Updated with judge's ruling, McCourt's lawyer's statement.
Continuing Frank McCourt's unbroken streak of losing court decisions, a Delaware judge today rejected his costly bankruptcy loan, opting instead for cheaper terms offered by Major League Baseball.
Despite what everybody will say about how this does not give MLB control over the Dodgers, it does move McCourt one step closer to being forced out.
“That's pretty close to putting MLB in the driver's seat,” says Robert Rasmussen, dean of the USC Gould School of Law. The decision “is going to have the effect of starting the transfer of control from McCourt to Major League Baseball.”
McCourt's proposed loan, through Highbridge Principal Strategies, would have cost the Dodgers about $25 million in interest and fees. Though this was later reduced to about $23 million, it was still much more expensive than the loan offered by Major League Baseball.
Though it was more expensive, it was clearly a better deal for Frank McCourt. First, he would not have to answer to MLB — which he rightly fears will be looking for any excuse to declare a default. And second, the Dodgers would pick up the $5.25 million fee that has already been paid to Highbridge. Without the Highbridge loan, that money now has to come out of Frank McCourt's pocket.
But the key thing about Gross's ruling is that it draws a clear distinction between Frank McCourt's best interests and the best interests of the Dodgers. Frank has been saying all along that the two are one and the same. The ruling shows that Gross disagrees. That — more than the $5.25 million he just lost* — is the hardest blow to McCourt.
(*Saturday update: According to @BillShaikin, Frank's attorneys say he'll be able to get this money back from the Dodgers after all.)
Does this mean McCourt is out? No, not yet. The next battle will be a fight over the Dodgers' TV rights. But by already declaring — very early on — that McCourt's interests are different from the Dodgers' interests, Gross has put himself squarely on MLB's side of the argument. That's bad news for Frank.
Potentially the most ominous line in the ruling for McCourt comes in this footnote:
It is unclear to the Court how Debtors think they can successfully operate a team within the framework of Baseball if they are unwilling to sit with Baseball to consider and negotiate even more favorable loan terms while under the Court's protection.
If we know one thing about Frank McCourt by now, it's that he doesn't play well with others. Every single partnership he's ever had of any significance — including his marriage — has ended in acrimonious litigation. His strategy is total, unconditional legal victory. He does not negotiate.
And now a judge is already telling him — just three weeks into the bankruptcy — that he's being obstinate and he should negotiate. Doesn't bode well.
As they always do, McCourt's lawyers are trying to spin this as something other than a defeat. Judge for yourself.
The ruling is on page 2. McCourt's lawyer's statement is on page 3.
Frank McCourt's lawyer, Bruce Bennett, issued the following statement:
Today's Court ruling places the Dodgers in a position to achieve a debtor-in-possession financing from Major League Baseball, under the Court's control, that is both economically favorable and consistent with the Dodgers' objective of maximizing the value of the estate in the Chapter 11 process.
As made clear in the Order, “the Court is confident that Baseball will propose to Debtors a short form credit agreement that is genuinely unsecured in nature and contains minimal – if any – representations, covenants and warranties, no releases for prepetition actions and no default triggers for violations of Baseball's rules and regulations.
The Baseball Loan must be independent of and uncoupled from Baseball's oversight and governance of the Dodgers under the Major League Baseball Constitution. The Court, if necessary and as always, will provide ready access to Debtors in the hopefully unlikely event that Baseball strays from its obligations to act in good faith as Debtors'
The debtors will propose, and, to the extent authorized by the Court, implement procedures that are designed to promote a competitive sale process of exclusive cable television rights, while at the same time giving due consideration to the Fox Telecast Agreement. The Dodgers expect that a sale or license of exclusive cable television rights will fully resolve all of the Dodgers' financial challenges as well as generate value for holders of the equity interests in the Debtors.
From the Dodgers' perspective, a short form unsecured credit agreement with MLB, when combined with other sources of revenues, should provide the Dodgers with ample liquidity to meet team payroll and other expenses, as the Dodgers proceed forward with their business plan, with the objective of emerging from the Chapter 11 process before the end of 2011.