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Home , 1982 World Series, Bud Selig, Hughie Jennings, Jamie McCourt, Kenesaw Mountain Landis, Mark Attanasio

SEPTEMBER 2012

Sports and the

Mary K. Braza and Kevin Schulz replay their role in the purchase of the L.A. Dodgers – a deal to remember Sports and the

A National Niche and a Baseball Deal to Remember

by Joe Forward

n late April 2012, attorney Kevin Schulz local telecast had a week of frenzied days and sleepless nights rights, had to in , working with a team of lawyers to unfold before the Beneath America’s favorite pastime lives a complex legal and business world. With insight from sports industry meet a short deadline: purchase of the could be lawyers Mary K. Braza and Kevin Schulz, replay the purchase of the Los Angeles Dodgers for a record $2.15 billion – Dodgers for a record $2.15 billion. The work sold at auction. completed, the mergers and acquisitions attorney Finally, unlike a deal they helped bring about – and the rise of Foley & Lardner in sports law. made his way to L.A. International Airport, heading some deals that home to Milwaukee as the client, Guggenheim can take upwards Baseball Management L.P. ­– led by , of a year to transpire, this one closed within only a few , and Earvin (Magic) Johnson – became months of announcement of the Dodgers’ sale. the biggest spender in sports history. “I remember walking away thinking I was just part of I Back in the Milwaukee office of Foley & Lardner something pretty significant,” said Schulz, a Foley partner LLP, Schulz discussed the historic deal with Milwaukee who worked on the commercial transactions. “It’s pretty lawyer Mary K. Braza, cochair of Foley’s sports industry cool to be a sports fan and then have an opportunity to help team. The two had worked on big sports deals before – develop the inner workings of a sports deal like this.” including the purchase of the Cubs in 2009 ($845 Underneath America’s favorite pastime lies a complex million) and the in 2010 ($593 million) legal and business world. With insight from local sports – but this deal had been more complicated in a industry lawyers, this article tracks the Dodgers transaction, of ways. For starters, then-Dodgers owners Jamie and as well as Foley’s rise to national prominence in sports law. Frank McCourt were submerged in lengthy and bitter It also highlights underlying rules of baseball, including the divorce proceedings, which had implications for the deal. ’s authority under the Second, battles in bankruptcy court, largely relating to Major League Constitution.

6 – Lawyer – September 2012 Expanded Recovery

Beneath America’s favorite pastime lives a complex legal and business world. With insight from sports industry lawyers Mary K. Braza and Kevin Schulz, replay the purchase of the Los Angeles Dodgers for a record $2.15 billion – a deal they helped bring about – and the rise of Foley & Lardner in sports law.

Baseball’s Best Interest Includes Dodgers Sale Major League Baseball (MLB) is an unincorporated association of 30 teams, divided into two leagues with three divisions in each league. The Major League Constitution, originally adopted in 1921, constitutes an agreement between the league and its teams.1 It establishes a commissioner, who governs MLB as its chief executive officer.2 Milwaukee’s own Allan “Bud” Selig, who formerly owned the and served as the club’s president, has served as the MLB commissioner for the past 20 years.3 The commissioner has the power to act “in the best interests of baseball.”4 Thus, the commissioner has authority to investigate acts, transactions, or practices considered “not

