The LA Dodgers file for Bankruptcy protection! What is this about?

dodgers file bankruptcy

Facing a takeover by the MLB, embattled owner Frank McCourt has put the Los Angeles Dodgers into bankruptcy.

The timing of the bankruptcy filing earlier this week is owing to the Dodgers’ payroll, due Thursday June 30, 2011, which McCourt could not satisfy because he was out of money.  The Dodgers also owe money to former players, and there was also a loan for $67 million taken out against the Dodgers’ Stadium parking lots which was set to mature on June 30.

But because the bankruptcy case was filed Monday, June 27, the creditors all have to wait. This is because of the “automatic stay” which goes into operation immediately upon the filing of a bankruptcy case.  This is basically a federal court order telling creditors to stop all collecting activity.

Meanwhile the MLB has apparently dug up some dirt on McCourt during its investigation over the last two months, detailing McCourt’s mismanagement and misappropriation of funds. The MLB’s lawyers will be presenting this information to the bankruptcy judge at the next hearing on July 20, 2011, as well as their claims that it has the right under its own “baseball constitution” to terminate McCourt’s ownership due to the bankruptcy filing itself.

So what has the Dodgers’ bankruptcy filing under McCourt accomplished so far?

1. It has stopped all creditors from collecting, preventing creditors from seizing assets;

2. It has kicked the MLB’s in-house monitors out of Dodgers’ Stadium, getting Commissioner Bud Selig out of McCourt’s hair while he tries to put together some new financing deals; and

3. It has created some breathing room for McCourt so he can reorganize and try to get creditors paid without the interference of MLB or his ex-wife, including allowing him to borrow $60 million to meet his immediate payroll obligations.

You don’t have to be a multi-milllionaire to make the Bankruptcy Court work for you, though hopefully your life is not as complicated as that of Frank McCourt.

Whether you’re trying to fend off the Repo Man, stop a garnishment on your wages, or prevent a foreclosure on your house, filing a Chapter 7 or 13 bankruptcy will create an automatic stay for any individual just as it has for McCourt as owner of the Dodgers.

As to what the ultimate outcome for the Dodgers organization will be, who can say? The bankruptcy judge has a lot of power to direct its future.  If the judge approves McCourt’s plan to obtain a total of $150 million in new financing, and to get a new media rights deal, McCourt may be able to hold the MLB at bay and stay in control.

On the other hand, the bankruptcy judge might decide that the MLB can get a better loan (with a lower interest rate) than McCourt can, and that it would be in the best interest of the Dodgers organization to be free of McCourt. After all, baseball’s rules provide that the MLB can take over if the owner runs the team into bankruptcy.

We will find out more after the next hearing on July 20.  Stay posted.

 

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