Los Angeles Dodgers owner Frank McCourt has a plan to cover this week's payroll, maintain control of the franchise and provide for the future solvency of the club, with a little help.
Major League Baseball will challenge that plan Tuesday in a Wilmington, Del. bankruptcy court.
McCourt's ex-wife, Jamie, could, as well.
Frank McCourt, who filed for Chapter 11 protection Monday, will ask the court to approve a $150 million loan – called debtor-in-possession financing – that would allow him to pay his creditors, run the club's daily operations and benefit from an auction of a new television rights deal during a restructuring period.
Baseball will counter the loan proposal with one of its own, the same $150 million at a lower interest rate and no fee, allowing it to maintain some control as McCourt guides the Dodgers through bankruptcy. If its proposal was accepted, MLB at some point likely would file for permission to terminate McCourt's ownership.
Jamie McCourt could contend that Frank McCourt lacks the authority to file for bankruptcy and request that the case be dismissed.
U.S. Bankruptcy Judge Kevin Gross will begin to sort it out Tuesday. Ultimately, he will choose between McCourt's preferred loan and MLB's offer, which baseball's lawyers will argue would be more attractive to the Dodgers' many and varied creditors.
Given that the Dodgers need to cover more than $20 million in payroll costs by Thursday, debt financing will be Tuesday's most critical issue. Others will follow, including, possibly, a challenge to the commissioner's "best interests of the game" authority in such disputes.
In any event, the Dodgers, who would have at least 120 days to rework their finances, probably won't look any different from the outside.
"Broadly speaking, a debtor in a bankruptcy case is supposed to be able to operate as business as usual," said Aram Ordubegian, a bankruptcy specialist at the Los Angeles law firm Arent Fox LLP. "There shouldn't be any disruption for the fans or people who work in business operations. … The product is going to be exactly what it was before the bankruptcy filing.
"What the Dodgers are trying to do is what distressed businesses all over the country are entitled to do. That is, to create a breathing space for a period of time for an opportunity to restructure their business so creditors get paid."
Major League Baseball remains concerned with McCourt's financing going forward, as he'll now have a $150 million loan piled atop his existing debt. Ordubegian said the debtor-in-possession financing frequently leads to the same long-term problems.
"The added expenses, though they may work to solve the financial problems of the past, may not pay for the future," he said.
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