’s bankruptcy filing, but Tom Schieffer, the controller placed by the league to monitor the Dodgers’ finances. That morning, McCourt informed the Dodgers to lock Scheiffer out of his office, thus setting up an almost near certain scenario in which MLB will “terminate” the agreement with the Dodgers and seize the club from McCourt.

The analogy is this: Frank McCourt wishes to remain king of the Dodgers castle. He is fighting for the keys to the castle while all around the walls are falling. And, soon, he’ll have the keys removed…. kicking and screaming along the way.

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Maury BrownMaury 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 FanGraphs and Forbes SportsMoney. 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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