In recent weeks we have published several articles detailing decisions that Major League Baseball has made in the interest of improving the game. Blood-based drug testing, a modified season schedule. But as is so often true of Bud Selig’s actions, this year has been, figuratively speaking, a case of one step forward two steps back.
With the court-mandated auction complete, the sale of the Texas Rangers has been finalized and winners named– a group of investors led by Nolan Ryan and Pittsburgh attorney Chuck Greenberg and dubbed The Rangers Express will join MLB as its newest owners. While they are no doubt breathing a sigh of relief that the process is behind them, the reality is that this decision was made months ago. The outcome of this auction was all but pre-determined.
Instead of serving as an objective means to securing the best purchase price, the sale was a plodding, farcical, profanity-laced circus until, mercifully, The Rangers Express outbid its rival.
Except, well, it didn’t.
A competing group led by Mark Cuban submitted what was actually the highest bid, a $598 million offer that included $390 million in “cash”. That was approximately $5 million higher than the Express’ best offer. However, there was an addition complexity in the structure of the bids that required a $10-$13 million “breakup fee” to be paid to the Express if it lost. Once this additional sum was factored in, Cuban’s $5 million edge was nullified.
Additionally, the court ruled that the financing secured by the Ryan-Greenberg group was “easier to approve”.
Really? Mark Cuban surely has his problems but I don’t think adequate fiscal solvency is among them. And I’m sure it’s just a coincidence that MLB’s other team owners have objected to Cuban in the past. Now he’s been rejected by both leagues.
The breakup fee amount stems from the fact that the Express had previously been designated as the winning group after last year’s initial sale efforts. At the time, the Ryan-Greenberg group successfully outbid several other sets of investors and were prepared to take ownership of the team. But a subsequent declaration of bankrupcty and a series of legal maneuvers nixed the deal at that stage. Even so, the courts ruled that the Ryan-Greenberg group, by virtue of winning the initial bidding process and being endorsed at that time by MLB, would be entitled to compensation if in fact it did not ultimately come out on top.
From a certain point of view, this whole messy affair therefore had the appropriate outcome. Ryan-Greenberg won the initial bidding process and agreed to buy the team before the club’s deteriorating financial situation forced the matter to be settled in bankruptcy court. So in a way, it’s only fair that they won at auction.
On the other hand, the reason that the sale was held up to begin with was that the former owners, led by Tom Hicks, were in extreme debt to numerous creditors, and those creditors did not stand to benefit as they should from the original terms of the sale. In other words, Ryan and Greenberg were thwarted because people wanted to be paid back.[pullquote]MLB’s fingerprints are all over this and its preferred group won the sale. As in 2009, the Express obtained ownership with a lesser bid.[/pullquote]
It was certainly a reasonable expectation; the sale of the team should have to be conducted in such a way as to get these creditors the money that was owed to them. And yet, after all of the finagling and jumping through hoops, we’re right back where we started– the winning offer is not necessarily the one that would have resulted in the most money.
The creditors had threatened to take further legal action if the breakup fee was awarded. After all, why should Ryan-Greenberg be handed $10-$13 million for their time when plenty of other parties haven’t been paid what they were owed? Why should old debts be marginalized?
Now that prospective action is prevented because the breakup fee was never awarded. Moreover, the Express threatened to sue if it lost at auction, pursuing a breach of contract argument that it was prepared to make a few months ago.
By now your head is probably spinning or you’ve fallen asleep. The procedural intricacies of this case have kept armies of lawyers busy for the better part of year, so it’s natural to be confused. I can’t claim full understanding myself.
But here is, from my point of view, a summary version of events:
- Ryan-Greenberg outbid several other parties and win the right to purchase the Rangers in 2009. The victory comes in part from MLB’s endorsement of the group.
- Creditors seek to block the sale, arguing that the offer did not represent the highest amount of money. These creditors want to be paid back and believe that the arrangement approved by MLB does not achieve that in the best possible way.
- The former owners declare bankruptcy, allowing the courts to take over control of the case. The courts decide that the fairest way to sell the team is to re-open the bidding via auction.
- The Ryan-Greenberg group threatens to sue for breach of contract, but retracts that threat when the auction is structured to meet certain key conditions demanded by the group.
- The Ryan-Greenberg group wins the auction despite being outbid by a group led by Mark Cuban and Houston businessman Jim Crane.
MLB’s fingerprints are all over this and its preferred group won the sale. As in 2009, the Express obtained ownership with a lesser bid. The decisions of the courts and pressure exerted by MLB, both in the public eye and no doubt behind the scenes, have resulted in exactly the outcome that baseball wanted from the beginning.
Which brings us back to fairness. While in the big picture it might not really matter who owns the team, it is alarming that MLB played no small part in engineering this outcome. The agonizingly slow sale was full of flaws and all sides have had some legitimate complaints, but in the end that only magnifies the lack of a fair process.
Now all that remains is to see what Nolan Ryan, one of the game’s more notable yet overrated pitchers, can do as an owner. MLB wanted him. MLB got him. Should it backfire, at least we’ll all know whom to blame.