In 2011 the Los Angeles Dodgers baseball team was mediocre, finishing seventh in the National League. It couldn’t meet payroll and filed for Chapter 11 bankruptcy. In 2016, the team is still mediocre on the field but financially it’s in great shape. It landed an $8.35 billion TV contract and has no problem meeting payroll, which, at $250 million annually is the highest of any American sports team.
It sounds like a success story, and it is. But what gets lost in this brief summary is the tortured path that got the Dodgers from 2011 to 2016. When the team first filed bankruptcy it explained that a multi-billion dollar TV contract with Fox Sports had been rejected by baseball commissioner Bud Selig. Selig rejected that proposal because, in his opinion, it was a sweetheart deal for Dodgers’ owner Frank McCourt. A good portion of the initial payments under the deal were to go to McCourt to pay off his personal debts, including a divorce settlement.
Next the Dodgers sought approval for $150 million in interim financing (sort of like a family taking out a payday loan). Major League Baseball objected to this on the basis that it (MLB) had offered its own interim loan that was on better terms, which was in fact true. The Dodgers refused the MLB loan on the grounds that it was a pretext to take over the team.
Eventually Frank McCourt was forced out as owner and the team was sold to Guggenheim Partners and former LA Lakers’ basketball star Magic Johnson in 2012. Johnson’s part ownership invigorated the team and its fans to the point that today, which still a middle of the pack team, it’s on solid financial ground.
The point is, bankruptcy is not always a painless process. Too often people think they can file bankruptcy and continue with their lavish lifestyles. The reality is bankruptcy frequently requires debtors to make hard choices and sacrifices.