In filing for bankruptcy, Dodgers will ask judge to override MLB rules

By Bill Shaikin

June 27, 2011 12 AM PT

The Dodgers have filed for bankruptcy protection, a bid by Frank McCourt to preserve his ownership of the team by prodding a judge to override the rules of Major League Baseball.

McCourt will ask a Delaware bankruptcy judge Tuesday to approve interim financing to meet this week’s payroll. McCourt would then retain immediate control of the Dodgers, with the intention of negotiating a television rights deal that would satisfy the court by paying off all creditors in full.

The bankruptcy proceedings mean the Dodgers could end a third consecutive season with no resolution to an ownership issue clouded by the divorce of McCourt and his ex-wife, Jamie.

The divorce case — nearing its two-year anniversary — revealed how the McCourts had diverted more than $100 million from the team to keep up a lavish lifestyle that included side-by-side homes in Holmby Hills and Malibu, private jet travel and his-and-hers house calls from hairdressers.

The specter of additional months — or years — of court proceedings comes as the Dodgers have sunk toward the bottom of the standings, playing many nights in front of a half-empty stadium, while McCourt jousts with Bud Selig, baseball’s commissioner, over the future of what was once the marquee franchise in the National League.

Yet, according to the statement in which McCourt announced the filing, the Dodgers will operate under bankruptcy protection with “no disruption to the Dodgers’ day-to-day business, the baseball team or to the Dodger fans.”

McCourt is fighting in court on at least four fronts — against Selig, his ex-wife, his former law firm and the family of Bryan Stow, the San Francisco Giants fan critically beaten in the Dodger Stadium parking lot on opening day.

MLB’s constitution authorizes Selig to revoke the franchise rights of an owner who files for bankruptcy, a step he hasn’t taken but has not ruled out within the near future. At the hearing, the league plans to propose alternate financing on more favorable terms, in an effort to keep McCourt from controlling the Dodgers in bankruptcy.

The Dodgers said they would ask for immediate approval of $60 million in financing. Their obligations this week alone include $20 million in current and deferred salaries and $18.7 million to fund future deferred payments.

Under baseball’s collective-bargaining agreement, the team must set up a reserve for next year’s allotment on July 1, according to the filing. Also, the subsidiary that controls the Dodger Stadium parking lots has $67 million in loans coming due at the end of this month.

As financial woes have set in, both McCourt and the team have borrowed money to meet expenses, according to the filing. Last year, the Dodgers got a $25-million advance from Fox for this year’s TV rights. And McCourt took out a $30-million personal loan from the entertainment conglomerate early this year, of which $23.5 million has gone toward payroll and other expenses.

The team “is now on the verge of running out of cash, the result of a perfect storm of events,” the filing said.

On top of the other costs, the Dodgers must stash away money to prepare for the scheduled expiration of baseball’s collective-bargaining agreement with the players’ union, the filing said. It has earmarked $17 million so far and plans to set aside another $6 million.

The team is seeking permission to borrow $150 million in short-term financing to meet expenses during the bankruptcy. The funding would come from Highbridge Capital Management, an investment firm owned by J.P. Morgan Chase & Co.

That would bring the Dodgers’ debt load to about $775 million and mire the team deeper in violation of MLB debt guidelines.

The Dodgers would pay 10% annual interest — an “extraordinarily high” rate, said Lynn LoPucki, a UCLA bankruptcy-law professor. If the team defaulted, Highbridge would have the right to recoup its money ahead of all other debtors, including players.

The team approached several potential lenders, but Highbridge Capital was the only one offering enough money in a short time, according to the filing.

“It’s a very expensive loan, but it’s a loan they can get,” LoPucki said.

Retired outfielder Manny Ramirez is the Dodgers’ largest creditor, according to the bankruptcy filing. The Dodgers owe Ramirez $21 million, followed by Andruw Jones ($11 million), Hiroki Kuroda ($4.5 million), Rafael Furcal ($3.7 million) and the Chicago White Sox ($3.5 million, for Juan Pierre).

The list of creditors includes much of the current Dodgers roster, Hall of Fame broadcaster Vin Scully ($152,778), the city of Los Angeles ($240,563 in tax debt) and two players yet to play for the Dodgers (prospects Zach Lee at $3.4 million and Alexander Santana at $499,500).

“As a lifelong Dodger fan, I’ve always dreamed of being in the company of Vin Scully, but this isn’t how I wanted it to happen,” said City Controller Wendy Greuel.

The league assured players and their agents Monday that salaries would be paid, said two people familiar with the discussions but not authorized to discuss them.

In a statement, McCourt blamed Selig for forcing the bankruptcy filing. By rejecting a proposed television contract with Fox — one McCourt said could have been worth $3 billion — he said the commissioner had jeopardized the future of the Dodgers.

“He’s turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today,” McCourt said. “I simply cannot allow the commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer.”

Selig shot back in a statement of his own, saying the Dodgers’ financial crisis “was caused by Mr. McCourt’s excessive debt and his diversion of club assets for his own personal needs.”

Added Selig: “The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise.”

The foundation of McCourt’s case rests upon whether the league can set its own rules — for debt guidelines, for the approval of television contracts, or anything else — without being subject to court oversight.

According to the bankruptcy filing, the Dodgers intend to hold a “competitive sale process” to secure a new cable television contract within 180 days.

The Dodgers’ current contract with Fox extends through 2013 and forbids the team to negotiate with any other entity before Nov. 30, 2012, according to the filing.

The Dodgers have asked the bankruptcy court to consider an auction. Time Warner Cable’s new Lakers channel would be a likely bidder, which could force Fox to choose between joining MLB in opposing an auction and risking the loss of a valuable television property.

The filing puts McCourt in the unusual position of filing for bankruptcy as a way to preserve his ownership, not to get the best deal he can in getting out.

The Texas Rangers went into bankruptcy last year, but the league and the involved parties agreed the team would emerge with new ownership.

When the Phoenix Coyotes of the National Hockey League went into bankruptcy two years ago, a judge sided with the league in rejecting a bid that would have resulted in the team moving to Canada.

“MLB may have the perception of the sanctity of its own rules, but the Dodgers are a business and the business has a cash flow,” said Thomas Salerno, the lead attorney for the Coyotes in their bankruptcy case. “It is entirely possible MLB can say, ‘We have our own solution to cash flow.’ ”

Jamie McCourt is expected to ask the bankruptcy court to consider that the filing — and the lengthy proceedings that could ensue — would devalue the Dodgers, by far the largest marital asset in a divorce that has yet to be settled.

Her attorney, David Boies, issued a statement calling the bankruptcy filing “disappointing and disturbing” and saying Jamie McCourt had been willing to settle “in a way that would preserve the value and integrity of the Dodgers.”

Boies added: “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.”

The Angels have troubles of their own this season, but all on the field. The Dodgers’ ownership saga —and Monday’s bankruptcy filing — has not escaped the notice of the Angels’ manager, an all-star catcher for the Dodgers in an era when the team’s news remained all on the field.

“What’s come out over the last two or three months has kind of numbed us to some of the things that have happened over there,” Mike Scioscia said. “I don’t pay a lot of attention to it because we have a lot of pressing things here. But when you look peripherally at it, it is shocking.”

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Times staff writers Walter Hamilton, Mike DiGiovanna, Dylan Hernandez and Kate Linthicum contributed to this report.