How Rare Is A Sports Franchise Bankruptcy?

Originally published on June 29, 2011 5:50 pm
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This is enough of a mess to warrant an explainer from someone who understands bankruptcy law. So we've asked Charles Tatelbaum, who's a bankruptcy lawyer from south Florida. Welcome to the program.

M: Thank you.

SIEGEL: And first, how is the bankruptcy of the Dodgers and the way it's come about?

M: It's very rare. There have been bankruptcies of sports franchises, but they've been to handle specific issues and never with the contention with the franchise or like Major League Baseball that we have here and in the middle of the season.

SIEGEL: So what was it that was advantageous to Frank McCourt to declare bankruptcy and seek the protection of the bankruptcy courts?

M: Well, Bud Selig and Major League Baseball had tried to take control of the team, and they were becoming successful. And McCourt wanted to get, in the parlance, a home-court advantage. So he switched and had a new umpire, which would be the bankruptcy judge, to decide what was right and best for everybody.

SIEGEL: You mean, so if McCourt were to come up with some scheme for selling or restructuring the team, even though Bud Selig might be the law of Major League Baseball, his word does not overrule that of a U.S. bankruptcy judge?

M: That's right. Major League Baseball will be treated just like any other franchisor in a bankruptcy case. The judge can do anything he wants over the objection of Major League Baseball.

SIEGEL: Explain a distinction to us. When a list of creditors was published, the leading unsecured creditor of Los Angeles Dodgers was, at $21 million owed, Manny Ramirez, the player who quit after I guess flunking a drug test this year. But he's the leading unsecured creditor. What's the difference between secured creditors and unsecured creditors?

M: A secured creditor is one that has collateral, like a mortgage or a lien on something. An unsecured creditor is just someone or a company that's owed money. And unsecured creditors stand at the back of the line when it's time to get paid in a bankruptcy case.

SIEGEL: So does that mean that Manny Ramirez, with almost $21 million that he's owed by the Dodgers, could end up settling for a lot less than 100 cents on the dollar of what he's owed?

M: It could be 10 cents on the dollar, or it could be extended over 30 or 40 years. Whatever the Chapter 11 plan of reorganization is, that's what he's stuck with.

SIEGEL: Does that mean that at some point, if the Los Angeles Dodgers emerge from federal bankruptcy, that there will be the old Dodgers and the new Dodgers as legal personalities, and Ramirez won't be able to cash his checks in the same way? Or - after all, it'll be the same franchise playing in the same division of the National League.

M: It depends on the plan. There can be the old Dodgers, and it can restructure, or you could have a sale like GM did to the new Dodgers, which may have some McCourt ownership, a full McCourt ownership or no McCourt ownership.

SIEGEL: If the obligations of the Los Angeles Dodgers don't look that exotic to you as a case in bankruptcy here, how long a bankruptcy should this be?

M: It should be no more than six months. It just depends on Major League Baseball and how much litigious action there is in the case.

SIEGEL: Well, what could they do? What could they sue over?

M: Well, they could try to sue to wrest control of the Dodgers from McCourt by asking for the appointment of an independent trustee.

SIEGEL: Which is effectively what they did with the Texas Rangers.

M: That's right. And here with the allegations of money going out the door for other purposes, they may have a good case for it.

SIEGEL: Well, Chuck Tatelbaum, thanks for talking with us.

M: My pleasure.

SIEGEL: Chuck Tatelbaum is a bankruptcy lawyer from Fort Lauderdale, Florida. Transcript provided by NPR, Copyright NPR.