Hurdles remain before sale of Los Angeles Dodgers is complete
The Dodgers have a proposed sale in place for a record $2.15 billion
Both MLB and a bankruptcy judge must approve of the sale before it's final
The deal is expected to go through, ending a tumultuous period in team history
The proposed $2.15 billion sale of the Los Angeles Dodgers to a group primarily financed by Guggenheim Partners and led by longtime sports executive Stan Kasten and NBA legend Magic Johnson is not yet a done deal. Major League Baseball and the 29 other ownership groups must formally approve the sale and U.S. Bankruptcy Judge Kevin Gross must be assured that it will enable current owner Frank McCourt to pay off his creditors.
While it is widely expected that Major League Baseball will formally approve Guggenheim Partners, which MLB already approved as an auction finalist, keep in mind that the league and McCourt have been waging operational and legal battles over the last year and that the league will carefully review the reasoning behind his selection. Under the agreement between Baseball and McCourt, while McCourt can select the auction's winner, Baseball can review the financial aspects of the winning bid, namely the amount of money that would be borrowed to pay the sale price.
To put it mildly, McCourt's ownership of the Dodgers has distressed MLB officials, especially commissioner Bud Selig, with whom McCourt has experienced a frayed and often combative relationship. Last April, Selig took the unprecedented step of removing control of the team from its owner because of Selig's concerns about the team's finances and operations. More specifically, Selig worried about the impact of McCourt's divorce from his wife, Jamie, on the team and McCourt's reported difficulties in paying off debt. While McCourt could have sought a court order enjoining Selig from taking over the team, he choose not to, likely because the attempt would have failed. Selig was armed with compelling legal authority from MLB's constitution, most notably the "wavier of recourse" clause, which prevents teams from suing the league, and the "best interests of the game" clause, which provides the commissioner with sweeping authority to regulate any aspect of the game.
Selig's decision last June to block McCourt from selling TV rights to Fox Sports for an upfront payment of $385 million -- money which could have immediately aided McCourt -- only worsened the relationship between the two men. Shortly thereafter, the Dodgers filed for Chapter 11 bankruptcy protection, which McCourt hoped would buy him time to pay off creditors and secure additional financing for the team.
McCourt's desire to use bankruptcy protection to the keep team failed, and last November he and Selig agreed to a sale process whereby the team and Dodger Stadium would be sold at an auction. The agreement provided that MLB would approve three bids as auction finalists and that McCourt would select the winning bid. MLB approved three auction finalists last week -- groups led by Guggenheim Partners, hedge fund billionaire Steven Cohen and St. Louis Rams owner Stan Kroenke -- and yesterday McCourt selected the Guggenheim Partners group as the winner. Baseball, however, still must formally approve Guggenheim Partners as new owners of an MLB franchise.
While it is highly unlikely that Baseball would approve Guggenheim Partners as an auction finalist and then reject them as the new owners, MLB officials and those from the 29 other teams will carefully review the winning bid. Attracting the most scrutiny will be the amount of money that would be borrowed to pay the $2.15 billion, and how much of that amount would be contingent upon the team selling local broadcasting rights or forming its own sports network (like the Yankees' YES Network or the Red Sox's NESN). The reportedly lower amount of debt in Cohen's bid was thought to make him particularly appealing to Major League Baseball.
Along those lines, McCourt and Selig could have different objectives in the selection of new Dodgers owners: McCourt clearly wants the most amount of money, whereas Selig wants the best and most financially-stable owners. While the 29 other ownership groups want the Dodgers sold for the highest amount since their franchises would appreciate accordingly, Selig has not always embraced the highest bidder. Recall that in 2002, the Red Sox were sold to a group led by John Henry and Tom Werner, even though their offer was lower than competing bids. Selig reportedly preferred the Henry/Warner bid at least in part because it was based on less debt. The role of Kasten, who would run the Dodgers, could be key to satisfying any concerns from Selig -- the commissioner is said to highly respect him.
If Baseball has concerns about the Guggenheim Partners bid, it could decline to approve the new owners. To be clear, however, it is very unlikely Baseball would approve Guggenheim Partners as an auction finalist only to reject them as winners. Doing so could even spark litigation, depending on the exact wording of the agreement between McCourt and Baseball and the precise terms and conditions of Baseball's ability to reject McCourt's selection.
The proposed sale must also gain approval from Judge Gross, who is overseeing the Dodgers' sale as part of the team's Chapter 11 bankruptcy. He will conduct a hearing on April 13 in Delaware. Parties impacted by the sale, such as MLB, McCourt's creditors and his ex-wife Jamie McCourt, could submit briefs to Gross for his review. Although it is likely that Gross will approve the sale, he won't rubber stamp it. He will need to be satisfied that the sale addresses a core concern: McCourt's creditors will be paid back. Gross will want assurances, such as through financial records and testimony, that would corroborate the prospective owners' ability to pay this staggering amount. As seen in the Phoenix Coyotes-NHL ownership dispute in 2009, bankruptcy judges are obligated to look out for the best interest of those who are owed money, not what's necessarily in the best interest of a professional league.
Gross will also review the Dodgers bidding process to ensure it was fair and properly conducted. In addition, he will want assurances that pending claims against the team can continue after the sale. This is true of the lawsuit filed by Bryan Stow, the Giants fan severely beaten outside of Dodgers stadium on Opening Day 2011.
Assuming the proposed deal goes through MLB and Gross, it must be completed by April 30. On that date, McCourt is scheduled to make the first payment in his $130 million divorce settlement. Only then will this acrimonious and complicated chapter in Dodgers history be complete.
Michael McCann is a sports law professor and Sports Law Institute director at Vermont Law School and the distinguished visiting Hall of Fame Professor of Law at Mississippi College School of Law. He also serves as NBA TV's On-Air Legal Analyst. Follow him on Twitter.