April 1, 2012 6:45 PM
Dealmaker of the Week: Joseph Shenker of Sullivan Cromwell
Posted by Tom Huddleston Jr.
Sullivan Cromwell chairman Joseph Shenker.
THE CLIENT
Frank McCourt, who sold the Los Angeles Dodgers out of bankruptcy following a bitter divorce battle.
THE DEAL
The Dodgers and McCourt announced Wednesday that Guggenheim Baseball Management—an investment group led by real estate investor and controlling partner Mark Walter and fronted by former Los Angeles Lakers star Earvin “Magic” Johnson—has agreed to buy the team for $2 billion, including $412 million meant to pay down debt.
THE DETAILS
Guggenheim’s winning bid was chosen from three final offers approved by Major League Baseball earlier this week following an initial round of bidding in January that drew ten potential buyers into the court-supervised sales process. To claim the prize, as The Am Law Daily reported Wednesday, Guggenheim outbid one group led by hedge fund billionaire Steven Cohen, which bid $1.4 billion, and another led by real estate billionaire E. Stanley Kroenke, which bid $1.5 billion.
In connection with the sale of the Doders, McCourt is also entering into a joint venture with certain Guggenheim affiliates under which he gets $150 million and the team’s new owners get control of the parking lots and other land around Dodgers Stadium. ESPN reports that McCourt also gets a stake in the properties near the stadium that is valued at $150 million but controlled by Guggenheim.
Both MLB and the bankruptcy court must approve the sale. The transaction is scheduled to close by April 30 following a confirmation hearing set for April 13. Once the deal closes, a divorce settlement requires McCourt to pay his ex-wife roughly $130 million.
THE BIG PICTURE
McCourt, who bought the Dodgers for $430 million in 2004, is on the verge of reaping the largest sum ever paid for a professional sports franchise, his reward for enduring a two-year divorce fight with his former wife, Jamie, that had at its heart a battle for control of the Dodgers. (The American Lawyer detailed the divorce drama in a feature story last year.)
In the wake of the divorce, the team sought Chapter 11 bankruptcy protection in June and then wrangled with MLB over McCourt’s attempts to negotiate a television-rights deal with Fox Sports.
Between the divorce, the bankruptcy, and the court-supervised sale, the turmoil swirling around Chavez Ravine has generated work for lawyers at more than a dozen Am Law 100 and 200 firms. (See our previous deal report for a full accounting of the legal teams involved in the saga.)
Dodgers fans appear to be thrilled with the outcome. One sign: Ticket sales for the upcoming season have increased since the deal was announced. Economists, on the other hand, have expressed surprise over the purchase price, with some suggesting that Guggenheim dramatically overpaid for the team.
THE BACKSTORY
Based on a referral from an unidentified SC client, McCourt approached Shenker in late 2010 after terminating his relationship with Bingham McCutchen. McCourt dumped Bingham after a marital property agreement drafted by one of the firm’s attorneys was ruled invalid by a Los Angeles superior court judge in December 2010. The decision allowed Jamie McCourt to effectively claim co-ownership of the Dodgers.
(The Wall Street Journal, among others, has noted that McCourt could still pursue a malpractice case against Bingham over the marital property agreement’s impact on how the divorce played out.)
“He came to see us and he wanted to look at the problem holistically,” Shenker says. SC advised McCourt to try to resolve the matimonial dispute before seeking an influx of capital for the struggling baseball franchise. Once Shenker signed on, he and the rest of the SC team spent the first half of 2011 attempting to hammer out a divorce settlement, only to have the talks founder due to the team’s inability to land a media-rights deal MLB would support.
ON CLOSING
When the team filed for bankruptcy in June 2011, Shenker recommended that McCourt hire Bruce Bennett, managing partner of Dewey LeBoeuf‘s Los Angeles office, to oversee the Chapter 11 process. With Bennett and his Dewey team handling the bankruptcy, Shenker says that he and his SC colleagues could focus on the divorce. The warring spouses settled in October, with Frank McCourt agreeing to give he ex-wife roughly $130 million. The SC lawyers then moved on to negotiating with MLB to create a process via which the Dodgers could be sold out of bankruptcy, while Fox Sports continued to broadcast the team’s games.
“So, we set the stage where we had to pin down a settlement with Jamie first,” Shenker says. “We then pinned down a settlement with MLB and that settlement with MLB was designed to be able to create the maximum value in an auction of the team with its hugely valuable potential media rights to be able to repay all of the creditors but yield significant [returns] for the equity holder, i.e. Mr. McCourt.”
The judge overseeing the Chapter 11 proceedings approved the settlements between the Dodgers and MLB and between MLB and Fox Sports in early January. The first round of bidding came soon after.
To prepare for the sale, Shenker’s team at SC gathered financial information and revenue projections for the franchise. Shenker says potential bidders got something else: boxes filled with “signed baseballs [and] Dodgers caps, and so on—capturing the spirit of Dodgers stadium and the uniqueness of the asset.”
As the last three groups prepared their final bids—and even before a committee of MLB owners met Wednesday to vote on those bids—it became clear that Guggenheim’s offer was the most attractive, Shenker says: “The [groups’] bids and a large number of documents were due the day before the owners’ vote . . . It was pretty clear who the winner was [likely to be].”
While the process produced a record-breaking deal, it presented its share of challenges. Shenker’s team wound up putting in more than a year’s worth of work on the matter, which pulled in lawyers from of a host of different practice areas—including marital property and divorce law, MLB regulations, media laws, bankruptcy, and, of course, MA. In he end, Shenker is pleased with the outcome that he and his firm achieved for McCourt and the Dodgers.
“It’s one of those cases,” he says, “where everyone is a winner and no one is a loser.”
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