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Frank McCourt, Major League Baseball go toe to toe at bankruptcy hearing

The high level of distrust is apparent, but the path to a solution is mired in conflicting contentions — the Dodgers owner is financially irresponsible, and the league is interested in a power grab.

June 28, 2011|By Bill Shaikin and Michael Oneal
  • Dodgers owner Frank McCourt will have to wait until a July 20 hearing to find out whether he can utilize the full amount of a $150-million loan he received to keep the team afloat.
Dodgers owner Frank McCourt will have to wait until a July 20 hearing to find… (Allen J. Schaben / Los Angeles…)

Frank McCourt got his money, for now. How long he has his team could be the next question for the Bankruptcy Court.

The Dodgers owner received court approval Tuesday to use $60 million to pay his immediate bills, but only after a requirement to auction the team's cable television rights within 180 days was removed from McCourt's loan agreement.

The court set a July 20 hearing to decide whether McCourt can access the rest of a $150-million loan or whether the Dodgers should be funded during bankruptcy proceedings by Major League Baseball.

By then, MLB could ask the court to strip McCourt of ownership during the proceedings, said a person familiar with the case but not authorized to discuss it.

Tuesday's hearing, held in a Delaware court little more than 24 hours after the team filed for bankruptcy, included appearances from attorneys representing MLB, McCourt, his ex-wife, Jamie, his lender, Fox Sports and the MLB players union. The commissioner's office alone registered nine attorneys with the court.

The battle lines were drawn early in the hearing.

"On many issues, for better or for worse, the Dodgers and MLB are at loggerheads," said Bruce Bennett, an attorney for McCourt.

That prompted a rebuttal from Thomas Lauria, an attorney for MLB.

"MLB views the Dodgers as one of its cherished crown jewels," he said. "If there is anybody we are at loggerheads with, it is Mr. McCourt."

The high level of mutual distrust between McCourt and the league was reflected in the comments of both sides about the television rights and financing arrangements.

While the Dodgers' cable rights remain a subject for the Bankruptcy Court to consider, the league asserted a major victory in ensuring those rights would not be subject to a time-sensitive auction.

"Major League Baseball 1, McCourt 0," Lauria said after the hearing.

Lauria said an auction on the terms of McCourt's lenders could limit the options available to resolve the team's bankruptcy crisis.

"We're here to protect the team," Lauria said. "McCourt is hurting the team."

Bennett said McCourt was happy to secure the immediate financing and added that the court could authorize an auction of the cable television rights.

McCourt secured his loan by agreeing to pay at least 10% interest, with a $4.5-million fee. MLB countered Tuesday by offering to finance the Dodgers' operations at 7% interest, with no fee.

Bennett said the Dodgers should not be required to take money from an adversary because MLB might then have "excessive influence" over the team's fate in bankruptcy.

In a court filing, McCourt said he had secured funding from lenders "who lack the agenda and animus of the commissioner."

The filing further read: "The commissioner has poisoned the relationship between the (Dodgers) and Major League Baseball, and the inescapable conclusion is that the commissioner will stop at nothing to force a change of ownership."

McCourt blames MLB for forcing the Dodgers into bankruptcy, citing the commissioner's rejection of a proposed television contract with Fox. In its court filing, the league pointed the finger of blame back at McCourt:

"In pursuing his own financial interests at the expense of the club, overleveraging it and draining millions of dollars for capital investment and operations, Mr. McCourt has placed the [Dodgers] in their current, incredible position of not being able to make payroll less than halfway through the regular season."

The filing also cited the "decline in attendance caused by the community's extraordinary unhappiness with the club's owner," without any evidence to substantiate the claim.

Thomas Salerno, who represented the Phoenix Coyotes of the NHL during their bankruptcy case two years ago, said such "mudslinging" is common during the early stages of such a public proceeding.

"They're playing to the public and the court," Salerno said. "They don't want to assume the judge has read the newspapers."

In their filings and other comments, league officials repeatedly referenced McCourt diverting more than $100 million from team revenue for personal use. However, Salerno said the league would need to show that spending reflects gross financial mismanagement — a relatively high legal standard to meet — for that spending to affect how the court considers getting the Dodgers out of bankruptcy.

"They're looking at what you're going to do to get out of where you are, as opposed to how you got there," Salerno said.

The hearing opened with Bennett, representing McCourt, telling the judge that the Dodgers had won, 15-0, Monday night in their first game since the bankruptcy filing.

"I think this convincingly disproves the argument bankruptcy is bad for baseball," Bennett said.

Shaikin reported from Los Angeles. Oneal reported from Wilmington, Del.

bill.shaikin@latimes.com

twitter.com/BillShaikin

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