Daily Herald
Cubs may file for bankruptcy to speed sale
By Ted Cox | Daily Herald Staff
Published: 7/13/2009 8:34 AM | Updated: 7/13/2009 5:10 PM

There was no rest from controversy for the Cubs over the All-Star break.

While the on-field operations might have been quiet, rumors swirled around the team Monday amid reports the Tribune Co. would declare it bankrupt as a way to expedite its sale. Experts emphasized such an action would not mean the team is in financial trouble, and in fact, would help protect the profitable baseball team from creditors looking to get the most possible from the company's already-bankrupt newspaper.

"This is more of a legal maneuver than something actually going on with the Cubs," said University of Illinois College of Law Professor Robert Lawless of the reports, which originated with the Bloomberg financial news service.

The Cubs took immediate pains to insist bankruptcy would not nullify any player contracts or otherwise alter any of the team's financial dealings, while not denying the move was under consideration by Tribune Co. and owner Sam Zell.

The Tribune, meanwhile, refused to say if or when the move would be made.

"We will continue to decline comment on the specifics of any possible transaction," said spokesman Gary Weitman.

The Tribune declared bankruptcy last December, but specifically kept the Cubs out of the filing in order to speed the team's sale. Now, as it turns out, the Cubs might declare their own bankruptcy in order to complete the sale, to a group led by financier Tom Ricketts or anyone else for that matter.

Basically, the Cubs going into bankruptcy would simply separate the team's creditors from the Tribune's.

"The Cubs are essentially an asset of the Chicago Tribune," Lawless said, "and a bankruptcy court has very broad power over the assets of the debtor. Someone might come up years from now and say, well, I have a claim against the Tribune Co., and so I have a claim against the Cubs. By putting the Cubs into bankruptcy, you remove that argument."

The key to the deal, for a team being sold for a reported $900 million that routinely draws 3 million fans a year to Wrigley Field, as well as pocketing vast merchandising and TV dollars, is that a firm does not need to be on the verge of failure to seek bankruptcy protection.

"It's not true in a lot of countries, but in the United States it is," Lawless said. "You don't have to be insolvent to declare bankruptcy."

In theory, the Cubs would simply go into bankruptcy court, register their creditors, then go about business as usual.

"If you're solvent," Lawless said, "the creditors should be paid 100 percent."

"You take it in the front door, and it's just like you're getting radiation," said New York University Assistant Professor Michael Cramer, former president of the Texas Rangers. "It comes out the other door about a half-minute later. It's clean."

"It scrubs it clean," added Eric Fisher of the Sports Business Journal.

Spokesmen for the Ricketts family and Major League Baseball also declined to comment, but Cramer said they should have few objections. "This would make sense for Major League Baseball," he said. "They would like to see that asset be stand-alone ... not tied up in other issues."

Legal experts told Bloomberg the entire deal could be done in under a month, and would give the club's new owners peace of mind about any fallout from the Tribune bankruptcy - if it went off without a hitch.

Yet, while a bankruptcy filing would seem to make sense, it's still not without its risks. "The jeopardy is mainly in the form of public perception," Lawless said.

"If this were to happen," Fisher added, "they would need to do some public education and a little PR massaging to explain, 'This is a procedural, prepackaged thing. This is why we've done it.'"

Although the Cubs could conceivably nullify player contracts under the bankruptcy - and many fans no doubt wish they would where underperforming players like Alfonso Soriano, Kosuke Fukudome or Milton Bradley are concerned - there are reasons they wouldn't, both legal and practical.

"The Cubs' relationship with Major League Baseball would prohibit them from shedding those player contracts," Lawless said, as a bankruptcy judge recently ruled in the Phoenix Coyotes' dealings with the National Hockey League, which were considered contractual matters. "Whatever rules apply out of bankruptcy court are going to apply inside of bankruptcy court," Lawless added. "The Cubs can't come in and say, 'We like these parts of the contract, but not these specific parts, and we're just going to get rid of these parts.' It's all or nothing."

It would also mean an instant challenge from the Major League Baseball Players Association, the most powerful union in sports.

"You'd have a union grievance so quickly," Fisher said. "I doubt very, very highly they would ever go down that road."

Yet the bankruptcy would also seemingly open the books of one of the most lucrative teams in baseball to public scrutiny in court documents, something the union has been craving for decades.

Fisher pointed out baseball has thrived with its peaceful labor relations over the last 15 years since the players' last strike. Baseball's powers that be wouldn't want that disrupted. But there's a stigma to bankruptcy where they're concerned as well.

"It's happened in other sports, particularly hockey," Fisher said, "but it hasn't happened to a baseball team in 39 years."

The Baltimore Orioles were sold in an owner's personal bankruptcy in 1993, but the team was more than solvent with a highly profitable new stadium, Camden Yards. The last time a baseball team failed was the Seattle Pilots in 1970. Bud Selig, now commissioner of baseball, bought them and moved them to Milwaukee to become the Brewers, but that's not the sort of memory he or anyone else in baseball wanted to be reminded of in the midst of the sport's All-Star break summer holiday.

Wire reports used in story.