Salerno & Jordan Kroop
On November 1, 2011, Frank
McCourt (the ultimate owner of the storied Dodgers baseball team) and Major
League Baseball ("MLB") announced a
deal in principle that would end an extraordinary battle royale in the Dodgers' Chapter 11 proceeding filed a mere four
months earlier in Wilmington. McCourt filed the Chapter 11 to seek Bankruptcy
Court approval for an auction of the Dodger's media rights over the objection
of MLB. In a very public spat pitting
McCourt against his soon to be ex-wife, Bud Selig and Dodgers fans everywhere,
MLB rejected a broadcast deal between
McCourt at Fox Sports ("Fox") for
the future broadcast rights for Dodgers games which has been reported as being
worth north of $3 billion because a large portion of the up front cash being
paid under the deal (about $173 million or so) was being paid to Jamie McCourt
as part of a divorce settlement resolving
who owns the team. On June 20, 2011, Selig invoked the rarely used "best
interests of baseball" clause in rejecting the deal, two months after
appointing Tom Shaffer as a trustee to oversee day to day operations of the
team after McCourt takes out a $30 million loan to make payroll. The vitriol of
the bankruptcy proceeding has been noteworthy, with dirty laundry and tales of
drunkenness and cruelty being aired for all to see-a spectacle with all the
subtlety of Lifestyles Of the Rich and Famous meets Cage Fighting Tonight. The public
excoriation of McCourt by LA fans has had all the intensity of a World Series
Game 7 of teams that have been bitter historic rivals. Good theater, certainly.
bankruptcy was initially filed in late June, McCourt steadfastly took the
position he was intending on keeping ownership of the team, and filed a motion
seeking to have the Bankruptcy Court oversee an auction of the media rights,
thereby breaking the iron fisted veto of MLB in the interests of greater return
to creditors. MLB, conversely, took the position that its decisions to reject
the media contract were not reviewable by any Court under the contractual
restrictions agreed to by McCourt when he acquired the team in 2004
(ironically, from News Corp. which owns Fox). This led to a flurry of
litigation, with MLB filing a motion to allow it to file its own plan (which
would involve a MLB supervised sale of the team), and McCourt seeking discovery
of MLB/Bud Selig to demonstrate that Selig was acting in an arbitrary and
capricious manner in the way he was treating McCourt (by obtaining evidence
that Selig was treating other financially distressed teams-of which there are
quite a few---more favorably). Ultimately, Bankruptcy Judge Gross set up a
four-day evidentiary hearing set to begin on October 30, 2011. The hearing was
continued for 30 days while MLB and McCourt talked about a possible resolution.
On November 1, 2011, a settlement was announced (with scant details), but
ultimately it involved a structure and protocol for the sale of both the team
and the media rights.
the only motion that has been filed with the Court involves what is presumably
the structure of the deal that will allow for a Court-supervised auction of the
media rights. Fox had taken serious exception to any sale process that impairs
its exclusivity over the rights through 2013. On Saturday, November 12,
2011, the Dodgers filed its Amended Motion of Los Angeles Dodgers LLC to Approve Marketing Procedures for
Licensing of Telecast Rights (the "Amended Motion"), outlining what
is presumably the terms of the deal with MLB at least as to the auction for the
media rights. The Court has not yet set this for a hearing.
A. Background and Relief Sought
Through the Amended Motion, the Dodgers are
seeking to license their post-2013 telecast rights to the highest bidder
for at least a 5-year period. Notwithstanding, any proposed sale of the
telecast rights is expressly subject to final approval by the buyer(s) that
eventually purchase the team as determined by a separate marketing and sale
process under a plan. It is the Debtors' position that marketing the
telecast rights will demonstrate to potential team buyers the substantial value
of the post-2013 telecast rights (which constitute a large share of the team's
overall value). The Dodgers are auctioning off the post-2013 rights to blunt
any argument by Fox that it will be prejudiced (at least in economic terms),
and also hope this will drive up the
price people will pay for the team when the sale protocol is announced.
The Amended Motion makes clear Fox's opposition
and claims that Fox is actively and publicly using the threat of litigation to
intimidate the Debtors and prospective licensees of the telecast rights and
purchasers of the team. In short, the Debtors allege that Fox wants to
minimize the value of the post-2013 licensing rights in order to decrease
what Fox will have to pay for such rights should it be the successful bidder.
B. Marketing Procedures
The marketing procedures for the broadcast rights
proposed by the Amended Motion are somewhat complicated and essentially give
Fox both an exclusive negotiation period, a right of first refusal, and a
right to match less favorable offers.
