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Baseball and Delaware Law
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Baseball and Delaware Law


By Michael Bell Tuesday, October 18, 2011

How often do your two favorite subjects come together? Very rarely do mine: baseball and Delaware law. You may know what I am referring to when I say that, but in case you are not a sports fan, you may not know that the Los Angeles Dodgers, one of baseball’s more storied franchises, filed for Chapter 11 bankruptcy protection in a Delaware court this summer.

According to the bankruptcy petition, Los Angeles Dodgers Holding Company LLC, a Delaware company headed by Frank McCourt, is currently in financial hardship and carrying as much as $500 million in liabilities; thus it is unable to fund its current operations. "What Small-Business Owners Can Learn from the Dodgers' Financial Woes," an article published on entrepreneur.com, outlines the L.A. Dodgers' financial problems. Below is an excerpt.

A Boston real-estate developer Frank McCourt purchased the Los Angeles Dodgers in 2004 for $430 million. In a recent article from Jason Fell from Entrepreneur.com he said, “Despite the large size of the organization, the financial downfall of this storied baseball franchise can offer a number of important lessons for small-business Owners.

A Los Angeles-based bankruptcy attorney Leon D. Bayer, said “If this can happen to the Dodgers, it can happen to a small business.”

Bayer went on in the article to offer three big lessons small-business owners can learn from the Dodgers bankruptcy filing:

  1. 1.     Keep personal and business finances separate. Between 2004 and 2009, the McCourt family is said to have taken $108 million in personal distributions from the team to help fund personal mortgages and real estate. A business owner should never remove so much capital that a business cannot maintain its ongoing operations, Bayer says.
  2. 2.     Understand the power of a franchisor. Some franchise agreements contain "onerous provisions" that might make potential franchisees leery of buying in, Bayer says. In the case of the Dodgers, Major League Baseball Commissioner Bud Selig last week blocked a $3 billion television deal between the Dodgers and Fox. In a statement, Selig said McCourt's "ideas and proposals," including the deal with Fox, "have not been consistent with the best interests of baseball." 
  3. 3.     Don’t overstaff. Among the Dodgers' creditors (it has as many as 10,000, according to the bankruptcy petition), former slugger Manny Ramirez is owed the most at almost $21 million. Next up is another former player, Andruw Jones, who is owed more than $11 million. While baseball player salaries can be debated, the lesson for small-business owners is not to hire too many employees, and not overpay the ones you do hire, Bayer says.

What lesson can we all take away from this? Well, there are many, but the biggest one is that Delaware protects your personal assets in bankruptcy better than other jurisdictions. I will keep you posted on how it works out for the Los Angeles Dodgers.

 

More By Michael Bell

 

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