Sports and the Law: Cubs Sale Complete

Two weeks ago, we discussed the news out of Chicago that the Cubs had filed for and emerged from Chapter 11 bankruptcy protection within a 48 hour period. (Click here for previous coverage on the Cubs bankruptcy.) The bankruptcy filing was part of the sale process of the team from the Tribune Co. to the Ricketts family. As expected, the sale of the Chicago Cubs has now been finalized, and the team is now in control of billionaire Joe Ricketts.

The total value of the sale is approximately $845 million. That amount is the most that has ever been paid for a franchise, topping the $660 million that was paid for the Boston Red Sox and its related properties in 2002. For its $845 million, Joe Ricketts will receive not only 95% of the Cubs franchise, but also Wrigley Field and and 25% of Comcast Sportsnet, the television station that broadcasts most of the Cubs' games. Tribune Co. will retain the remaining 5% of the team. At the end of the day, Tribune Co. will actually receive about $740 million after taxes and fees are taken out.

So was it a good deal for Tribune Co.? In April, Forbes valued the franchise at $700 million, a number that included a $149 million valuation of Wrigley Field. The Forbes valuation took into account the pending sale to the Ricketts family, although at the time, the price tag was $900 million - $60 million more than the final number and less than other bidders were then offering for the club. In fact, some reports after the first round of bidding for the Cubs in late-2008 stated that bids were made as high as $1.3 billion. On the other hand, the Red Sox, a team now valued at $833 million by Forbes, sold for $660 million only 6 years ago. So, in only 6 years, the price for a Major League Baseball franchise rose almost $200 million dollars, and that is for a team (the Cubs) arguably less valuable than the previously sold team (the Red Sox). So, to answer the initial question, this appears to be a good deal for Tribune Co., or at least a fair deal for both parties. What do you think?

Tim Cedrone is a judicial law clerk in the New Jersey Superior Court, Appellate Division. This blog post and all others written by Mr. Cedrone are his work and his alone and express only the author's views. Nothing in this blog post or any other blog post written by Mr. Cedrone represents the views of the New Jersey Superior Court or any related entity.

Sports and the Law: Cubs First Non-NHL Team to File Chapter 11

Well that was fast. In a case that was the antithesis of the Phoenix Coyotes saga, the storied Chicago Cubs filed for and emerged from Chapter 11 bankruptcy this past week in the course of 48 hours. (For previous coverage of the Cubs filing, click here.) With its filing, the Chicago Cubs became the first non-NHL team to file Chapter 11 team among the four major professional leagues (NFL, NBA, MLB, and NHL) since the inception of the current Bankruptcy Code in 1978. The filing was part of the planned sale of the Cubs by the Tribune Co. to billionaire J. Joseph Ricketts, the founder of TD Ameritrade. With that said, let's look at some of the details of the case.

The Facts. The Tribune Co. bought the Cubs in 1981 for $20.5 million. Since then, Tribune faced some difficult times, culminating with the company's Chapter 11 bankruptcy in December 2008. Tribune's filing did not include the Cubs. In attempt to shed itself of some assets, Tribune decided to sell the Cubs, with the Ricketts family winning a bidding war that once included Mark Cuban. The final deal calls for payment of $845 million by the Ricketts family in exchange for 95% of the Cubs, Wrigley Field, and Tribune's stake in a sports TV network. Tribune will retain 5% of the Cubs and end up with $740 million from the deal. Major League Baseball owners previously approved the sale of the Cubs to the Ricketts family by a unanimous vote.

The Filing. The Cubs filed what is known as a "pre-packaged" bankruptcy plan. Under a "pre-pack," the debtor and creditors work out a refinancing structure for the debtor before filing, and then to make the deal work, the debtor files Chapter 11 to take advantage of Bankruptcy Code provisions needed to carry out the plan. Pre-packs allow for a quick resolution of the case, as seen here with the Cubs. In the Cubs case, the team filed for bankruptcy to eliminate any claims against the team stemming from Tribune's bankruptcy case. In other words, by filing itself, the Cubs can eliminate the possibility of Tribune creditors seeking payment of their claims via the Cubs.

The History. The Chicago Cubs are the first non-NHL team among the four major professional leagues to file for Chapter 11 bankruptcy protection since the inception of the current Bankruptcy Code in 1978. Since then, only 4 NHL teams have filed for bankruptcy: the L.A. Kings, Pittsburgh Penguins, Buffalo Sabres, and Phoenix Coyotes. (For a list of other teams that have had encounters with bankruptcy, check out my law review article here.) Some may remember that the Baltimore Orioles were sold in a bankruptcy auction to Peter Angelos as part of the bankruptcy case of the team's previous owner, Eli Jacobs; however, the Orioles themselves never filed. The Cubs bankruptcy is most similar to that of the L.A. Kings. In 1995, the Kings filed for and emerged from Chapter 11 bankruptcy protection in the same day. The bankruptcy flowed from the individual bankruptcy of one-time owner Bruce McNall, and was essentially designed to approve the sale of the franchise previously negotiated and approved by the NHL - much like that of the Cubs here. At the end of the day, the Cubs are the newest members of a club no one wants to be in.

