Dodgers' financing plan rejected
DOVER, Del. -- A Delaware judge on Friday rejected the Los Angeles Dodgers' proposed $150 million bankruptcy financing plan, directing the team to instead negotiate a loan deal with Major League Baseball.
Judge Kevin Gross said in an eight-page order that the team had failed to show the terms of its secured financing with hedge fund Highbridge Capital were fair, given the more favorable financial terms in MLB's unsecured loan offer.
The Dodgers previously rejected MLB's offer and had refused to negotiate with the league, arguing that its financing proposal was simply an attempt by baseball commissioner Bud Selig to take control of the team and force a sale.
While acknowledging an "underlying feud" between Selig and Dodgers owner Frank McCourt, Judge Gross said he was basing his decision on debtor-in-possession, or DIP, financing on the narrowest grounds possible and leaving arguments over the team's management for later.
"The court finds that the Baseball loan is not a vehicle for Baseball to control debtors," wrote Gross, who ordered the team to negotiate with MLB cooperatively and in good faith.
"Debtors and Baseball are entitled to the other's full cooperation in finalizing and administering an unsecured loan facility," he said.
Rob Manfred, MLB's executive vice president for labor relations and human resources, issued a statement praising the ruling.
"We are pleased that the court has agreed with our position with respect to providing the DIP financing and shares our long-standing view that the proposal put forth by Major League Baseball is the best option for the Los Angeles Dodgers franchise," Manfred said. "Major League Baseball remains committed to serving the best long-term interests of the Dodgers and their fans."
Bruce Bennett, an attorney for the Dodgers, said he had spoken with McCourt, and that the Dodgers owner was satisfied.
"He was pleased that the financing will not have any impact on the Dodgers' reorganization strategy," Bennett said.
Bennett said the judge's decision addresses concerns about provisions in MLB's initial loan offer that the team viewed as potentially troublesome.
"Our concerns were about terms and conditions, and I think we've succeeded in getting terms and conditions we can live with," he said.
The Dodgers already have asked the league for a draft credit agreement reflecting the judge's requirements, said Bennett, adding that the loan agreement could be wrapped up as early as next week.
Thomas Lauria, an attorney representing Selig, said the league will be providing a revised loan agreement "in the very near future."
"We are very anxious to get this aspect of the case completed and behind us," said Lauria, adding that he was gratified that the judge recognized that the league wants to protect the Dodgers and ensure that the team is successful.
Bennett said that once a loan agreement with the league is reached, Highbridge will be repaid for advances it made to the Dodgers under interim financing approved by the judge, and that Highbridge also will be entitled to a $250,000 termination fee.
In rejecting the Highbridge proposal, the judge noted that Dodgers executive Jeffrey Ingram had testified that, despite the acrimony between Selig and McCourt, he did not believe the league was hostile to the Dodgers.
"It is clear that Baseball needs and wants the Dodgers to succeed, and the debtors are best served by maintaining Baseball's good will and contributing to the important and profitable franchise group under the commissioner's leadership," Gross wrote.
The judge made clear, however, that the league's loan to the Dodgers must be "independent of and uncoupled from" MLB's oversight and governance of the club under the league's constitution.
The Dodgers filed for bankruptcy protection on June 27, blaming Major League Baseball for refusing a week earlier to approve a multibillion-dollar TV deal with Fox Sports that McCourt was counting on to keep the troubled franchise afloat and meet payroll deadlines at the end of June.
Selig's rejection of the TV deal came after he took the extraordinary step in April of assuming control of the troubled franchise and appointing a monitor to oversee its day-to-day operations, saying he was concerned about the team's finances and how the Dodgers were being run.
Bennett reiterated Friday that the Dodgers are moving forward with plans to market exclusive cable television rights, while giving "due consideration" to the team's existing Fox contract.
"The Dodgers expect that a sale or license of exclusive cable television rights will fully resolve all of the Dodgers' financial challenges as well as generate value for holders of the equity interests in the debtors," said Bennett, who plans to file a motion late next week to establish a process for marketing the media rights.
At a court hearing Wednesday, Dodgers attorneys pointed out that Selig on three occasions this year has rejected revised media rights deals with Fox.
It's unclear how the league will respond to efforts to sell the media rights as part of the bankruptcy case, but Lauria noted that the judge's decision does not mean MLB can't enforce its rules and regulations.
"He didn't say we have to waive our rights," said Lauria, who at Wednesday's hearing accused McCourt of violating league rules by filing for bankruptcy protection and entering into the proposed financing arrangement with Highbridge without league approval.
Lauria also suggested that McCourt, battling with his ex-wife, Jamie, over ownership rights to the team and other assets, was trying to use the bankruptcy to reap benefits for himself as major shareholder of the Dodgers.
Bennett, meanwhile, urged the judge to approve the Highbridge financing arrangement, equating the league's financing offer to "a deal with the devil."
The decision comes after the Los Angeles Times obtained an 11-page letter in which Selig outlines the reasons that he shot down the Dodgers' proposed television deal with Fox and expresses concerns about an Internal Revenue Service investigation.
One big reason Selig cites for shooting down the TV deal is a lack of competition. The team's current deal with Fox expires in 2013 and the Dodgers cannot negotiate with other suitors until Nov. 30, 2012. Selig said that McCourt was willing to give away bargaining leverage because of a "desperate need for immediate cash."
"No other owner has sacrificed so much of his team's future for an immediate payoff," Selig wrote, according to the paper.
With McCourt and ex-wife Jamie embroiled in an ugly divorce, the Fox deal was supposed to infuse $385 million in cash into the financially strapped Dodgers. Selig argued that while that money might help pay down some debts, the franchise could be in another financial meltdown by 2013. According to the letter, Selig was shocked that McCourt reported only $264,000 in liquid assets as of Dec. 31, 2010.
"Despite your pledge to make the Dodgers the 'best franchise in baseball,' you are not selling the club's media rights ... to improve the club's on-field performance, renovate Dodger Stadium or enhance the fan experience," Selig wrote, according to the Times.
According to the letter obtained by the Times, Selig also learned that McCourt is being investigated by the IRS, specifically his tax returns from 2006 to 2008. In a divorce filing, Jamie McCourt claimed that the couple did not pay federal or state income tax from 2004 through 2009.
"What is more worrisome to me, however," Selig wrote, according to the Times, "is the thought of one of our owners engaging in a prolonged public dispute with the IRS."
Selig's letter says that McCourt knew that the Fox deal wasn't a good one. According to the Times, Selig cites the divorce testimony of Ingram, the Dodgers' assistant treasurer. He quoted McCourt as saying in 2009 that the Fox deal would "hamstring the business in the future."
Information from The Associated Press was used in this report.