Attorneys for the Los Angeles Dodgers and Fox Sports squared off in court Wednesday over the team's plan to sell the media rights to games starting in 2014 as part of its plan to exit bankruptcy.
The Dodgers are asking a U.S. Bankruptcy Court judge in Delaware to approve a process for selling the television rights to future games as part of a settlement with Major League Baseball that also calls for the sale of the team and Dodger Stadium.
Fox, whose Prime Ticket subsidiary owns the current television contract with the Dodgers, is challenging the proposed sale process, saying it would violate Fox's rights under the existing contract. That contract gives Fox an exclusive 45-day period starting in October 2012 to negotiate a new TV deal and prohibits the Dodgers from talking to any other party until Nov. 30 of next year.
The Dodgers contend that a sale of the media rights is the best way to maximize value for the team's creditors and emerge from bankruptcy in a timely fashion.
"It's an obvious place to look for liquidity and long-term stability for the company," said Tim Coleman, a senior managing director for Blackstone Advisory Partners, which is acting as financial adviser to the Dodgers.
But Fox maintains that a media rights sale would result in the Dodgers breaching their existing contract with Fox, leaving the team subject to potential legal claims that could drive down the price potential buyers would be willing to pay for the club.
Coleman disagreed, testifying that even if Fox loses out on bidding for the future television rights, it would not mean a damage claim against the Dodgers or the team's new owner. Coleman said Fox would have virtually the same rights under the proposed sale process as it has now, including an exclusive 45-day negotiating period, with the major difference being that the timetable for reaching a new TV deal would be bumped up by 10½ months. The settlement with Major League Baseball calls for a sale of the team and its assets, including the future media rights, to be completed by April 30.
"The procedures are essentially the exact same procedures as Fox has today, other than dates," Coleman said.
The Dodgers also note that the proposed sale process includes a provision for Judge Kevin Gross to decide whether the media rights sale would result in any damage to Fox and to estimate any payments to which Fox might be entitled as a result. If such payments threatened to significantly reduce the benefits of the media rights sale, the Dodgers could call it off.
But attorneys for Fox Sports argued that the sale process would give a buyer of the Dodgers the ability to reject any new TV deal reached with Fox, something they said the current contract does not allow.
Fox attorney Greg Werkheiser warned that the dispute over the proposed media rights sale could prompt the network to withhold a January royalty payment to the Dodgers that Werkheiser said was at least in the millions of dollars, if not tens of millions.
"We're not going to be able to sit around and wait to see if we're being injured in the process and cough up a large sum of money when we're not getting the benefit of the bargain," Werkheiser said.
The Dodgers sought bankruptcy protection in June after baseball Commissioner Bud Selig refused to approve a new TV deal with Fox that Dodgers owner Frank McCourt was counting on to keep the franchise solvent.
The Dodgers subsequently argued in bankruptcy court that auctioning off the television rights to future games was the best way to maximize the value of the bankruptcy estate for the benefit of all stakeholders.
The league disagreed, saying any plan to sell television rights without its approval was "dead on arrival" and would spell the end of the club. League attorneys argued that such a sale would breach the Dodgers' existing contract with Fox and provide grounds for termination of the franchise for failure to abide by MLB agreements.
But after battling with the Dodgers over control of the ballclub and seeking to force McCourt to sell the team, MLB reached a settlement last month with the help of a court-appointed mediator. Many of the settlement terms remain confidential, including procedures regarding the sale of the Dodgers, approval of prospective buyers, and how the league would apply MLB rules and regulations to the media rights sale
The proposed sale would include the team and Dodger Stadium, but not the parking lots and land surrounding the stadium, which are owned by a separate company that is controlled by McCourt and not involved in the bankruptcy. The settlement between the Dodgers and MLB gives McCourt sole discretion to sell the parking lots and land surrounding the stadium.
While decrying the secrecy surrounding the settlement, Fox attorneys have zeroed in on the proposed sale deadline of April 30, which also happens to be the deadline for McCourt to pay his ex-wife, Jamie, $131 million as part of their divorce settlement.
Werkheiser accused McCourt of trying to "whiplash" the bankruptcy court into hastily approving a sale of the team and the media rights in order to meet his personal financial commitment under the divorce settlement.
But when Fox attorneys pressed Coleman about why the April 30 sale date was chosen, Dodgers attorneys objected, saying details of the mediation talks that led to the settlement were confidential. The judge agreed.
Testimony was scheduled to resume Thursday morning.