Never one to fear a seismic shift in a saga full of them, Los Angeles Dodgers owner Frank McCourt announced Monday that the team and four related companies filed for bankruptcy. The filings were made in the United States Bankruptcy Court for the District of Delaware, where the companies are incorporated. The first action in the case will be at a proceeding Tuesday during which Judge Kevin Gross will hear the Dodgers' first-day motions.
Below are some questions facing the proud franchise and its fans, and some answers based on experience in the field, research and information from people with knowledge of the situation.
Why did Frank McCourt bring the Dodgers into bankruptcy?
McCourt took the bold step of forcing the Dodgers into bankruptcy for two primary reasons. First, he was unlikely to be able to meet imminent financial obligations, and bankruptcy protects the club from immediate lawsuits. Second, bankruptcy represented the best remaining way for McCourt to keep the Dodgers out of baseball's hands.
Empowered by the Major League Baseball constitution, commissioner Bud Selig was expected to seize the club's operations if McCourt could not make payroll. The bankruptcy code's provisions are one of the few remaining walls between McCourt and Selig.
Will the Dodgers make payroll this week?
For much of the past few months, McCourt has dodged the payroll bullet. Now, blocked by MLB from consummating a lucrative TV deal, McCourt has arranged for $150 million in debtor-in-possession (DIP) financing that would allow the club to meet its obligations. On Tuesday, McCourt likely will argue to Gross that the DIP financing, while expensive, is necessary to protect the Dodgers' creditors' interests.
What is the role of the club's creditors going forward?
Ordinarily, the managers and directors of a business owe their duties to the business' shareholders. In this case, the folks running the Dodgers were, just last week, obligated to act in the club's best interests, as those served Frank McCourt's as well. Filing for bankruptcy changes everything. Now, the Dodgers must act in the team's creditors' interests first and foremost. Bankruptcy is, above all else, for the protection of creditors, not debtors. The Dodgers' decisions over the course of the bankruptcy proceeding will be judged not by whether they are good for the Dodgers, but by whether they are good for those to whom the Dodgers owe money.
What are the first steps in the club's bankruptcy?
On Tuesday, McCourt's attorneys likely will argue first that the $150 million DIP financing is necessary and appropriate given the team's circumstances. Baseball is expected to ask that it be allowed to finance the club through its bankruptcy, and McCourt probably is unwilling to tolerate that degree of intervention. Approving DIP financing is usually done as a matter of course, but it is rare for there to be an outside entity as interested and financially powerful as MLB is here.
McCourt's team Tuesday also will likely seek Gross' approval on how the club can use cash during bankruptcy. The Dodgers, through McCourt, likely will argue the club's existing practices best serve the creditors' interests.
How does Jamie McCourt feel about the Dodgers' bankruptcy filing?
She is not pleased. Superstar litigator and Jamie McCourt attorney David Boies said, "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." At the end of the day, it's probably also bad for Jamie McCourt. While the intersection of family and bankruptcy laws is a murky one, she faces the risk of not being regarded as a creditor of any of the five Dodgers entities that filed for bankruptcy. This means her potential take, if any, is largely contingent on the fate of several Frank McCourt-run businesses.
How does Bud Selig feel about the Dodgers' bankruptcy filing?
He also is not pleased. He decried the move, saying in a statement it "does nothing but inflict further harm to this historic franchise." It is important to remember that any loss suffered by baseball here is ultimately suffered by the other 29 owners, and Selig's job is to act on their behalves. Further, one potential twist in the Dodgers' bankruptcy is Frank McCourt or a potential trustee walking away from player contracts. Heading into a labor negotiation this offseason, that is the last thing Major League Baseball needs.
Can either Jamie McCourt or Bud Selig halt this process?
Neither Jamie McCourt nor baseball's commissioner was able to prevent the Dodgers from filing for bankruptcy. Barring an unusual state court order that Jamie McCourt should be immediately treated as a Dodgers shareholder despite numerous documents stating the contrary, it is unlikely she can stop this process. It's about the creditors now, and she is not one yet.
Baseball might be in a better position to influence the bankruptcy proceedings. While federal law trumps Major League Baseball's rules, Selig might be able to show that following baseball's rules is the preferable way to ensure the Dodgers' creditors are paid. Gross is not obligated to follow baseball's rules, but they might serve as guide posts. They were created with the game in mind and are known to owners. Frank McCourt's obvious counter is that baseball knew of what it now complains about for years, and its own rules should not be used to circumvent its prior approval.
What is the role of the Dodgers' TV rights going forward?
Frank McCourt and his representatives have made it clear in recent weeks that the club requires a capital infusion to remain solvent. The most significant untapped source of cash is the right to televise the team's games after the 2013 season. Baseball has rejected a deal that would solve the club's liquidity problem and allow the McCourts to settle their divorce. Frank McCourt's strategy in bankruptcy is to force through a sale of the television rights for a package providing both short- and long-term stability. Whether Frank McCourt owns the Dodgers after the bankruptcy proceedings depends on his ability to sell those rights.
How does the Dodgers' bankruptcy play out beyond Tuesday?
Assuming the proceedings are neither suspended nor dropped altogether, the case eventually will require Frank McCourt to present a plan for repaying the team's creditors while, he hopes, retaining ownership. That plan would be put to a vote of the creditors, and there are specific bankruptcy code provisions for approving or rejecting that plan. Upon the creditors' approval, the plan would go to Gross for a final decision. At every step, the creditors' interests trump all others, and the successful development and approval of a plan depends on satisfying those interests.
At the end of the day, how does the Dodgers' bankruptcy affect the fans?
In the short term, the club's filing for bankruptcy ought not to affect the product on the field. Even if Frank McCourt's DIP financing is approved, operations will continue as usual. Those die-hard fans who still attend games will not notice a difference. The Dodgers seem far enough out of contention that the club's ability to add salary at midseason likely will be irrelevant.
The greater effect is on the fans' long-term outlook. Twenty months after Jamie McCourt filed for divorce, the Dodgers remain the battleground for complex, heated litigation.
Although the courtroom is nearly 3,000 miles away this time, fans are once again left to eye Dodger Stadium and wonder when the drama gripping the proud franchise will finally be put to rest for good.
Josh Fisher is the author of the website Dodger Divorce.