On the field, the Texas Rangers seem to be clicking on all cylinders. They sit atop the American League West and look to make the playoffs for the first time since 1999. But off the field, the franchise can’t manage to stay in the black. Owner Tom Hicks has been trying to sell the team for months. A group led by sports lawyer Chuck Greenberg, and former Ranger and Hall of Fame pitcher Nolan Ryan, has offered to buy the team for $575 million, and everyone seems to be on board — including Hicks and MLB Commissioner Bud Selig. But Hicks’ creditors, who are collectively owed over $500 million, aren’t so thrilled.

The Greenberg-Ryan Group was not the sole bidder, and according to some reports, other bidders offered more for the team. The creditors successfully blocked the deal, but Bud Selig stepped in to revive it. Selig threatened to take over the team, invalidate the Hicks creditors’ claims against the franchise, and eventually sell the team to the Greenberg-Ryan group, all under his authority as Commissioner to take action “in the best interests of baseball.” This catch-all provision is rarely invoked, and its application here would certainly raise signification legal questions.

Selig may be able to keep this weapon holstered for now. In order to make the deal happen, Hicks filed for bankruptcy under Chapter 11, and simultaneously submitted a pre-packaged Plan that included the sale of the franchise to Greenberg and Ryan. If the plan is confirmed, Greenberg and Ryan will become Rangers owners without Selig’s direct intervention. But Selig’s threat raises the question: what could Major League Baseball or another professional sports league do to stop a sale in bankruptcy of one of its teams?

The NHL’s power to do just that was tested last year when the Phoenix Coyotes entered bankruptcy and Canadian businessman Jim Balsillie attempted to buy the franchise, with plans to move the team to Ontario. The bankruptcy court rejected Balsillie’s bid, largely because the NHL owners had already voted against his prospective ownership. Judge Redfield T. Baum didn’t want Balsille using his court to circumvent the NHL by-laws. The NHL, its owners, and others sports league executives rejoiced, as the court had suggested that league by-laws should be given some deference in the bankruptcy process.

But does the case of American Needle change that? In the bankruptcy proceedings involving the Coyotes, the NHL cited the 7th Circuit’s ruling in American Needle in support of the proposition that the NHL could own and operate an individual team. The 7th Circuit held that the NFL could operate under the single entity exemption from antitrust laws. Of course, the Supreme Court rejected that reasoning, holding that the thirty-two NFL teams are separate businesses.

What does that mean for league control over teams that enter bankruptcy? Judge Baum sided with the NHL, and it’s possible that the judge in the Rangers case (Judge D. Michael Lynn of the U.S. Bankruptcy Court for the Northern District of Texas) will do the same. But after American Needle, courts may take a different approach, treating teams as individual businesses. Perhaps the next time a major sports team enters bankruptcy, the court will confirm a plan allowing a sale to the highest bidder, regardless of whether the league or its owners approve. This is just one of many potential implications of American Needle. In the Rangers case, hearings are scheduled for June 15, and a final ruling on confirmation is expected in early July. It will be interesting to see whether American Needle has had an impact.

– Mark Donnell

Image Source

Image Source

One Response to What Role Can a Professional Sports League Play When One of Its Teams Enters Bankruptcy?

  1. I love this blog so much… Such great posts all the time!

Leave a Reply

Your email address will not be published. Required fields are marked *