LOS ANGELES -- The Dodgers filed for Chapter 11 bankruptcy protection in a Delaware court Monday, citing Commissioner Bud Selig's decision not to approve a media contract and triggering the start of legal proceedings that will decide the fate of Frank McCourt's ownership.
With payroll obligations of approximately $40 million due this week and the organization's cash drained, McCourt sought the court's intervention in staving off a seizure and sale of his club by MLB.
On Monday afternoon, Selig issued a statement regarding the bankruptcy filing:
"The Commissioner's Office has spent the better part of one year working with Mr. McCourt and his representatives on the financial situation of the Los Angeles Dodgers, which was caused by Mr. McCourt's excessive debt and his diversion of club assets for his own personal needs. We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of Baseball would not be acceptable.
"My goal from the outset has been to ensure that the Dodgers are being operated properly now and will be guided appropriately in the future for their millions of fans. To date, the ideas and proposals that I have been asked to consider have not been consistent with the best interests of Baseball. The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise."
McCourt will ask the court to approve a $150 million loan from a J.P. Morgan Chase hedge fund to make payroll and will request an auction be held for the television rights, potentially luring Time Warner to bid against FOX Sports to maximize value. It was FOX's $3 billion deal with the Dodgers that Selig blocked last week. The priority for a bankruptcy judge is to ensure payment to creditors, which McCourt and the Dodgers hope play in their favor with the requests.
The case has been assigned to Judge Kevin Gross, who will have the first hearing Tuesday at 1:30 p.m. ET.
According to the filing, McCourt received a commitment of $150 million in debtor-in-possession financing that will "enable the Dodger organization to fully meet its obligations going forward," including making payroll and benefits payments coming due. There would be no disruption in the club's day-to-day business, the release stated. According to Sports Business Daily, hedge fund Highbridge Capital Management is providing the interim financing.
McCourt in the release also said the bankruptcy filing is meant to protect the franchise financially and provide a path that will enable the club to consummate a media transaction with FOX Sports, which Selig last week said he would not approve because it was not in the best interests of the Dodgers, their fans and MLB.
"Critically, the transaction is structured to facilitate the further diversion of Dodgers assets for the personal needs of Mr. McCourt," Selig said in a release last week. "Given the magnitude of the transaction, such a diversion of assets would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans."
McCourt repeatedly has said that he needs the upfront payment from the TV deal to pay his bills. He added in the release that MLB was made aware of his looming financial obligations over the past year, during which he negotiated the deal with FOX to provide needed liquidity, and has sought the Commissioner's approval "for months." A month-ending payroll of $30 million, which includes $8 million in deferred payments to ex-Dodger Manny Ramirez, is due by Thursday.
Ramirez is listed in the filing as the club's biggest creditor at $20,992,086, followed by another former teammate, Andruw Jones, at $11,075,000. The Chicago White Sox are owed $3.5 million (presumably to defray Juan Pierre's salary), and players long gone such as Kaz Ishii ($3.3 million), Pierre ($3.05 million) and Marquis Grissom ($2.7 million) also are listed, as are all current players with multi-year contracts and last year's first-round Draft pick, Zach Lee, at $3.4 million. Hall of Fame broadcaster Vin Scully is owed $152,778.
The rejected FOX deal called for an upfront payment of $385 million, with $173.5 million going to the McCourts and their attorneys. Of the $385 million, $80 million would have repaid debt, $23.5 million would have repaid a personal loan from FOX used to meet last month's payroll, $10 million would be for legal fees, $10 million would have gone to the McCourts and $50 million could go toward a $100 million payment to Jamie McCourt if the club ultimately was ruled Frank McCourt's property through the divorce proceedings.
"The deal with Fox demonstrates that the Dodgers have enormous value which substantially exceeds the team's current and future liabilities," said Bruce Bennett, McCourt's bankruptcy counsel from Dewey & LeBoeuf, in the team release. "The team is entering the bankruptcy case with enough committed financing to meet all of its short term expenses and to successfully reorganize. The media rights will, one way or another, generate enough value to facilitate a reorganization."
Selig appointed former Texas Rangers president Tom Schieffer to monitor the team's business operations on April 25 because of "deep concerns regarding the finances and operations of the Dodgers" and further ordered an investigation into the club's finances and related entities.
In a Dodger Stadium meeting on Monday morning, McCourt told employees he sent a letter notifying Selig that Schieffer and his group were no longer needed because the bankruptcy court has authority.
Divorce court documents have revealed that the McCourts took more than $100 million of Dodgers funds for personal use. McCourt has said the new FOX deal was structured in accordance with MLB guidelines and similar to those of other clubs.
"The Dodgers have delivered time and again since I became owner, and that's been good for baseball," McCourt said. "We turned the team around financially after years of annual losses before I purchased the team. We invested $150 million in the stadium. We've had excellent on-field performance, including playoff appearances four times in seven years. And we brought the Commissioner a media rights deal that would have solved the cash flow challenge I presented to him a year ago, when his leadership team called us a 'model franchise.' Yet he's turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today. I simply cannot allow the Commissioner to knowingly and intentionally be in a position to expose the Dodgers to financial risk any longer. It is my hope that the Chapter 11 process will create a fair and constructive environment to get done what we couldn't achieve with the Commissioner directly."
The release continued: "Under Chapter 11, the Dodgers will continue to operate in the ordinary course of business. Pursuant to that authority, and additional authority the Dodgers have sought in motions filed today with the bankruptcy court: All salaries of Dodger employees will be paid and all Dodger employee benefits will continue. The Dodgers will operate within their existing budget to sign and acquire amateur, international and professional players. Ticket prices will remain the same and purchased tickets will continue to be honored. All amenities at Dodger stadium will continue in place, and promotions will continue as usual. Dodger vendors and suppliers will be paid any post-petition amounts in the ordinary course, with the intention of paying any pre-petition amounts in full prior to or at the conclusion of the bankruptcy case."
Chapter 11 filings were also made for LA Real Estate LLC, an affiliated entity that owns Dodger Stadium, and three other related holding companies.
"It's sad," said Joe Torre, Major League Baseball's executive vice president of baseball operations, and the manager of the Dodgers from 2008-10. "The Dodgers were a very storied franchise in my years in Brooklyn growing up, and as a player going out to L.A. I know the decisions the Commissioner has made certainly weren't easy for him to make. He felt that the organization and the city deserved better than that."
This is the third MLB franchise to be placed in bankruptcy in recent years. Sam Zell did it with the Cubs in 2008 and Tom Hicks did it with the Rangers last year. In Zell's case, it was his Tribune Co. that was placed in bankruptcy, but the team was sold out of the bankruptcy proceedings. In Hicks' case, the team was auctioned off to the current owners out of bankruptcy court.
Ken Gurnick and Barry M. Bloom are reporters for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.