The Lesson to be Learned. The divergent cases of the Coyotes and Cubs represent opposite ends of how to go about selling a sports organization via bankruptcy. On the one hand, you have the Coyotes. The owner, Jerry Moyes, filed bankruptcy in a blatant attempt to sell the team to an owner of his choosing (Jim Balsillie) without NHL approval. After contentious court battles, the bankruptcy court rejected Balsillie's bid to buy the team, and the franchise currently sits in bankruptcy limbo after filing 5 months ago. The Cubs, on the other hand, worked out the franchise's sale ahead of time, got MLB's approval, filed bankruptcy to effectuate the sale, and emerged one day later. What can we learn from this? Very simply, selling a professional sports franchise via the Bankruptcy Code will be most easily accomplished through staying in bankruptcy for a short period and getting league approval for sale of the franchise. Failure to get league approval first will certainly result in a case more like that of the Coyotes and less like that of the Cubs.


Tim Cedrone is a judicial law clerk in the New Jersey Superior Court, Appellate Division. This blog post and all others written by Mr. Cedrone are his work and his alone and express only the author's views. Nothing in this blog post or any other blog post written by Mr. Cedrone represents the views of the New Jersey Superior Court or any related entity.

Dollars and Sense: Bankruptcy Briefs

Here at SportsJudge Blog, we usually focus on the legal side of the ongoing Phoenix Coyotes bankruptcy case. Today, our focus will shift a bit more towards the business side of the case, with an additional piece on the pending sale of the Chicago Cubs by the Tribune Co.

NHL In, Reinsdorf Out, Balsillie Still Kicking
In a somewhat surprising move, Jerry Reinsdorf has withdrawn his $148 million bid for the Phoenix Coyotes from the auction to be held by the Bankruptcy Court on September 10. At the same time, the NHL has submitted its own bid, reported to be about $140 million, for the franchise. The NHL is seeking to purchase the Coyotes and then immediately re-sell the team to a third party. This is not the first time the NHL has submitted a bid in a bankruptcy case; indeed, the NHL filed a bid in the Pittsburgh Penguins case in the late-1990s as a contingency if no buyer willing to keep the team in Pittsburgh could be found. It is also not unprecedented for a league to own a franchise; Major League Baseball owned the Montreal Expos for three years before the team moved to Washington, D.C. With Reinsdorf out of the bidding process, that leaves three bids for the auction on September 10: Jim Balsillie's $212.5 million bid, Ice Edge Holding's $150 million bid, and the NHL's $140 million bid. My money is still on Jim Balsillie winning the auction if (and that's a big if) he can resolve (1) the antitrust issues regarding relocating the franchise and (2) the ownership issues arising from the NHL's rejection of him as an owner. Resolution of those issues is ultimately in the hands of Bankruptcy Judge Redfield Baum.

Cubs To Be Sold to Ricketts Family, Bankruptcy Filing Possible
As part of its own bankruptcy case, the Tribune Co. is required to obtain court approval for the sale of any significant assets occurring outside the ordinary course of business. That means that the Tribune Co. must obtain court approval before its sale of the Chicago Cubs (an entity owned by the Tribune Co.) to the Ricketts family (Joe Ricketts is the founder of TD Ameritrade) can be finalized. Because of the precariousness of a debtor selling a large asset during the bankruptcy process, the Tribune Co. may be forced to place the Cubs into Chapter 11 to facilitate the process. Such a filing would almost assuredly be a pre-packaged case where the parties merely file a bankruptcy petition to take advantage of certain Bankruptcy Code provisions to effectuate the sale on which they have previously agreed. This would be very similar to the Los Angeles Kings bankruptcy case in 1995. In that case, the filing was essentially designed to approve the sale of the team previously negotiated and approved by the NHL. There are two other things to note about the Cubs sale. First, if the Cubs file, it will be the first bankruptcy filing by a professional sports franchise outside the NHL since the inception of the current Bankruptcy Code in 1978. Second, the $845 million price tag the Ricketts family will pay, most of which the Tribune Co. will use to pay creditors, is $155 million less than some of the previously reported $1 billion bids. While that shouldn't be anything giving the bankruptcy court cause to disallow the sale, it is still substantially less than what creditors may have been expecting.

Stay tuned to SportsJudge Blog for more ongoing coverage of these developments.