Baseball, hot dogs, apple pie and bankruptcy
Five year ago, the Hicks Sport Group Holdings LLC needed to sell the Texas Rangers, the crown jewel of its sports empire, to repay creditors.
HSG agreed to sell the Rangers for approximately $500 million to an investment group called Rangers Baseball Express LLC, organized by Chuck Greenberg and Nolan Ryan. The agreement was subject to approval by creditors, Major League Baseball and team owners.
The creditors refused.
Four hedge funds controlled the debt, which they bought at a discount to profit on the eventual sale of the Rangers. Since the proposed sale would not fully repay HSG’s debts, the hedge funds refused consent.
They wanted the marketing process to continue indefinitely until higher offers appeared. But MLB prohibits lenders from owning baseball teams. The hedge funds could block the sale, but they could not foreclose. A deadlock developed.
Fortunately, America has a solution to this problem — bankruptcy. A bankruptcy judge can order property sold over the objections of non-consenting creditors.
On May 24, 2010, the Rangers filed Chapter 11 and submitted a proposed plan of reorganization to sell the team to RBE for approximately $500 million, over the hedge funds’ objections.
This strategic use of bankruptcy is controversial.
First, Chapter 11 was designed to help salvage viable but insolvent businesses. While the team’s owners were insolvent, the Rangers were not.
Second, baseball teams are not traditional businesses. MLB is a voluntary association. It makes its own rules that franchises agree to obey.
Third, baseball teams are more than just businesses. They carry the hopes and dreams of devoted fans. It seems unpatriotic to drag a shining American tradition through a gritty bankruptcy.
But nothing is more authentically American than Chapter 11, not baseball, hots dogs, apple pie or Chevrolet.
Besides the Los Angeles Dodgers (baseball), recent Chapter 11 debtors include a restaurant chain, Hot Dogs on a Stick (hot dogs); a bakery, Hostess Foods (apple pie); and GM (Chevrolet).
Several MLB teams have been sold through Chapter 11, including the Rangers, the Dodgers, the Chicago Cubs and the Baltimore Orioles.
The bankruptcy process is gritty but highly beneficial. All final decisions are made by an impartial judge, in hearings open to the public. All parties in interest may be heard. The Rangers bankruptcy proved the value of the process.
HSG, MLB and RBE wanted the sale to proceed immediately. The hedge funds wanted to prolong the process into September 2010. After hearing the arguments, Judge Michael Lynn ordered a prompt auction and wrote the bid procedures himself.
The auction started on Aug. 4, 2010. Judge Russell Nelms acted as auctioneer.
Contrary to the hedge funds’ claim that weeks of marketing would be needed, a group called Radical Pitch, led by Mark Cuban and Jim Crane, came to bid.
Competitive bidding started slowly (at $510 million) but heated up later. The gallery of the large courtroom filled with fans, many dressed in Texas Rangers gear, eager to watch history unfold.
The tension built as the bid prices spiraled higher. After midnight, on Aug. 5, 2010, Radical Pitch declined to bid higher. RBE purchased the team with a bid of about $593 million, $83 million more than its opening bid. The bankruptcy process worked. The Rangers were sold quickly, in an open process, to the highest bidder.
The hedge funds made no friends, but they made money. The Texas Rangers got new, more capable owners. MLB got a healthier franchise.
The buyer, RBE, emerged flush with goodwill from Texas Rangers fans. The Rangers, with co-owners Ray Davis and Bob Simpson by then in a more prominent position, won their first AL pennant and appeared in the World Series.
No story is more American.
Robert A. Simon is a bankruptcy lawyer at Whitaker Chalk Swindle & Schwartz PLLC in Fort Worth and was one of the lawyers representing RBE in the Rangers bankruptcy case in 2010.
This story was originally published July 31, 2015 at 5:56 PM with the headline "Baseball, hot dogs, apple pie and bankruptcy."