It rivaled any extra innings marathon: an 8 hour hearing yesterday in Delaware bankruptcy court was held to determine whether Frank McCourt would get to use his preferred Debtor in Possession (DIP) financing or Major League Baseball’s.
Lawyers argued back and forth. For McCourt’s side, it was that MLB was not to be trusted – they are looking to wrest control of the Dodgers away from Frank. For MLB it was a matter of assigning less debt weight to a historic and cornerstone franchise by providing funding at a lower interest rate and reduced fees.
When testimony and arguments were over, even though Judge Kevin Gross did not rule (that is scheduled to come at close of business Eastern Time today), the score was really 3-1 against McCourt. Here’s the breakdown of the three:
Major League Baseball: The league has not pulled the franchise out from under McCourt, instead saying that they respect the bankruptcy laws, but they make it adamantly clear, they see the Dodgers owner as using the court to molest and ignore MLB’s Constitution. They’re not happy about loaning the Dodger’s money, but it’s better them than hedge fund Highbridge Co., who would fund at a higher interest rate, and force McCourt to pay a fee if MLB is selected over MLB. It’s the latter that MLB pointed to repeatedly as saying McCourt had a personal interest in seeing the “preferred” financing over MLB’s as he’s personally on the hook for it. The league also pressed the court to make sure that they monitor where the money was going. The concern is that McCourt would use only part of the loan money to take care of the Dodgers while some might be used to take care of legal fees associated to his divorce from his former wife, Jamie.
US Trustee: For every bankruptcy case, a trustee is assigned to make sure that the rules of the court are being adhered to. When is came time for him to address the court, he said he felt “lied to” and “if I knew about Highbridge fees initially, I would have had a fit. He later added, “[The non-disclosure about the fees] has to be addressed. Adding “You have to wonder if this whole case is tainted." It was a compelling and dramatic point in the long court session. The Trustee’s opinion? The MLB loan would be far better.
FOX: At the heart of the bankruptcy case is the assertion by McCourt that by MLB not approving a television rights extension with FOX Sports West. FOX still owes $75 million in rights fees over the current deal that runs through 2013 and does not allow for negotiations for a new deal until Nov. of 2012. McCourt would like to auction off those rights to the highest bidder, thus bringing in Time Warner Cable to go against FOX. A lawyer for FOX said of the two loan options, the MLB loan is "respectful of the opportunity for Fox to realize the benefit of its contractual rights."
But, what this really boils down to is what the judge in the case feels is in the best interest. McCourt’s lawyers pounded away that there were deep concerns that if baseball did the loan, there would be more opportunity to drive McCourt out of owning the Dodgers.
“To me, this is about dollars and cents. This is not about control,” Judge Gross said just before recessing for the evening. That certainly doesn’t bode well for McCourt.
In the end, McCourt gets the DIP financing. Nothing is going to force him out of owning the Dodgers (for the moment). But, with Judge Gross’ comments, maybe we should entitle this, 4 against 1.
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, and is a contributor to Forbes SportsMoney blog.. He is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network (select his name in the dropdown provided).
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