Bankruptcy protection sought by Dodgers: Will it affect ownership of the team?

Frank McCourt, the financially-strapped owner of the Los Angeles Dodgers, has thrown Major League Baseball a curveball in the battle over who will own the team: On Monday he declared Chapter 11 bankruptcy.

The bankruptcy filing, combined with emergency funding of $150 million lined up by Mr. McCourt, means that the Dodgers will be able to meet their payroll this week – something that was in doubt. In addition, the filing gives McCourt 120 days to present his own plan to emerge from bankruptcy.

Despite the move by McCourt, some sports analysts believe it’s MLB who will get the win in the ninth inning. They anticipate MLB will eventually take over the franchise and look for a new owner. And, even if that owner is from another city – say, Dallas – the analysts expect the Dodgers will remain in Chavez Ravine for the foreseeable future.

“Declaring bankruptcy will delay by a few months the inevitable,” says Patrick Rishe, associate professor of economics at Webster University and an expert on sport finances. “The inevitable is MLB taking over the franchise.”

Of course, McCourt views the move differently. In a press release accompanying the bankruptcy filing, McCourt says Baseball Commissioner Bud Selig “has turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today.”

McCourt will now ask the bankruptcy court to approve a deal already rejected by MLB last week – a $3 billion media rights transfer between the Dodgers and Fox.

“The deal with Fox demonstrates that the Dodgers have enormous value which substantially exceeds the team’s current and future liabilities,” says Bruce Bennett, the Dodger’s bankruptcy counsel from Dewey & LeBoeuf in Los Angeles.

However, bankruptcy lawyer Benjamin Feder of Kelley Drye & Warren in New York says McCourt and his lawyers face a “very uphill battle.”

One of the key hurdles for McCourt to succeed is to get a court to basically suspend MLB’s by-laws, which give it enormous power over who owns a franchise and how they run it.

“The bankruptcy courts in the recent past have upheld the League constitution,” says Andrew Zimbalist, a professor at Smith College and an expert on the finances of baseball.

This is not the first time an embattled sports owner has gone to bankruptcy court, points out Mr. Feder. Last year the Texas Rangers baseball franchise, which had a very heavy debt load, went into bankruptcy. After heated negotiations with MLB they ended up putting the team up for auction.

“The auction was highly compressed over several weeks when normally it would be several months,” says Feder. He says the speed of the auction, which was won by the Nolan Ryan group favored by MLB, meant some of the legal issues were never squarely addressed.

However, Feder points out that in 2009, the Phoenix Coyotes hockey team filed for bankruptcy and tried to sell themselves to Jim Balsillie, the Canadian developer of the Blackberry. The NHL was opposed to the sale. The bankruptcy court sided with the NHL, which opposed Mr. Balsillie’s plan to move the team to Canada.

Feder expects MLB will be an active participant in the Dodgers’ bankruptcy proceeding since he thinks their ultimate goal “is to get McCourt out of baseball as soon as possible.”

McCourt is in the middle of a messy divorce from his wife, Jamie, who has asked for 50 percent of the team. In addition, according to some media reports, there have been questions about whether McCourt has used Dodgers’ money for himself.

“The Dodgers are in deep trouble right now,” says Mr. Zimbalist, of Smith College. “They have been mismanaged by McCourt financially and operationally. Having him there prolongs the agony.”

Zimbalist says the final straw came early in the season when a San Francisco Giants fan was nearly killed by Dodger fans after one of their games. The LAPD have now taken over security.

In his press release about his filing, McCourt says the Chapter 11 process “provides the path on which to position the Los Angeles Dodgers for long-term success.”

Feder, however, says McCourt’s move “is the type of step you take when you have nothing left at this point.”