Contract Rights - Bankruptcy Court as Game Changer
In June 2011, Major League Baseball's Los Angeles Dodgers filed Chapter 11 Bankruptcy. The Chapter 11 protections will permit the Dodgers to continue to operate as a business, but protect its cash and assets while taking a look at how its existing obligations and contracts can be modified to allow the business to continue in a financially viable manner. While in Chapter 11, the team can continue to make payroll, sign players, pay contracts and compete as a team. As with other debtors in Chapter 11, the Bankruptcy Court seeks to balance the effort to maximize the value of the bankruptcy estate for the benefit of the Dodgers' creditors and the effort to arrive at a plan by which the Dodgers' business can continue to operate. Unlike other businesses in Chapter 11, the Bankruptcy Court is dealing with Major League Baseball's oversight of each baseball franchise’s business activity.
A major asset of the team that has come under scrutiny by the Bankruptcy Court is the Dodgers' media rights. The existing media rights contract is with Fox Sports and that contract called for a scheduled renegotiation over a 45 day period in October and November 2012. The Dodger Franchise, looking at a sale of all or part of the team as a part of its reorganization plan, has taken the position that to get the greatest value for such media rights, any media rights sale (of television rights to future games) should occur in connection with the sale of the team -- and not be delayed until 2012.
Fox Sports has objected to the change in its contract right to bid on media rights to the future games - arguing that their original renegotiation period was exclusive and confidential, while the proposed sale process under the supervision of the Bankruptcy Court would permit any purchaser of the Franchise to accept or reject any media rights extension negotiated by Fox Sports and the current ownership group. There is some thought that this would permit alternate bidders to see the details of the Fox Sports negotiated extension of rights and then aggressively bid against Fox.
On December 8, 2011 U.S. Bankruptcy Judge Kevin Gross approved the Franchise's plan to bundle the sale of the team with the sale of future media rights to games starting in 2014. Fox Sports is considering an appeal of the ruling.
All business owners should be aware of the potential impact of a bankruptcy filing by their business suppliers and customers. During the pendency of your supplier's or your customer's bankruptcy action, the Bankruptcy Court can "step into the shoes of" your parts provider, your distribution vendor, your best customer. As a result, you should consider adding specific language addressing the impact of their potential bankruptcy to your standard agreements with customers, vendors and suppliers - addressing your rights in the event of their default under the contract, or in the event of their stated insolvency or their intent to file bankruptcy.
For more information about the Dodgers Bankruptcy see Judge approves Dodgers media rights sale. To discuss how to how to protect your business through contractual protections, contact a business lawyer at Wood, Atter & Wolf, with offices in Jacksonville and Ponte Vedra Beach, Florida.
