The Work

August 5, 2010 12:33 PM

The End of the Epic Rangers Bankruptcy

Posted by Zach Lowe

Around the time we sat down to dinner Wednesday night, the Texas Rangers bankruptcy crossed over from merely interesting (in a legal sense) into epic drama. At one point during the proceedings, Thomas Lauria, the White & Case partner representing the bidding group that thought it had won the team months ago, stormed out of the courtroom, apparently furious over the auction procedures, and cursed out Louis Strubeck, Jr., a Fulbright & Jaworski partner representing a court-appointed officer overseeing the auction.

"You told me we were going to get a reasonable amount of time to review the bid!" Lauria shouted in the hallway outside the federal bankruptcy courtroom in Fort Worth, TX, according to the absolutely indispensable Twitter feed of Daniel Kaplan, a reporter for the Sports Business Journal. "[Expletive] you!"

To which Strubeck responded: "[Expletive] you!," according to a Kaplan tweet. 

"Emotions were running high," Strubeck explains to us today. "This was a process that was necessarily done in a very, very short amount of time. I've been doing this for 27 years, and I have never seen a case like this. Never." Lauria explains that he was upset with the bidding process and thought the restructuring officer, William Synder of CRG Partners (Strubeck's client), was changing the rules on the fly in a way that benefited Cuban. Lauria finally lost it when he was told his side would have less time than anticipated to review Cuban's first accepted bid Wednesday afternoon.

"It was hostile," Lauria says. "The bid is 100 pages. We need time to read it. So when I saw Louis walking by, I asked him why he was trying to [expletive] me. I went right back to being 18 years old."

Several hours after Strubeck's minispat with Lauria, at about 2 a.m. EST Thursday, the group represented by Lauria won out by trumping a rival bid submitted by Dallas Mavericks owner Mark Cuban and Jim Crane, a Houston businessman who had submitted a prior bid for the team.

The Rangers debt-strapped owner, Tom Hicks (represented by Weil, Gotshal & Manges) had agreed earlier this year to sell the team to Lauria's clients, a group led by legendary pitcher Nolan Ryan and former Pepper Hamilton partner Chuck Greenberg, according to our prior reporting. That deal was valued at about $525 million.

Hicks's creditors, represented by Latham & Watkins and Milbank, Tweed, Hadley & McCoy, objected to the franchise being sold to the Greenberg-Ryan group, claiming that Hicks and Major League Baseball were rushing the deal and ignoring other potential buyers who might submit better bids.

The creditors registered their objections when the Rangers filed for bankruptcy as a procedural matter, and a federal judge ruled that other bidders did indeed deserve another shot at the team in a court-monitored auction. (Paul, Weiss, Rifkind, Wharton & Garrison advised Major League Baseball throughout the proceedings.) The Rangers case thus became the second in the past year to test the previously unquestioned authority of sports leagues to pick and choose the owners they wanted. In both instances, creditors have pushed for bankruptcy courts to sell distressed franchises to high bidders rather than a sports league's preferred owner. The strategy failed in the Phoenix Coyotes bankruptcy case, in which a federal judge sided with National Hockey League officials, who objected to a proposed sale of the team to Canadian businessman Jim Balsillie, even though Balsillie had outbid rivals by a substantial margin.

The Rangers case ended a bit differently. The original, MLB-approved group won the team when Cuban bowed out early Thursday morning, but the team's new owners had to pay about $70 million more than they had originally bid in order to prevail at auction. While the creditors may well see the outcome as justifying their intransigence, one prominent Texas columnist has argued that it's a hollow win based on a petty ploy to squeeze a few (million) extra dollars from the original bidders. Cuban, for his part, insisted repeatedly that he truly wanted the team. (Greenberg Traurig partner Clifton Jessup, Jr., advised Cuban. Jessup did not return messages today.)

The auction itself was chaotic, according to lawyers who were there. Each constituency had its own conference room, and the parties spent most of the day in backroom meetings trying to hash out bidding rules as the rest of the spectators waited. Chief among the questions: Should the Greenberg/Ryan group get some sort of credit for having the support of MLB and current team owners? Should their money be worth more, given that approval for Cuban's bid was uncertain? The haggling produced a solution in which Cuban would have to top any Greenberg bid by $10 million during each round of bidding. Greenberg, on the other hand, could proceed in increments of $2 million, according to Strubeck and Andrew Leblanc, the Milbank partner who represented the main creditor group.

Once that was hashed out, Leblanc says, "We were happy to sit back and watch these guys bid against each other." The bidding began to resemble a normal auction, but the time constraints, pitched emotions and the presence of MLB hovering over the entire process made the experience unique, Leblanc says. "It was absolutely crazy," he says. "I have never had a case like this."

Leblanc says he his happy with the outcome, which is not a surprise, since it produced more money that will eventually flow to his clients. The initial math indicates that when you compare the purchase price to the Rangers's revenue, the sale is the largest, by that measure, in the history of baseball, Strubeck says.

A day later, it's clear Lauria isn't thrilled his clients had to increase their price as much as they did. He says Cuban's initial bid did not meet the agreed-upon qualifications--the financing was problematic--and that, under the rules set out before the auction, the Greenberg/Ryan side should have won right there. But Snyder and his counsel gave Cuban a chance to restructure the bid, and the auction went on. "It would be easy for someone who was paranoid to think there was some game going on to give the team to Cuban," Lauria says. "We were forced to pay a higher price than we should have had the auction been run in a fair fashion."


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