Tuesday, October 18, 2011
Settlement sets up another court fight
By Josh Fisher Special to ESPNLosAngeles.com
For the second time, Frank and Jamie McCourt have announced a settlement in their divorce. Nearly two years after filing her initial paperwork, Jamie relinquished her claim to the Los Angeles Dodgers in exchange for a promise from Frank to pay her $130 million. The move comes two weeks before hearings scheduled in the Dodgers' bankruptcy case concerning the disposition of the club's television rights in 2014 and beyond.
Frank McCourt's divorce settlement isn't contingent upon the sale of TV rights, this time.
Jamie formerly opposed Frank's plan to auction off those television rights, but she will now support the plan as part of this settlement.
What does this settlement mean?
The payment terms of the settlement have not yet been disclosed, but a person with knowledge of the settlement said the payment has a set deadline, and that Frank did not provide any collateral. From a practical perspective, Frank is likely barred by law from pledging the Dodgers or related assets as collateral because of the club's bankruptcy. Should he fail to pay the amount due, Jamie would likely have to sue Frank on the terms of the settlement agreement.
Last fall, Judge Scott Gordon of the Los Angeles County Superior Court threw out the couple's marital property agreement, and another trial was expected in which Gordon would determine the Dodgers to be Frank's separate property or the couple's community property. A favorable ruling on that point may have entitled Jamie to a far greater amount than the $130 million she will receive by the settlement. However, a person with knowledge of the settlement described the deal as much simpler than litigating the remaining divorce issues.
What makes this settlement different from the last one?
Nearly four months ago, the couple reached a settlement agreement only to have it fall apart days later. The principal difference between this settlement and the one announced in June is that this time, the settlement is not contingent on baseball's approval of a future media rights deal. The previous settlement vanished when Frank could not secure a long-term rights agreement with Fox. Here, the deal is done, and Frank now has an affirmative obligation to pay Jamie $130 million by a specific date.
Frank will likely try to use the settlement to show Judge Kevin Gross, who is presiding over the club's bankruptcy, that he is getting his financial house in order. He alleges that Major League Baseball commissioner Bud Selig has capriciously and unfairly blocked moves that, according to Frank, would put the Dodgers on solid footing financially. By reaching an agreement to settle the divorce, Frank is positioning himself to argue that selling the television rights is the last hurdle between the Dodgers and long-term financial stability.
How will Frank come up with $130 million to pay Jamie?
The source of the cash to be used in the settlement is unclear. Frank argued over the summer that his monthly support obligations to Jamie were too big a burden, given his and the Dodgers' cash position, and it is hard to believe there is $130 million available. It is widely expected that Frank will have to either sell the Dodgers' future broadcast rights or sell the Dodgers altogether.
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Major League Baseball rejected a proposed rights transaction with Fox because it included an upfront payment that would be used in settlement of the McCourts' divorce rather than for team operations. If Frank cannot persuade the bankruptcy court to allow him to sell the club's television rights over baseball's objection, he may be left with no other option but to sell the team.
Whether there is $130 million in equity in the Dodgers is another pressing matter. Encumbered by hundreds of millions of dollars in enterprise debt and future tax obligations, coming up with $130 million in cash by selling the team might not be easy. There is no more splitting contemplated; Frank owes Jamie $130 million regardless of how much money he gets out of a Dodgers sale. If Frank is forced to sell the Dodgers, Jamie may well end up the wealthier McCourt.
What's at stake for Frank and the Dodgers in bankruptcy court?
Beginning Oct. 31, the parties will converge for a week of hearings in the club's bankruptcy case. Frank seeks a determination that he can go against Fox and baseball to sell the club's television rights. League attorneys argue that such a sale would breach the Dodgers' existing contract with Fox Sports, leaving the team subject to substantial legal claims, while also providing grounds for termination from the league for failure to abide by its covenants.
It's clear Frank's ownership cannot survive if the court blocks his attempt to sell the club's future broadcast rights. It is the key to his plan of reorganization, and for now, it is the only plan on the table. Baseball seeks to propose its own plan, under which the club would be sold. The league claims those television rights are the last major source of untapped revenue available to the Dodgers and that potential bidders would be much less interested in purchasing the team if an unfavorable media rights deal is in place.
For nearly two years, the Dodgers have been more noteworthy for the McCourts' troubles than the club's play on the field. While the Dodgers have two players in contention for major National League awards -- Cy Young Award candidate Clayton Kershaw and potential MVP Matt Kemp -- the two most important figures to the club's future have been judges in Los Angeles and Delaware. Now that the divorce is settled, only the bankruptcy remains. Slowly, Dodgers fans are getting closer to a resolution of the ownership drama that has gripped the franchise for 24 months.
Josh Fisher is an attorney in Kansas City, Mo., and the author of dodgerdivorce.com. Information from the Associated Press was used in this report.