Bankruptcy judge charts middle ground
Decision sets the stage for a battle over television rights
The saying goes that a good compromise leaves everyone upset, but today's ruling by a federal judge in the Los Angeles Dodgers bankruptcy case may be an exception. Judge Kevin Gross, charged with deciding whether a Frank McCourt-preferred hedge fund or Major League Baseball should fund the club's operations in bankruptcy, took a middle ground: He ordered the Dodgers to accept MLB financing but declared it must be "independent of and uncoupled from Baseball's oversight and governance of the Dodgers under the Major League Baseball Constitution."
Ordinarily, the Dodgers would have had the benefit of the broad deference typically afforded debtors in choosing their financing while in bankruptcy. However, Gross cited concerns over fees due the hedge fund from McCourt if the deal was not approved. Determining the $5.25 million McCourt personally owed to the hedge fund under the deal's terms "compromised Debtors'/McCourt's independent judgment," Gross ordered McCourt negotiate with baseball instead.
McCourt's camp has already declared victory in today's proceedings. In a statement released just minutes after Gross' decision, an attorney for the Dodgers called the eventual deal between the club and baseball "both economically favorable and consistent with the Dodgers' objective of maximizing the value of the estate in the Chapter 11 process." Whether the trial concerns divorce or bankruptcy, attorneys on all sides of the McCourt/Dodgers drama have typically been optimistic following a ruling. Baseball and McCourt regard today as a victory, and neither appears entirely wrong.
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While Gross did not approve the deal McCourt proposed, he ordered one that will cost the Dodgers less money without appearing to enable a seizure of the club. The Order specifically forbids the financing from including "default triggers for violations of Baseball's rules and regulations." McCourt and the Dodgers will still be required to follow baseball's policies, but failure to do so will not seemingly allow commissioner Bud Selig to take over club operations.
MLB, of course, won the day on paper. McCourt's motion was denied, and baseball will finance the team going forward. Commissioner Selig's office also struck a public relations blow; fans weary of the ongoing, bicoastal McCourt litigation may look at MLB financing as a sign the McCourt era in Los Angeles is one step closer to coming to an end.
Whether that proves to be true depends almost entirely on the disposition of the Dodgers' television rights. The club's current pact with Fox ends after the 2013 season, and a sale or license of the rights in 2014 and beyond is an indispensable part of McCourt's plan to own the Dodgers when the club emerges from bankruptcy. A Dodgers attorney said in a statement that the team "will propose ... a competitive sale process of exclusive cable television rights" before the end of this calendar year. However, the Dodgers will find themselves in an awkward negotiating position with current partner Fox.
Under the terms of the existing television deal, the Dodgers cannot begin negotiating with anyone other than Fox until late 2012. That has led baseball to express concerns about the desirability of extensions of the Fox deal thus far proposed by McCourt. However, because of the club's bankruptcy, it may have the option to walk away from the Fox contract and sell the Dodgers' television rights competitively.
MLB will likely oppose such treatment of an important strategic partner. While today's ruling signals Gross' willingness to curtail baseball's policies to the extent necessary to achieve bankruptcy's purposes, he may not be as willing to entertain a move with potential negative impact across the game. Make no mistake, the fight over the Dodgers' ability to sell their TV rights will be as bitter and acrimonious as any thus far. The outcome will determine how much longer the Dodgers remain under McCourt ownership.
Frank McCourt's divorce from ex-wife Jamie also has yet to be fully resolved. On Aug. 10, a Los Angeles judge will rule on Frank's request for a reduction in his $637,159 monthly support obligation. Today's ruling does not appear to affect materially his arguments in that matter. A representative for Jamie declined to comment on today's proceedings.
Josh Fisher is a contributor to ESPNLosAngeles.com and the author of the blog DodgerDivorce.com.