Why did the Dodgers file Chapter 11 bankruptcy?
They filed bankruptcy on Monday because they didn’t have the money to make payroll on Thursday, yesterday. And to stop baseball Commissioner Bud Selig’s expected wrestling away of the franchise from its very controversial owner, Frank McCourt. Major League Baseball rules allow the league to end a team’s ownership if it fails to meet its financial obligations. According to the L.A. Times, the team needed about $30 million to make that payroll. Bankruptcy’s automatic stay, which applies to Chapter 11 reorganizations just as it does to consumer Chapter 7s and 13s, trumps those league rules and kept McCourt in ownership. At least for the moment.
What about the $3 billion mega-deal that McCourt had negotiated with Fox for 17 years of television rights?
Exactly one week before the bankruptcy filing, Commissioner Selig rejected that deal. Because of McCourt’s alleged self-dealing on a massive scale, the league wanted all of the $385 million upfront money from Fox to go to the team. Instead, nearly half of it was slated to go to McCourt and his estranged wife, and their attorneys, based on a very recent tentative settlement of their divorce. For the last two years, Frank and Jamie McCourt, the team’s former CEO, have been embroiled in a contentious divorce, revealing how the couple lived extravagantly on money that belonged to the Dodgers. Selig’s ruling effectively scuttled that divorce settlement as well.
So without the Fox money, how did the Dodgers meet their June 30 payroll?
By getting a $150 million debtor-in-possession loan, at a minimum of 10% interest, from a hedge fund subsidiary of JP Morgan Chase, Highbridge Principal Strategies. If lending at 10% sounds risky for a business in bankruptcy, I wouldn’t worry for them. According to the Wall Street Journal, the hedge fund was going to get a $4.5 million commitment fee, personally guaranteed by Frank McCourt, to be paid even if the Dodgers end up getting a cheaper loan for part of the money. But this was radically reduced by the bankruptcy judge to $250,000. Still, this loan comes with a super-priority lien on the Dodgers’ assets, AND puts the hedge fund ahead of the team’s regular creditors.
Last thing: who are those “regular creditors”?
The list of unsecured creditors in the actual bankruptcy petition filed on Monday in the Delaware Bankruptcy Court included most of the team’s current roster, plus:
- The largest creditor, ex-Dodger, Manny Ramirez: $20,992,086
- Continental Airlines, for jet charters: $339,403
- Bank of America, credit cards debt $316,243
- Vince Scully, legendary Dodger announcer: $152,778
- Covington & Burling, attorney fees on the Fox TV deal: $73,397
Copyright © 2011 Andrew E. Toth-Fejel