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MLB plays hard ball with Dodgers on TV deal

by Jamie Mason  |  Published September 27, 2011 at 9:39 AM
LADodgersMLBTV227x128.jpgMiffed about the Los Angeles Dodgers LLC's desire to get a new television deal, Major League Baseball wants to terminate the bankrupt baseball team's exclusivity to present a reorganization plan so that it can be sold to a new owner.

If the Dodgers' exclusive right to file a reorganization plan and solicit acceptances to it isn't terminated, MLB wants to force the team to assume or reject its MLB agreements.

By getting the ability to either present a rival plan or rule on the team's eventual need to comply with its regulations, MLB is trying to do one thing -- throw Dodgers' owner Frank McCourt Jr. out of the league.

Chief Judge Kevin Gross of the U.S. Bankruptcy Court for the District of Delaware in Wilmington will consider the request at an Oct. 12 hearing.

Gross will also consider the Dodgers' plans for a two-phase marketing process to license the television rights to its games for at least five years at the Oct. 12 hearing.

"Frank McCourt Jr., the debtors' admittedly cash-strapped owner--who has not himself sought bankruptcy relief--is attempting to use these Chapter 11 cases improperly as a device to cure his own personal financial woes," MLB's motion said.

MLB said the bankrupt team is using Chapter 11 to "violate their obligations to [MLB] and breach their contractual obligations" with Fox Sports, which currently has the license to broadcast Dodgers' games. The current contract gives Fox Sports the exclusive right to negotiate and offer a new deal through 2012, counsel to MLB, Thomas Lauria of White & Case LLP, said.

"The Commissioner will not approve a sale of the debtors' media rights at this time because doing so is not in the best interests of the debtors, MLB or the 29 other MLB clubs," MLB said in court papers.

A sale of the Dodgers' media rights without MLB approval would subject the debtor to "severe discipline, including possible termination from the league," court papers said.

According to Lauria, McCourt could be kicked out of the league. If the existing owner is kicked out, the team would be transferred to someone else, he said, adding that the team wouldn't be removed from the league.

The sale of the media rights requires approval from MLB Commissioner Bud Selig. The commissioner would not approve the sale of the media rights at this time because "the team is in very weak financial condition, and under those conditions, MLB wouldn't approve any transaction that would take money out of the team," Lauria said.

MLB wants to terminate the debtor's exclusive right to file a plan because it believes the Dodgers' only path to emerge from Chapter 11 is through the sale of the team.

MLB's plan would sell the company to a well-capitalized owner that will be able to fix the team's problems and position it for success in the future, MLB said.

According to Lauria, "McCourt doesn't have the wherewithal to own and operate the Dodgers because his personal resources are completely depleted."

MLB is concerned that the funds from the media rights sale will be earmarked for McCourt's personal use, Lauria said.

"McCourt simply refuses to pursue a reorganization strategy that can produce a confirmable plan for the debtors in these Chapter 11 cases," MLB said in court filings.

If exclusivity isn't terminated, MLB wants to force the Dodgers to assume or reject its agreements with MLB. The Dodgers would need to cure all breaches in order to assume its MLB agreements, which it can't do if it enters into a media rights sale over objections from MLB.

"There is no basis for delaying the assumption or rejection of the [MLB] agreements," the MLB motion said. "Without the [MLB] agreements, the Dodgers do not exist as an MLB club or a professional sports enterprise, and the value of the debtors' estates is nominal."

The Dodgers are delaying the assumption of its MLB agreement so that the team won't have to comply with it while in bankruptcy, Lauria said, adding that MLB would have to consent to the assumption. MLB isn't going to consent to its agreements being assumed without terms satisfying its concerns, he said.

The Dodgers responded to MLB request, calling the motion "meritless" and "another step in the [MLB] Commissioner's continuing effort to cause the sale of the Dodgers notwithstanding that the Dodgers can and will be successfully reorganized," the Dodgers' statement said.

According to the statement, "the inaccuracies in the 'facts' recited in the motion and the false characterization of other matters are offensive and too numerous to mention. MLB's motion also ignores the fact that the Commissioner has treated the Dodgers differently from other Major League Baseball Clubs and that the Commissioner's actions starved the Dodgers of cash and caused the bankruptcy filing."

The Dodgers plan to file a response in bankruptcy court early this week, the statement said.

Through the sale of its media rights, the Dodgers would license the rights to telecast roughly 150 preseason and regular season games each year beginning with the 2014 MLB season. The deal would have at least a five-year term.

