After insisting for months that he would fight commissioner Bud Selig in bankruptcy court to keep the Dodgers, Frank McCourt has relented and agreed to a settlement that ends the litigation and calls for a court-supervised process to sell the team and its media rights.
The settlement signifies a major victory both for Selig, who took over the Dodgers in April on grounds that McCourt's ownership had placed the team in financial disarray, and for the inherent powers of the commissioner's office to regulate privately-owned franchises. Along those lines, the settlement serves as a warning to other clubs mired in financial difficulty that MLB can and will take over teams and force out unacceptable owners. The settlement also sets the table for Fox, which sold the Dodgers (and stadium and parking) to McCourt in 2004 for $421 million, to potentially re-acquire the franchise.
McCourt's willingness to sell the Dodgers likely reflects two dynamics.
First, he needs money. And lots of it. And quickly. As reported in the Los Angeles Times, McCourt may need to raise over a $1 billion to pay off various debts and taxes, and an additional $130 million to pay his ex-wife, Jamie, in a divorce settlement. McCourt's lawyers probably counseled him that he was facing a lengthy and expensive battle in court, which could have resulted in him still losing the team, but in a much more costly manner.
Second, the commissioner's sources of legal power likely factored into McCourt's acquiescence. As I explained in a previous column, Selig possesses a number of legal weapons to thwart maverick owners. They include the "best interests of the game" clause in MLB's constitution. With it, Selig enjoys virtually non-reviewable discretion to regulate any aspect of the game, including matters related to franchise ownership. Selig similarly benefits from the constitution's "waiver of recourse" clause. When one becomes an MLB franchise owner, he or she contractually waives the right to seek legal remedies from the league and consents to accept league decisions. Baseball's antitrust immunity would have also prevented McCourt from using antitrust law to challenge the league. In short, McCourt may have viewed a legal fight with Selig as one that he was unlikely to win, thus making a settlement more attractive.
McCourt's need for cash and Selig's legal upper-hand were also mutually reinforcing: Selig's willingness to systematically cut off McCourt's avenues for raising short-term capital -- highlighted by Selig rejecting a 17-year TV contract between McCourt and Fox that would have provided the Dodgers with up to $3 billion -- likely dissuaded McCourt from extending his battle with the commissioner.
The ability of Selig to take over the Dodgers and effectively kick out its owner will not go unnoticed by the 29 other ownerships groups. The message to them is clear: They better run their businesses profitably or the commissioner can, at his discretion, intervene.
The Dodgers, moreover, are far from the only franchise that has experienced financial difficulties in recent months. New York Mets' owners Fred Wilpon and Saul Katz, defending against a massive lawsuit brought by victims of Bernie Madoff, are likewise having problems. Almost one-third of the league, in fact, exhibits some level of difficultly in maintaining financial soundness: In June, the Los Angeles Timesreported that nine franchises -- the Dodgers, Mets, Baltimore Orioles, Chicago Cubs, Detroit Tigers, Florida Marlins, Philadelphia Phillies, Texas Rangers and Washington Nationals -- were in violation of the league's debt services rules. While it can be misleading to take a snapshot of teams' financial situation at any one time, and grouping nine teams together doesn't indicate that some are much worse off than others, a number of ownership groups do not appear to be keeping pace with league requirements. Given Selig's success in taking over the Dodgers, perhaps he will now feel emboldened to threaten other teams that they better get their acts together or they, too, risk league intervention.
MLB players are another interested party in the interplay between team finances and enforcement of league financial rules. Should teams become more fearful of league intervention, it is very plausible that some of those teams will spend less on player salaries and be less active in the free-agent market. More cautious spending by teams could have the effect of curbing salaries; if teams agree with one another to spend less, they open themselves up to charges of collusion. With MLB's collective bargaining agreement set to expire in a little over five weeks (Dec. 11), expect the topic of team finances and their relationship to player payroll to emerge as a key issue in CBA discussions.
McCourt's departure from the Dodgers is good for the Dodgers and for baseball in general.
A bidding process conducted in the near future, rather than an after a lengthy and damaging courtroom battle between Selig and McCourt, means that the team should still command top dollar and the interest of big money investors. With the process expected to be complete before Opening Day 2012, it also means that the Dodgers' ownership won't be in a state of quandary next season.
Two parties are likely to emerge as top contenders to buy the team: Fox and Mark Cuban. Fox is well-positioned for the bidding. For starters, the network holds exclusive renegotiation rights on the team's broadcast contract through November, and can match any offer that the team attracts. Fox, in fact, filed a lawsuit in September asking a bankruptcy judge to block any sale of the team that could violate the Dodgers-Fox broadcasting contract. Fox also has an incentive to retain broadcasting rights for the Dodgers, as it has lost the rights to broadcast Lakers, UCLA and USC games to other networks. If Fox can produce a sizable offer for the club, it may become the early favorite, especially given its exclusive window.
Cuban, who owns the NBA champion Dallas Mavericks and whose net worth is reportedly $2.5 billion, may also enter the bidding. Although he recently said he would not be interested in offering $1 billion for the Dodgers, Cuban has repeatedly expressed interest in buying an MLB franchise and unsuccessfully tried to get the Chicago Cubs and Texas Rangers. Cuban's vast wealth is particularly important in today's sports economy, with leagues much more wary of debt-laden deals such as the one McCourt used to buy the Dodgers in 2004. The fact that Cuban has proven to be a winner in another league should also work in his favor.
Perhaps a joint offer between Cuban and Fox, with Cuban running the team and Fox running the broadcasting, ends up as an attractive bid. It would certainly be a better ownership arrangement than Dodgers fans have become accustomed to over the last seven years.
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. Follow him on Twitter.