Los Angeles Dodgers file for bankruptcy protection

FILE - In this June 17, 2011 file photo, Los Angeles Dodgers owner Frank McCourt speaks to the media outside court in Los Angeles. On Monday, June 27, 2011, the Los Angeles Dodgers filed for bankruptcy protection in a Delaware court. McCourt cites Major League Baseball commissioner Bud Selig's interference with club operations and refusal to approve a Dodgers TV deal with Fox Sports as the cause for Monday's bankruptcy filing. (AP Photo/Nick Ut, File)

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Greg Risling and Beth Harris, Associated Press, On Monday June 27, 2011, 5:15 pm

LOS ANGELES (AP) -- Facing the painful prospect of stiffing players and employees, the Los Angeles Dodgers filed for bankruptcy protection in a Delaware court Monday, adding to off-the-field troubles that have hobbled one of baseball's most storied franchises and setting up another showdown with Major League Baseball.
Team owner Frank McCourt, upset baseball Commissioner Bud Selig rejected a multibillion-dollar TV deal last week, now hopes a federal judge will approve $150 million in financing to be used for daily operations and give him more time to seek a more favorable media contract. A hearing is set for Tuesday.
The move by a cash-starved McCourt comes just days before he was expected to miss team payroll Thursday and possibly be confronted with an MLB takeover. The filing also means it's unlikely a resolution over team ownership, a fight that began two years ago when McCourt and his ex-wife and former team CEO Jamie McCourt decided to divorce, will be found any time soon.
Selig said in a statement that the bankruptcy filing has inflicted further harm upon the Dodgers.
"We have consistently communicated to Mr. McCourt that any potential solution to his problems that contemplates mortgaging the future of the Dodgers franchise to the long-term detriment of the club, its loyal fans and the game of baseball would not be acceptable," he said. "To date, the ideas and proposals that I have been asked to consider have not been consistent with the best interests of baseball."
Legal observers expect MLB to contest McCourt's request for filing bankruptcy, arguing the dispute should remain within the confines of baseball and the league's constitution allows Selig to take control of a team that seeks Chapter 11 protection.
The main issue is whether "the bankruptcy court maintains control of the proceedings or acquiesce to baseball," said Edward Ristaino, who chairs the sports practice at the law firm Akerman Senterfitt. "The courts recognize the special interests of the commissioner and give him great deal of deference. My sense is that won't happen very quickly at all."
In court documents, team Vice Chairman Jeff Ingram cited a significant drop in attendance, contributing about 10 percent of Dodger revenues to the league's sharing program last year and paying about $22 million in deferred compensation as reasons for filing bankruptcy.
"To date, LAD has remained current in its obligations," Ingram wrote. "However, LAD is now on the verge of running out of cash, the results of a perfect storm of events."
McCourt has taken out loans to stay afloat this season but his mounting financial problems were expected to balloon this week, when he owed tens of millions of dollars to meet payroll and other obligations.
About $20 million is slated for current and deferred compensation by Thursday, while more than $18 million is required as a reserve to prefund money to be paid to players in 2012 under terms of the collective bargaining agreement, court documents show.
The bankruptcy filing also noted a $67 million loan taken out against the parking lots at Dodger Stadium was set to mature on Thursday. It was expected McCourt was going to refinance the loan.
"He's clearly running very low on options right now," said David Carter, executive director of USC Sports Business Institute. "What seems to be the case is a high-stakes chess game between Frank McCourt and MLB, and he's running out of pieces. This is one of the uglier weeks in Dodger history."
Among the 40 largest unsecured claims, totaling about $75 million, are former Dodgers slugger Manny Ramirez at nearly $21 million; Andruw Jones at $11 million; pitcher Hiroki Kuroda at $4.4 million; and the Chicago White Sox, which share a spring training facility with the Dodgers in Arizona, at $3.5 million. Longtime Dodger announcer Vin Scully is owed more than $150,000 as part of his contract, court documents show.
Dodger officials said they reached out to numerous banks and investors and while several parties expressed interest in providing financing, they received only one commitment from Highbridge Principal Strategies. If approved by a judge, the financing would come in two chunks from the investment firm -- $60 million up front with the remainder being paid at a later date.
Tripp Kyle, a spokesman for the firm, declined to comment about the reasons the company decided to lend McCourt the money.
"The rule or ruin philosophy that appears to have motivated today's filing is bad for everyone who cares about, or has an interest in, the Dodgers," David Boies, an attorney for Jamie McCourt, said.
McCourt has defended his running of the team, saying he had made it profitable and successful. He also said the Dodgers have tried for almost a year to get Selig to approve the Fox transaction, which would have provided McCourt with $385 million up front and was vital to a binding settlement reached earlier this month by him and Jamie McCourt.
"He's turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves in today," McCourt's statement said. He was not made available for further comment Monday.
Bob Daley, who was managing partner of the Dodgers when News Corp. owned the team, said Monday that McCourt had been "an embarrassment to this franchise."
"Fox, myself, and MLB made a horrible mistake in not doing the proper due diligence on Frank McCourt," Daley said. "I helped get him approved and for my piece, I feel very bad about it."
The McCourts have been embroiled in a contentious divorce where their lavish spending habits were detailed in court documents. The former couple took out more than $100 million in loans from Dodger-related businesses, records show.
In April, MLB took the extraordinary step of assuming control of the troubled franchise. Former Texas Rangers President Tom Schieffer was appointed to monitor the team on behalf of Selig, who said he took the action because he was concerned about the team's finances and how the Dodgers are being run.
The Dodgers' filing follows the Rangers, who sought Chapter 11 protection in May of last year. The Rangers' filing successfully pushed through Hall of Fame pitcher Nolan Ryan's $590 million bid to buy the team. Creditors had stalled the deal for months, arguing that the team had rejected higher offers.
The divorce settlement, now voided because of Selig's decision, called for a one-day "characterization" trial Aug. 4 to determine if title to the Dodgers is in Frank McCourt's name or if the team should be considered community property and sold. Robert Sacks, an attorney retained by Frank McCourt, said the trial may be shelved and Superior Court Judge Scott Gordon could decide how to handle the former couple's assets at a later date.
Gordon ruled in December that a postnuptial marital agreement that gave Frank McCourt sole ownership of the Dodgers was invalid. That cleared the way for Jamie McCourt, who served as the team's CEO and was fired by her ex-husband two years ago, to seek half the team under California's community property law.
Associated Press writer Robert Jablon in Los Angeles contributed to this report.