Dodgers file for bankruptcy protection

Updated: June 28, 2011, 10:54 AM ET
ESPN.com news services

LOS ANGELES -- Facing the painful prospect of stiffing players and employees, the Los Angeles Dodgers filed for bankruptcy protection in a Delaware court Monday, adding to off-the-field troubles that have hobbled one of baseball's most storied franchises and setting up another showdown with Major League Baseball.

Team owner Frank McCourt, upset baseball commissioner Bud Selig rejected a multibillion-dollar TV deal last week, now hopes a federal judge will approve $150 million in financing to be used for daily operations and give him more time to seek a more favorable media contract. A hearing is set for Tuesday at 1:30 p.m. (EDT) in Wilmington, Del.

The move by a cash-starved McCourt comes just days before he was expected to miss team payroll Thursday and possibly be confronted with an MLB takeover. The filing also means it's unlikely a resolution over team ownership, a fight that began two years ago when McCourt and his ex-wife and former team CEO Jamie McCourt decided to divorce, will be found any time soon.

Selig issued a statement condemning Monday's development.

"The Commissioner's Office has spent the better part of one year working with Mr. McCourt and his representatives on the financial situation of the Los Angeles Dodgers, which was caused by Mr. McCourt's excessive debt and his diversion of club assets for his own personal needs. We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of Baseball would not be acceptable.

"My goal from the outset has been to ensure that the Dodgers are being operated properly now and will be guided appropriately in the future for their millions of fans. To date, the ideas and proposals that I have been asked to consider have not been consistent with the best interests of Baseball. The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise."

Legal observers expect MLB to contest McCourt's request for filing bankruptcy, arguing the dispute should remain within the confines of baseball and the league's constitution allows Selig to take control of a team that seeks Chapter 11 protection.

The main issue is whether "the bankruptcy court maintains control of the proceedings or acquiesce to baseball," said Edward Ristaino, who chairs the sports practice at the law firm Akerman Senterfitt. "The courts recognize the special interests of the commissioner and give him great deal of deference. My sense is that won't happen very quickly at all."

In court documents, team vice chairman Jeff Ingram cited a significant drop in attendance, contributing about 10 percent of Dodger revenues to the league's sharing program last year and paying about $22 million in deferred compensation as reasons for filing bankruptcy.

"To date, LAD has remained current in its obligations," Ingram wrote. "However, LAD is now on the verge of running out of cash, the results of a perfect storm of events."

McCourt has taken out loans to stay afloat this season but his mounting financial problems were expected to balloon this week, when he owed tens of millions of dollars to meet payroll and other obligations.

About $20 million is slated for current and deferred compensation by Thursday, while more than $18 million is required as a reserve to prefund money to be paid to players in 2012 under terms of the collective bargaining agreement, court documents show.

The bankruptcy filing lists assets of up to $1 billion and debts up to $500 million. The Dodgers are obligated to pay $92.5 million in guaranteed player contracts, not including signing bonuses, and the team has nearly 300 full-time employees.

The bankruptcy filing also noted a $67 million loan taken out against the parking lots at Dodger Stadium was set to mature on Thursday. It was expected McCourt was going to refinance the loan.

"He's clearly running very low on options right now," said David Carter, executive director of USC Sports Business Institute. "What seems to be the case is a high-stakes chess game between Frank McCourt and MLB, and he's running out of pieces. This is one of the uglier weeks in Dodger history."

Among the 40 largest unsecured claims, totaling about $75 million, are former Dodgers slugger Manny Ramirez at nearly $21 million; Andruw Jones at $11 million; pitcher Hiroki Kuroda at $4.4 million; and the Chicago White Sox, which share a spring training facility with the Dodgers in Arizona, at $3.5 million. Longtime Dodger announcer Vin Scully is owed more than $150,000 as part of his contract, court documents show.

Dodgers officials said they reached out to numerous banks and investors and while several parties expressed interest in providing financing, they received only one commitment from Highbridge Principal Strategies. If approved by a judge, the financing would come in two chunks from the investment firm -- $60 million up front with the remainder being paid at a later date.

Tripp Kyle, a spokesman for the firm, declined to comment about the reasons the company decided to lend McCourt the money.

According to Bloomberg, the Dodgers must pay a hefty 10 percent interest rate plus fees on the loan, and Highbridge receives first claim on the Dodgers assets.

The Players Association has promised all Dodgers players, along with former players who have deferred money due, that they'll be paid Thursday as scheduled. In an email to all affected players, union chief Michael Weiner wrote Monday that the Players Association "has been assured, as recently as (Monday) afternoon, that all contractual obligations of the Dodgers to present and former players will be honored."

In the email, a copy of which was obtained by ESPN.com, Weiner also told players that the union had "retained experienced bankruptcy counsel to ensure the players' interests are fully protected throughout this legal process." Weiner said the union would have attorneys on hand for the first day of courtroom proceedings Tuesday.

Finally, Weiner said in the email that, "as we did with last year's Texas Rangers bankruptcy, we will do all we can to ensure that these proceedings don't interfere with the Dodgers' ability to compete this year.

"We can make no guarantees here," he went on, "but, whenever possible, we will emphasize the importance of permitting the Dodgers to continue to operate effectively."

(Bud Selig has) turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today. I simply cannot allow the Commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer.

-- Frank McCourt, in statement after bankruptcy filing

A source also confirmed to ESPN The Magazine's Tim Kurkjian that Dodgers players will be paid Thursday.

The Dodgers are meandering below .500 this season. First-year manager Don Mattingly acknowledged it was odd to think of the team filing for bankruptcy.

