Bankruptcy Ruling on Texas Rangers Chapter 11 Sale Plan

Over the lunch hour yesterday, Judge Lynn issued his eagerly-anticipated ruling in the Texas Rangers bankruptcy case.  The team filed a Chapter 11 Plan that proposed a sale to the group led by Nolan Ryan and Chuck Greenberg.  The team’s creditors asked the judge to reject the plan and re-open the bidding.

I was asked by an Editor at the Dallas Observer for some quick observations about the ruling that he could use in an article.  Of course I was happy to oblige, and I got my analysis written before anyone else in the country did.  After I was done sending it over for the Observer, I took some time to read what other journalists were saying about the ruling.

Daniel Kaplan of SportsBusiness Journal tweeted that the creditors were very happy with the ruling because the judge ruled that the Chapter 11 Plan could not be confirmed as written.  Other journalists (including the AP) picked up on that theme and ran with it.  Some called the ruling a “crushing blow” to the chances of a Greenberg/Ryan sale and that theme was repeated over and over as each news source parroted what the last one said.

This “crushing blow” stuff is nonsense.  If there is one thing I’ve learned in my almost twenty years as a lawyer, it’s that there is always two sides to every story.  ALWAYS.

It looks like Hicks (and, ergo, the team) mostly wins.  Judge Lynn says that Hicks has to make some changes to the Plan soon.  OK, so it can’t be confirmed in its current form.  So the creditors can call that part a victory.

The lenders, however, lost their argument that THEY got to decide who purchases the team (they argued that once Hicks went into default, control automatically shifted to them).  The lenders also lost their argument that Hicks MUST sell to the highest bidder.

That second point is the key to the entire case.  Nobody has mentioned it yet, but this whole bankruptcy case is about leverage, not control.  The lenders do not really care if Crane buys the team and do not really believe he can or will.

Instead, the whole reason they are fighting Hicks is to convince Greenberg/Ryan to raise their offer or to get Hicks to kick in the shortfall.  The “fair” thing to do is for Hicks to pay it in but naturally he’d rather fight the creditors long enough that Greenberg/Ryan get tired of it and just offer to pay it themselves.

Another interesting thing in the ruling is that at the specific request of MLB, Judge Lynn avoided the issue of whether MLB’s constitution trumps bankruptcy law.  It could have been an issue if the bankruptcy court ruled that the lenders were in control but then MLB replied with “we don’t have to accept anyone into our private club that we don’t want as a member.”  Watching MLB argue that tension would have been the most interesting part of the whole case!

The AP and other journalists who parroted the story are right in that Judge Lynn is requiring creditors to vote and approve the current Plan, but that’s only unless/until Hicks makes the changes to the Plan that Judge Lynn says need to be made.  If the creditors are happy, it’s because Judge Lynn didn’t just completely pour them out.  He is not going to confirm the Plan as it now stands, but all Hicks has to do is make some amendments to the Plan to pay the creditors interest on their 75MM and whatever else the court picks at.  Once those are made, Judge Lynn will likely approve it and the creditors (Monarch, et al.) won’t have gained anything.

Once the new Plan goes on file, the two Rangers Equity Holdings companies will have to re-vote to approve it.  In order to scuttle the deal now, the creditors have to figure out a way to take control of the Rangers Equity Holdings companies so they can cast the vote the way they want.  The involuntary bankruptcy cases that the creditors filed against the Rangers Equity Holdings companies several weeks ago may eventually get the creditors some control, but not soon enough I’ll bet.

If I fought Mike Tyson and somehow won the first round on points, I too would be elated.  But that wouldn’t mean that I had any better chance of actually winning the fight.

Later, I think the journalists who reported yesterday’s ruling as a “crushing blow” will realize the creditors (Monarch) just won the first battle and lost the war.

UPDATE June 23 at 12:51 pm: In the first hour or two after the ruling came out, I was the only one on record saying the ruling was not too shabby for the team– all the media outlets were saying it was a disaster.  Several are now seeing the bigger picture I espoused yesterday, including NBC Sports and Business of Sports Network. The astute commenters (specifically “ab03″) at Lone Star Ball had it figured out by early evening.

Local super-blog Baseball Time in Arlington has a great recap of the media’s rush to judgment.