Dodgers, MLB submit loan agreement to bankruptcy court

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The Dodgers and Major League Baseball submitted a $150-million loan agreement to the U.S. Bankruptcy Court on Friday, under which the league would loan the Dodgers the money needed to get through the season at 7% interest and would not seize the team in the event of default.

By making the loan, however, the league did not waive any claims for ‘past or future violations of the MLB Rules and Regulations’ that the Dodgers might have made.

When the Dodgers filed for bankruptcy in June, they proposed financing the team with a hedge-fund loan arranged by owner Frank McCourt. The league countered by proposing a loan without accompanying fees and at a lower interest rate, but the Dodgers argued the team should not have to accept the loan because Commissioner Bud Selig wants to remove McCourt as owner and could use the loan terms to help accomplish that.

U.S. Bankruptcy Judge Kevin Gross last month ordered the Dodgers and MLB to negotiate a loan that would save the team money on interest and fees but would not allow MLB to use the loan as leverage to strip McCourt of the team.

The league’s case against McCourt is financial mismanagement of the Dodgers, in particular the alleged diversion of more than $180 million in team revenue for personal use. The loan agreement limits the use of funds to repaying $60 million to McCourt’s lender for interim financing, paying adminstrative costs associated with the loan and the bankruptcy filing, and ‘working capital and for other general corporate purposes of the loan parties,’ with all spending ‘authorized by orders of the bankruptcy court.’

In the event of default, the league can refuse any future funding and/or demand immediate repayment of funding already provided. The league can pursue legal remedies as well.

The next phase of the bankruptcy proceedings is expected to involve McCourt’s effort to sell the Dodgers’ cable television rights, the revenue from which could be critical to his plan to emerge from bankruptcy as the Dodgers’ owner. McCourt’s attorneys had said they would proceed on that front at an Aug. 16 hearing, but that date has been put off.

Fox Sports, which holds the Dodgers’ exclusive cable rights through the 2013 season and exclusive negotiating rights through November 2012, already has filed a motion opposing such a sale as ‘premature.’ A sale process also is expected to be opposed by the league and by McCourt’s ex-wife Jamie, who claims half-ownership of the Dodgers and wants the team sold.

Fox has threatened to sue for damages. It is possible McCourt could ask the bankruptcy court to order an exclusive negotiating period with Fox that ends in weeks or months, then ask for permission to auction the cable rights in the event a deal with Fox is not reached.

McCourt had reached agreement with Fox on a new contract that he said was worth $3 billion, a deal rejected by Selig. That rejection, according to McCourt, triggered the bankruptcy filing.

The league needs the bankruptcy court to uphold the commissioner’s powers to, among other things, approve television contracts and strip an owner of his team upon a bankruptcy filing. By putting the Dodgers into bankruptcy and presumably asking the court to approve a new television deal over Selig’s objections, McCourt has broken one MLB rule and would be poised to break another.

McCourt has argued that Selig has treated the Dodgers unfairly, compared with other teams, and that the Dodgers would not be in bankruptcy had the commissioner extended the same helping hand to them as he has to other teams, in particular the New York Mets.

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-- Bill Shaikin