Licensing the telecast rights would provide the baseball team with enough liquidity to pay all creditors in full, repay its $150 million debtor-in-possession loan from MLB, meet its operational needs over a longer term and provide a significant return to its equity holders, court documents said.

Under the proposed marketing process for the telecast rights, the Dodgers would first negotiate exclusively with Fox Sports for up to 45 days. In phase two, the debtor would open up negotiations to all interested parties for 60 days and then hold an auction.

If the franchise reached a deal with Fox Sports during the first phase and the potential buyer requested a breakup fee or expense reimbursement, the Dodgers would file a motion for approval of bidding protections.

The franchise would file a notice at the end of the first phase, which would reveal if a deal had been reached with Fox Sports.

If the Dodgers had struck a deal that made Fox Sports a stalking horse, rival bidders would have to match the bid plus any bid protection. Fox Sports could bid in the second phase even if it failed to come to terms with the Dodgers in the exclusive negotiating window.

The franchise would hold an auction seven business days after the bidding deadline if it received at least two qualified bids, or if it received at least one qualified rival offer and Fox Sports requested an auction. Bidding at the auction would open at the highest bid plus $5 million, less any bidding protections.

The Dodgers, MLB and the debtor's official committee of unsecured creditors would confer within two business days of the auction to discuss any concerns regarding the results, court papers show.

Shortly before filing for Chapter 11 on June 27, the Dodgers struck a 14-year deal with a Fox Sports affiliate, Fox Sports Net 2 LLC, but Selig did not approve the transaction.

According to court papers filed by MLB, "MLB's detailed reasons for rejecting the transaction included among other things, that a long-term deal, with an accelerated upfront cash payment being diverted to Mr. McCourt to pay off his personal debts and fund his lifestyle, was not in the best interests of the Dodgers or MLB."

The team blamed the bankruptcy filing on Selig's refusal to approve a television deal with Fox Sports, owned by Rupert Murdoch-controlled News Corp., as well as underlying cash flow issues stemming from sliding attendance, some $22 million in deferred compensation due to players and the need to share its revenue with other clubs.

The team has paid $10 million in deferred compensation this year and was scheduled to make an additional $10.5 million payment by June 30, court filings said.

The Dodgers also said the appointment of a receiver by MLB in April "generated adverse publicity."

MLB, however, has faulted McCourt for the bankruptcy case.

"Having siphoned off well over $100 million in club revenues and obviously unable to properly distinguish between his personal interests and those of the club, Frank McCourt has driven the Los Angeles Dodgers to a liquidity crisis so severe that absent extraordinary measures, the club would be unable to make its payroll," MLB said in court filings.

The Dodgers have a storied history that dates to the late 1800s. The team was originally located in Brooklyn, N.Y., and derives its name from "fans who used to 'dodge' that city's trolleys." Later, the franchise broke the color barrier in baseball when it signed Jackie Robinson in 1945. In 1958 it moved to Los Angeles.

The Dodgers have been playing in their current stadium since 1962. They have won six World Series championships, most recently in 1988.

McCourt bought the team from Fox Entertainment Group Inc. in early 2004. McCourt paid $330 million for the team and spent a further $100 million to acquire its stadium and real estate surrounding the stadium, court filings said.

McCourt's wife, Jamie, has also asserted an ownership interest. The couple are in the middle of messy divorce proceedings.

According to MLB court filings, Jamie McCourt would like the team to be sold.

Debtor counsel Bruce Bennett, Sidney Levinson, Martin Bienenstock and Philip Abelson of Dewey & LeBoeuf LLP and Robert S. Brady of Young Conaway Stargatt & Taylor LLP could not be reached for comment.

Counsel to Major League Baseball is also Mark Thomas, Bradley I. Ruskin and Jeffrey Levitan of Proskauer Rose LLP; John K. Cunningham and Glenn Kurtz of White & Case; and Jeffrey M. Schlerf of Fox Rothschild LLP.

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Tags: Bud Selig | Chapter 11 | debtor counsel | Dewey & LeBoeuf LLP | Fox Entertainment Group Inc. | Fox Rothschild LLP | Fox Sports | Frank McCourt Jr. | Jamie McCourt | Kevin Gross | Los Angeles Dodgers | Major League Baseball | MLB | Proskauer Rose LLP | stalking horse | television rights | Thomas Lauria | U.S. Bankruptcy Court | White & Case LLP | Young Conaway Stargatt & Taylor LLP

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