"Obviously a franchise as storied as we are and entrenched in the history of the game, in a big city like LA, a great fanbase, to look at that and say this is happening," Mattingly said before Monday night's 15-0 win at Minnesota. "It is different."

Dodgers left-hander Clayton Kershaw said he doesn't think the situation is responsible for the team's struggles on the field.

"I really don't think so. You see the guys in this room, you see guys like Matt (Kemp) and Andre (Ethier), and James (Loney) is hitting really well right now too," he said. "We have all the pieces, and that is the frustrating part. We just haven't put wins together like we should. I definitely don't think what is happening has anything to do with a poor performance on the field."

Mattingly said: "I know there is a lot going on and a lot of talk about it. But again, to really say that is causing us to not get a hit with men in scoring position or to not make a pitch with a guy in scoring position or anything like that, I think it's just not true."

McCourt has defended his running of the team, saying he had made it profitable and successful. He also said the Dodgers have tried for almost a year to get Selig to approve the Fox transaction, which would have provided McCourt with $385 million up front and was vital to a binding settlement reached earlier this month by him and Jamie McCourt.

According to court documents filed by McCourt, when Selig rejected the Fox deal on June 20 the first reason he gave was his preference that the Dodgers wait until after the expiration of the Fox's exclusive right of first negotiation with the club in December 2012 so the Dodgers could ostensibly create a bidding war with other cable providers.

"The Dodgers have delivered time and again since I became owner, and that's been good for baseball," McCourt said in a statement. "We turned the team around financially after years of annual losses before I purchased the team. We invested $150 million in the stadium. We've had excellent on-field performance, including playoff appearances four times in seven years.

"And we brought the Commissioner a media rights deal that would have solved the cash flow challenge I presented to him a year ago, when his leadership team called us a 'model franchise.' Yet he's turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today. I simply cannot allow the Commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer. It is my hope that the Chapter 11 process will create a fair and constructive environment to get done what we couldn't achieve with the Commissioner directly."

Bob Daly, who was managing partner of the Dodgers when News Corp. owned the team, said Monday that McCourt had been "an embarrassment to this franchise."

"Fox, myself, and MLB made a horrible mistake in not doing the proper due diligence on Frank McCourt," Daly said. "I helped get him approved and for my piece, I feel very bad about it."

Jamie McCourt released a statement Monday through her representatives.

"Today's bankruptcy filing is disappointing and disturbing. During the years Jamie McCourt was CEO of the Dodgers, the team's financials, although heavily leveraged, were stable and improving," David Boies said in the statement released by Hiltzik Strategies. "In the almost two years since Mr. McCourt fired her and took over management of the Dodgers, Mrs. McCourt has made repeated proposals to resolve her right to 50 percent of the team in a way that would preserve the value and integrity of the Dodgers for Dodger fans, for Los Angeles, and for her family. She has continued to do so despite the many personal attacks against her by Mr. McCourt and his representatives.

"The rule or ruin philosophy that appears to have motivated today's filing is bad for everyone who cares about, or has an interest in, the Dodgers."

Former Dodgers manager Joe Torre also reacted to the news.

"It's sad. The Dodgers were a very storied franchise in my years in Brooklyn growing up and as a player going out to LA," he said. "I know the decisions that the commissioner made certainly weren't easy for him to make given that he understood that the, he felt that the organization and the city deserved better than that."

In April, MLB took the extraordinary step of assuming control of the troubled franchise. Former Rangers president Tom Schieffer was appointed to monitor the team on behalf of Selig, who said he took the action because he was concerned about the team's finances and how the Dodgers are being run.

Just days ago, Steve Soboroff, the local civic leader and political operative who was hired by Frank McCourt as vice chairman one day before Major League Baseball took over the team, resigned on Saturday, citing that MLB oversight as the reason.

In his resignation letter to McCourt, Soboroff wrote that "an unanticipated action by the commissioner of Major League Baseball resulted (understandably) in elevating the resolution of 'control and ownership' issues to top priority, as it remains to this day. As a consequence, it is not possible for me to effectively work on the very initiatives and contributions that you had hired me to implement."

Soboroff was hired in mid-April primarily to, in the words of a news release issued at the time, "(lead) efforts to improve the fan experience at the stadium."

The Dodgers' filing follows that of the Rangers, who sought Chapter 11 protection in May of last year. The Rangers' filing successfully pushed through Hall of Fame pitcher Nolan Ryan's $590 million bid to buy the team. Creditors had stalled the deal for months, arguing that the team had rejected higher offers.

The Baltimore Orioles in 1993 were also sold in federal bankruptcy court. In 2009, the Chicago Cubs went into bankruptcy for several weeks as part of the sales process after Tribune Co. agreed to sell the team to the family of billionaire Joe Ricketts.

McCourt has maintained he met the criteria set forth by baseball officials in order for the TV contract to be approved and would amend the conditions if needed. The Dodgers' current TV deal with Fox expires in 2013.

The divorce settlement, now voided because of Selig's decision, called for a one-day "characterization" trial Aug. 4 to determine if title to the Dodgers is in Frank McCourt's name or if the team should be considered community property and sold. Robert Sacks, an attorney retained by Frank McCourt, said the trial may be shelved and Superior Court Judge Scott Gordon could decide how to handle the former couple's assets at a later date.

Gordon ruled in December that a postnuptial marital agreement that gave Frank McCourt sole ownership of the Dodgers was invalid. That cleared the way for Jamie McCourt, who served as the team's CEO and was fired by her ex-husband two years ago, to seek half the team under California's community property law.

Information from ESPNLosAngeles.com's Tony Jackson, ESPN.com's Jayson Stark and The Associated Press contributed to this report.

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