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Battle over Dodgers moves on in bankruptcy court

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POSTED: June 29, 2011 11:41 a.m.

WILMINGTON, Del. (AP) — The owner of the Los Angeles Dodgers won a reprieve in bankruptcy court Tuesday to maintain day-to-day operations, while Major League Baseball considered seizing control of the cash-strapped ballclub.

Dodgers owner Frank McCourt is squaring off in bankruptcy court against the league in a contentious battle over one of the most storied — and lucrative — franchises in baseball. The ownership fight is linked in part to McCourt's divorce from his wife and former team CEO Jamie McCourt, who is also claiming half his assets.

The Dodgers have blamed their bankruptcy filing on Commissioner Bud Selig's refusal to approve a multibillion-dollar TV deal with Fox that McCourt was counting on to keep the franchise afloat.

McCourt gained approval from Judge Kevin Gross to enter into a $150 million bankruptcy financing arrangement to keep the team running.

A person familiar with the league's plans told The Associated Press that MLB "probably" will file a motion to seize the Dodgers, which has been operating under the oversight of a monitor appointed by Selig in April. The person spoke on condition of anonymity because of the sensitive nature of the situation.

Baseball's constitution allows Selig to take control of a team that seeks Chapter 11 protection, but the league first must file a motion seeking termination of the franchise.

It's unclear when that motion would be filed, but the judge asked attorneys representing Selig for a copy of the league's constitution, noting that it "has an impact here."

Gross granted the Dodgers' request for debtor-in-possession financing after attorneys for both sides huddled behind closed doors for more than an hour, emerging with an agreement to make two modifications to the proposed agreement with hedge fund Highbridge Capital.

One of the modifications reduces the exit fee that would be due to Highbridge from $4.5 million to $250,000. The other removes certain milestones in the financing agreement regarding the sale of the team's broadcast rights. Those milestones included weekly updates on the team's effort to license its broadcast rights, and a July 29 deadline to agree on a process calling for bankruptcy court approval of a sale within six months of Monday's bankruptcy filing, and a closing within 45 days of the court order.

Earlier Tuesday, the league filed an objection to the financing proposal, accusing McCourt of siphoning off more than $100 million in club revenue and driving the Dodgers into a liquidity crisis, also citing his lavish lifestyle with his ex-wife.

The league argued that its own financing offer was superior because it eliminated the $4.5 million exit fee, reduced the interest rate by 3 percent, did not require the team to encumber assets, and did not impose an artificial timeline for disposing of the broadcast rights.

The MLB attorneys argued that McCourt's financing proposal should be rejected because it compels the team to sell the future broadcast rights to meet current expenses and to provide money for his personal use.

In court papers, the Dodgers argued that the league's objection to the team's financing proposal revealed Selig's "overarching desire" to exert a "stranglehold" on the team.

Attorneys for the Dodgers said the league's proposal would have given Selig sole discretion over the team's budget, required the team to pay all the league's legal fees and expenses not just as a lender, but as an adversary in the bankruptcy case, and allowed for a loan default for any violation of MLB rules and regulations.

"The commissioner's financing proposal is nothing other than a thinly veiled effort to take total control over the debtors and these cases," team attorneys wrote, adding that it is no secret that Selig wants a change of ownership.

"The commissioner's efforts seem to be driven by a personal animosity towards Mr. McCourt that unbiased observers have recognized as being 'unprecedented,'" they added, citing media reports. "The debtors have no obligation to accept financing from such a determined adversary."

While agreeing to the interim financing, both sides reserved their rights to argue all issues surrounding the bankruptcy filing, including the possibility that the league might seek to have the case dismissed, and whether former Texas Rangers President Thomas Schieffer should remain as monitor of the Dodgers. Schieffer was appointed to monitor the team on Selig's behalf after the commissioner took the extraordinary step in April of assuming control of the troubled franchise, saying he was concerned about the team's finances and how the Dodgers are being run.

"I recognize that there is a lot ahead of us," Gross said before adjourning.

In addition to issuing the interim financing order, Gross granted several routine motions that will allow the team to continue operations, authorized the Dodgers to continue paying vendors, utility providers and employees, and to keep up with tax and insurance obligations.

The granting of such motions is routine in first-day hearings in bankruptcy court, but Gross noted that the baseball club's case is unique in some aspects.

"I haven't seen a wage motion quite like this one," the judge said, referring to the team's 44-page motion to continue paying hundreds of full-time and part-time employees, including about 250 players, most of whom are in the minor league ranks.

Gross also granted the team's request to honor payments it is required to make under collective bargaining agreements.

"The seamless, uninterrupted operation of the team is vital," said Richard Seltzer, an attorney for the Major League Baseball Players Association.

Thomas Lauria, an attorney representing Selig's office, disagreed with Dodgers attorney Bruce Bennett that the league and the team were adversaries, saying the league views the Dodgers as one of its "cherished crown jewels" and an "essential component."

Lauria did suggest, however, that the league was at loggerheads with McCourt, whom he blamed for "today's sorry mess."

In addition to battling the league for control of the team, the Dodgers face a challenge from Jamie McCourt over half of her former husband's ownership assets.

"Jamie McCourt is a presumptive owner of 50 percent of assets," said Laura Davis Jones, an attorney representing her in the bankruptcy case.

Filings in the McCourts' divorce case revealed a lifestyle of excess, extreme even by the standards of LA's super-rich: multiple lavish homes, private security, country club memberships, even a six-figure hair stylist for the couple.

The Dodgers' bankruptcy filing lists assets of up to $1 billion and debts up to $500 million.

Among the 40 largest unsecured claims, totaling about $75 million, are former Dodgers slugger Manny Ramirez at nearly $21 million; Andruw Jones at $11 million; pitcher Hiroki Kuroda at $4.4 million; and the Chicago White Sox, which share a spring training facility with the Dodgers in Arizona, at $3.5 million.

 

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