1. Exclusive Fox Negotiation Period - For the first 45
days (the "Fox Exclusive Period") after entry of an order
approving the Amended Motion, the Debtors will negotiate exclusively with
Fox with respect to licensing for the post-2013 period. If the Debtors and Fox
reach a deal (and if such deal is approved by MLB and the prospective team
owner), the Debtors will not solicit other offers or engage in negotiations
with others for the post-2013 broadcast rights.
2. Fox Final Offer - If the Debtors and Fox don't
reach a deal w/i the Fox Exclusive Period, the Debtors will be permitted to
solicit offers from and negotiate with third parties, provided, however,
that the Debtors must make Fox a final written offer (the "Fox Final
Offer"). The Debtors must make the Fox Final Offer within five days of
expiration of the Fox Exclusive Period, and Fox then has 30 days to accept the
Fox Final Offer. If Fox does not accept the Fox Final Offer, the Debtors
are entitled to enter into a license agreement with any other party (subject of
course to approval by MLB and the prospective team owner).
3. Right to Match Less Favorable Offers - If the Debtors and
Fox do not reach an agreement during the Fox Exclusive Period, and if Fox does
not accept the Fox Final Offer, then any offer (whether made by the Debtors to
a third party or the other way around) which is less favorable to the Debtors
than the Fox Final Offer, must be presented to Fox prior to acceptance and Fox
has the right to accept such less favorable offer (the "Less Favorable
Offer Matching Right") within 10 days. If Fox exercises the Less
Favorable Offer Matching Right, Fox has the right to pay equivalent cash value
for any non-cash consideration in the to-be-matched less favorable offer.
It is noteworthy
that a section in the Amended Motion entitled "The Rights of
Prospective New Owners that Do Not Approve a Proposed Telecast Rights Agreement
with Fox, If Any" is heavily redacted. Also, assuming an order is
entered approving the Amended Motion, the Debtors will file a motion to
estimate any damages alleged by Fox as a result of shifting the time period for
negotiating the post-2013 telecast rights, or any cure payments to assume the
existing Fox contract should be capped at zero, setting the stage for yet
another major battle in the case should Fox lose the broadcast rights.
It will be very
interesting to se the second piece of this solution-the plan that will outline
the procedure and process for selling the team itself. Setting up a two-part
auction-where the media rights are auctioned separately from the team,
certainly has the potential for maximizing the value of the whole package.
Early reports are predicting the price of everything could be north of $1
billion-an extraordinary sum when one considers McCourt purchased the team in
2004 for $421 million, which at that time was a record price for a professional
sport team. The speculative list of potential buyers grows daily-but that's
a topic for another post.
 On November 7, 2011, Fox filed a pleading with the Bankruptcy Court
reserving all of its rights as it said it had been excluded from the negotiating
process, but it would vigorously defend its exclusivity under the existing
contract through 2013. From Fox's perspective, losing the Dodgers' broadcast
deal could be catastrophic. Fox has lost the broadcast rights for the LA Lakers
to Time Warner after the 2012 season (should there even be a season), and also
lost the broadcast rights to USC/UCLA games to the upstart PAC-12 Network.
Losing the Dodgers broadcast rights would complete a trifecta of lost deals for
 The dynamics of bankruptcy cases do indeed produce strange bedfellows
and marriages of convenience. When the case was filed in June 2011, Fox was
McCourt's "white knight"-now, Fox is yesterday's news ("what have you done for
 A price of $1 billion would set a new milestone for a professional
sports team. The current record is the $845 million paid for the Cubs in 2009.
Thomas J. Salerno, Jordan A. Kroop and Hon.
Redfield T. Baum are contributing authors of a forthcoming new chapter
(Chapter 28, "Chapter 11 Cases Involving Professional Sports Franchises") of
the Collier Guide to Chapter 11: Key Issues and Selected Industries
(LexisNexis Matthew Bender), which will be published in November 2011 and
currently available exclusively on lexis.com and in eBook for e-reader and
Mobi-pocket reader formats.
Read the authors' Emerging Issues Analysis: Professional Sports Leagues as DIP Lenders in Sports Team Chapter 11 Cases
the chapter overview for Chapter 28 of the Collier Guide to Chapter 11, "Chapter 11 Cases Involving Professional
See more information or purchase the Collier Guide to Chapter 11: Key Issues
and Selected Industries, from the LexisNexis Store.
For more information
about LexisNexis products and solutions connect with us through our corporate site.