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The Los Angeles Dodgers LLC, a company formed in Delaware in 2003, recently filed for bankruptcy. The LA Dodgers were purchased by Frank McCourt in 2004 for $430 million. McCourt’s family had previously been associated with real estate and construction in the Boston area. Before buying the Los Angeles Dodgers, McCourt bid to buy his hometown Boston Red Sox, but did not win the bid. Instead the Red Xox were sold in 2002 to John W. Henry, Tom Werner, and Red Sox President Larry Lucchino.
The purchase of the Los Angeles Dodgers by Frank McCourt was made using equity from some of McCourt’s previous real estate deals. Frank McCourt made many additions and improvements over the years and, according to Forbes, the franchise was worth $727 million in 2010. To finance these improvements, it seems the Dodgers raised ticket prices each year and pulled cash from other assets. The Dodgers' financial problems seem to have worsened last year, due to declining attendance and about $22 million in deferred compensation and revenue sharing.
McCourt blames Major League Baseball for not approving a TV deal with Fox Sports that was reportedly worth up to $3 billion. McCourt claims he has tried for almost a year to get Baseball Commissioner Bud Selig to approve the deal.
The Dodgers are the eleventh franchise to file for bankruptcy out of the four major sports leagues in North America. Only one team out the eleven has ever gone on to win a championship. This team, the Pittsburgh Penguins, have filed for bankruptcy twice. Some experts have said that once you file for bankruptcy once, you should then draft great players and file for bankruptcy again.
Delaware, a state known for its strong corporate law structure, is often the state in which companies not only incorporate but also, from time to time, file for bankruptcy (in Federal Court). While bankruptcy is often an unfortunate situation, companies believe that Delaware will offer them better prootection than in any other federal district court. The Dodgers hope this bankruptcy will buy the team the time it needs to get back on track, secure another TV deal and return to business as usual.
THE AUTHOR OF THIS BLOG ARTICLE IS NOT A LAWYER AND HARVARD BUSINESS SERVICES, INC. IS NOT A LAW FIRM. THE ARTICLE ABOVE IS NOT INTENDED AS LEGAL ADVICE AND SHOULD NOT BE TAKEN AS LEGAL ADVICE. THIS SHORT ARTICLE IS STRICTLY TO MENTION SOME ASPECTS OF DELAWARE’S CORPORATION LAWS AND/OR LAWS RELATING TO OTHER FORMS OF ENTITIES WHICH YOU MAY NOT BE FAMILIAR WITH. WE RECOMMEND THAT YOU CONSULT WITH A LAWYER BEFORE FORMULATING A STRATEGY WHICH WILL BE SUITABLE FOR YOUR SPECIFIC CASE.