The Los Angeles Dodgers are down 2-3 to the Houston Astros headed into tonight’s Game 6 of the World Series. And after a wild, 12 to 13 extra innings slugfest on Sunday, we figured we’d do what we do best: simmer the anticipation and the excitement with a bankruptcy post. Last year, we wrote about the formerly bankrupt Chicago Cubs when they were down 1-2 against the Cleveland Indians. The Cubs went on to win the Series and end a 108 season drought. In this Halloween post, we’ll try and work the same positive voodoo on the Dodgers, another storied MLB franchise with the bankruptcy asterisk on its record.
A Summer Road Trip to Delaware
On June 27, 2011, Los Angeles Dodgers, LLC, along with four of its affiliates, filed its voluntary Chapter 11 bankruptcy petition in Delaware, making the Dodgers the 5th MLB team ever to seek bankruptcy protection. Barely three months into their 54th season in Los Angeles, the Dodgers were 36-44, placing them second to last in the NL West. They were represented by the ever-present Young Conaway out of Delaware and the now defunct and bankrupt Dewey & LeBoeuf out of LA.
Whereas the Cubs were in and out of bankruptcy in two weeks via a sale, the Dodgers bankruptcy, a slow cook over 2,149 docket entries, was a more traditional restructuring endeavor. They had payroll problems, attendance problems, a $3 billion Fox TV contract problem with MLB, “failure to reach the playoffs” problems, and ownership problems, among others. Indeed, the bankruptcy was just as much about then Dodgers owner Frank McCourt and his divorce as it was about the Dodgers.
We’ll get to the punchline–an April 2012 sale to Guggenheim Partners and Magic Johnson for $2.3 billion–shortly, but here are the essential pleadings:
- Main Petition
- Main Debtor Schedules and SOFA
- Overview of the Case provided by the Dodgers
- MLB Settlement Motion and Agreement
- Plan, Amended Plan, and Disclosure Statement
- Order Confirming Plan
As long as you promise to come back to our post, Weil’s excellent Five Year Anniversary Dodgers post is also worth a click. In particular, it provides a good overview of the $150 million DIP financing and the MLB squabbles leading-up to the sale.
Browsing the Dodgers’ “40 Largest” and Schedules
Of course, sports bankruptcies are “fun” because everything should become public. Mainly in the category of trivia, then:
From their consolidated list of 40 Largest Unsecured Creditors:
- Their largest unsecured creditor in 2011 was Manny Ramirez for $21 million.
- Their second largest unsecured creditor was Andruw Jones (?!) for $11 million.
- They owed $332,418 to Continental Airlines’ Charter Department.
- They owed $316,243 on their Bank of America credit card.
- Matt Kemp, now a part of my Braves family, was only their 27th largest unsecured creditor at $216,944.
- Vin Scully, the legendary announcer himself, made the list at #32 for $152,778.
- Finally, they had about $150,000 in “trade debt” owing to Deloitte and to Convington & Burling.
From their various Schedules and Statements of Financial Affairs:
- LA Dodgers, LLC: $78M in assets and $4.7M in liabilities, but lots “Unknown” entries
- LA Real Estate, LLC: $157M for Dodger Stadium
- 29 page catalog of baseball memorabilia going back to 1899 w/ over 1,714 items
- 128 pages of copyrights, trademarks, and other IP assets (mainly international)
- 49 pages of unsecured creditors in the main case
- $265M and $281M in revenues in ’10 and ’09
- At least 28 pending lawsuits and the like as of the petition date
- Each Debtor listed as a potential liability the Bryan Stow lawsuit
- Apparently, the Dodgers suffered a minor insurance casualty during the filming of Moneyball
- They itemized part of Gary Cypres’ infamous Dodgers collection as “property held for another” (including a $95K Koufax jersey)
- Apparently, they’re a big Best Buy gift card purchaser!
In the 90 days prior to filing, they paid 257 creditors a total of $15.76 million in transactions that exceeded the reporting threshold, including $922K to Continental Airlines; $259K to the Dominican Republic’s National Baseball Academy; $9K at California Pizza Kitchen; $298K to the Hampton Inn & Suites in Glendale, Arizona; $457K to the LA Dept. of Water & Power; $1.1 million to Levy Restaurants (stadium concessions); $2.76 million to MLB; and $66K to Pyro Events for fireworks (of course).
In the 1 year prior to filing, they paid 8 insiders a total of $29.86 million in transactions, including $22 million in stadium rent to McCourt’s Blue Land Co., LLC; $3.81 million to current employees versus $2.09 million to former employees; $5K for 10 Opening Day dugout seats for Matt Kemp versus $5K for Opening Day tickets for military appreciation; and $5,630 in Red Sox tickets at Fenway for the McCourt family and guests!
From the 2,149 docket entries:
- There were at least 61 pro hac attorney admissions.
- Dewey & LeBoeuf’s final compensation as Debtors’ primary counsel: $12.94 million
- Young & Conaway’s final compensation as Debtors’ local counsel: $1.41 million
- Morrison & Foerster’s final compensation for the Creditors Committee: $1.53 million
Dodgers Sold to Guggenheim Partners and Magic Johnson
Although the Plan and Confirmation Order spell it out in more detail, McCourt had until April 30, 2012, under the Dodgers’ MLB settlement, to sell the Dodgers and related assets. [He also had until that date to pay his ex-wife, Jamie McCourt, a $131 million divorce settlement in one of the most expensive and public divorces in California history.] To that end, Blackstone Advisory Partners assisted the Dodgers in locating the highest bid for 100% of the equity interests in the Dodgers or a sale of all of the Dodgers’ assets.
Ultimately, Guggenheim Baseball Management, LLC, an entity led by Guggenheim Partners and Lakers legend Magic Johnson, purchased the Dodgers for $2.3 billion (consisting of $2 billion for the team and the stadium and another $300 million for surrounding land and parking lots). At the time, and likely still, it was the largest sports team sale in history–over 2.5 times the $845 million that the Ricketts paid for Cubs in 2009 and almost 2 times the $1.1 billion that Steve Ross paid for the Miami Dolphins. In terms of total deal value, the Dodgers reportedly increased in value by over $2 billion in eight years compared to the $371 million or so that McCourt paid Newscorp for the team in 2004. Finally, under the Plan, all creditors were paid in full and equity interest holders received the net proceeds. Not a bad outcome, and one that earned Dewey a $500,000 success fee on $12.44 million in fees.
Hopefully, this post makes for some entertaining clicks during tonight’s commercial breaks, for lawyers and non-lawyers alike. Be on the lookout for next October’s Bankruptcy Edition wherein we discuss the 2018 World Series. It will surely involve the formerly bankruptcy Texas Rangers or Baltimore Orioles! Until then, and especially if this post doesn’t keep the Dodgers in the Series, we’ll leave you with Vin Scully’s classic call of Kirk Gibson’s equally classic ’88 World Series walk-off homer. Enjoy: