The Commissioner Digs In

Well.  That didn't take long.  Yesterday, Major League Baseball, acting by and through Commissioner Bud Selig filed its Objection to the Dodgers' Application for Interim Financing.  We'll get to the Objection in a minute.  First, the boring procedural stuff.

Monday, I told you that the Dodgers had filed bankruptcy and that they had filed an application for Interim Financing.  Such an application is just what it sounds like.  When a Debtor-in-Possession or DIP, files for bankruptcy protection, it often (in the case of a large corporation) has a "white knight" that it approached pre-filing to arrange to fund the business.  Indeed, some very sophisticated lenders will require a business to file an 11 as a condition of making the loan.  Why?  Because bankruptcy stops all collection efforts by the creditors. 

But the DIP can't just get the loan money and fund the business.  It has to get permission of the Court to obtain the financing.  Here, the Dodgers requested approval of the loan it had negotiated and an initial draw of 50 million against it in order to make tomorrow's payroll.  They requested interim financing until the hoped for Final Order Confirming a Plan of Reorganization.

MLB objected.  They reasons for the Objection are basically three-fold.  1) They allege that Frank McCourt, the former owner of the Dodgers siphoned off millions of dollars and misappropriated them to his personal use; 2) Oh, and by the way, we took McCourt out of baseball and installed a monitor to run the club.  He can't requisition paper clips without the monitor's approval much less put the Dodgers in bankruptcy.  I confess that I wondered about that one too and; 3) MLB is ready to make a loan for Interim Financing on much more favorable terms, will not charge a fee or place a lien on the assets.

The response of the Dodgers is that the decision about who to approach for financing is vested in the "sound business judgment" of the DIP, and yeah, the rates and terms of such financing is typically at murderous rates and terms because DIPs are typically in acute financial distress.  Secondly, they say, the Dodgers are not required to do business with someone who is trying to take over the business.  And thirdly (thirdly?) we don't believe the Commissioner has the authority under baseball's Constitution to take over a member baseball club. 

The Judge granted the Application for Interim Financing.  The report is that MLB agreed to it and I believe that.  They had no choice.  There was no time for a trial on the Objection.  The payroll has to be made.  All of this will be tried down the road.

So what's next?  ESPN reported today that MLB will try to terminate the Dodgers franchise and then take it over in order to sell it to somebody else.  Eventually there will have to be a ruling on the issue of a) whether the Commissioner of Baseball has the authority to take over a team.  Every Commissioner since the time of Judge Kennesaw Mountain Landis has viewed the Commissioner's power to act "in the best interests of baseball" to be damn near plenary in nature. 

So I guess the threshold question before moving too far forward is who is entitled to run the Dodgers?  Is it Frank McCourt?  Or the monitor appointed by Bud Selig?  Oh, let's not forget Jamie McCourt.  She contends the Dodgers are marital property to be divvied up by the Divorce Court Judge in Los Angeles.  Look for her to intervene in the bankruptcy before too long.

This is all fascinating stuff.  I will continue to monitor-pardon the expression-the activity in the case.  And in the next installment we'll talk about McCourt's acquisition of the Dodgers and how MLB is partially to blame for the current mess.

Stay tuned.