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best interests power to seize control of the Dodgers’ daily operations, an unprecedented measure.10 Frank Joe Forward, St. Louis Univ. 2010, is the legal writer for the State McCourt, who acquired wealth by Bar of Wisconsin. He covers and reports court decisions, legislative investing in real estate, was actions, and other legal developments related to the practice of entrenched in an expensive divorce law. Forward was a sports reporter and editor for newspapers in from Jamie McCourt.11 Frank McCourt Wisconsin and Oregon before attending law school. He can be had purchased the Dodgers, Dodger reached at [email protected]. Stadium, and surrounding real estate for $420 million in 2004, and Jamie (a in the best interests of baseball.”5 other players from lawyer, and the Dodgers’ former chief Like a judge, the commissioner can baseball for fixing the 1919 World executive officer) claimed half ownership summon individuals, order document Series.8 Another commissioner, A. of the team.12 Selig questioned the club’s production, and impose preventive, Bartlett Giamatti, banned 17-time all- financial viability. In a press release, Selig remedial, or punitive sanctions deemed star from baseball on Aug. 23, said the action was necessary to address appropriate.6 The commissioner may 1989, for gambling. Rose was accused of “deep concerns regarding the finances also adopt regulations in the best betting on MLB games, including ones and operations of the Dodgers and to interests of baseball.7 involving the Reds, while he protect the best interests of the Club, , a was the Reds’ . Coincidentally, its great fans and all of Major League federal judge, was baseball’s first Giamatti died of a massive heart attack Baseball.”13 commissioner and permanently banned one week later.9 A commissioner’s decisions are “Shoeless” Joe Jackson and seven In April 2011, Selig invoked the difficult to challenge. For one, they are final and unappealable.14 The clubs agree to refrain from litigation between or among themselves, or with MLB entities, including the commissioner.15 Clubs “severally agree to be finally and unappealably bound” by the commissioner’s decisions and “waive a right of recourse to the courts.”16 Historically, challenges to the commissioner’s best interests authority have failed.17 In June 2011, Selig again invoked his best interests power to nix a potential 17-year telecast deal between Frank McCourt and television broadcaster Fox Sports West 2 – which is under contract with the Dodgers until 2013 – worth a reported $3 billion.18 Under the proposed renewal, McCourt would receive an up-front payment of $385 million, which he desperately needed to keep the Dodgers solvent and pay expensive players like Manny Ramirez.19 However, nearly half the $385 million would be diverted to pay McCourt’s personal debts, including legal fees to attorneys.20 In a statement, Selig concluded that the “proposed transaction with Fox would not be in the best interests of the Los Angeles Dodgers franchise, the game of baseball and the millions of loyal fans of this historic club.”21 That same month, the Dodgers filed for

8 – Wisconsin Lawyer – September 2012 Sports Law bankruptcy protection. MLB.com, delivering live audio and Bay Packers but wanted to expand “When the team went into video Internet streaming and real- its sports industry work beyond the bankruptcy, there was early speculation time baseball information. MLB clubs borders of Wisconsin and MLB. that the Dodgers would be sold by grant Internet rights to MLBAM, now Professional sports leagues and McCourt, or forced to be sold by a lucrative arm of baseball’s business.23 teams were expanding beyond mere MLB,” Braza said. “We started to Braza provides legal representation to presentation of games with ticketing, talk with people who were interested MLB and MLBAM, with the assistance merchandise, and concession revenues. in buying the team. They came to of sports industry lawyers from different The “game” was changing. The firm us because we had experience in Foley practice areas. saw a national sports industry need for purchasing sports franchises, and we “Shortly after MLB put the two different kinds of sophisticated legal eventually took on a relationship with leagues into one entity in 1998, it allowed services. the Guggenheim group.” the teams to combine their Internet “We had lawyers all over the In November 2011, Frank McCourt rights and to start their own technology country working for sports clients, but agreed to sell the Dodgers through a company to Internet activities,” no official practice group. In 2002, we court-supervised auction. He reached Braza said. “It has really exploded. MLB developed a national, cross-disciplinary an agreement with Jamie McCourt to has become a frontrunner in delivering team of lawyers, people from various pay her $131 million upon the sale. online content.” substantive areas in both transactions With a concentration of sports industry In ensuing years, Braza and her and litigation,” Braza said. “It made lawyers in place, Foley’s due diligence Foley partners continued to recognize a whole lot of sense to connect local would soon begin. increasing opportunities in the sports lawyers with the resources to offer industry. Foley’s Milwaukee office full-service legal work in the sports represents the Brewers and the Green industry.” The Rise of a Sports Industry Practice

When the Milwaukee Brewers took Photos: Corey Hengen center stage in the 1982 , Braza, originally from Ithaca, , had just started working for Foley’s litigation group in Milwaukee. Her mentor was Robert DuPuy, a Foley partner and the Brewers’ outside legal counsel. In 1989, MLB asked DuPuy to serve as outside legal counsel. After four years, hired DuPuy as MLB’s chief legal officer, a position he held until October 2010, when he left MLB and returned to Foley as a partner in the firm’s New York office. “I came in because Bob was a mentor,” said Braza, a litigator who helped MLB defend its exemption from state antitrust laws in Major League Baseball v. Crist.22 “I got into MLB matters that Bob was working on, and when MLB hired him, he involved us in these new commercial ventures. I went through a lot of growth professionally as I expanded my litigation practice into new aspects of the sports industry that I didn’t even know existed.” As DuPuy passed the torch to Braza and Jim McKeown, an antitrust specialist, MLB was developing MLB Advanced Media (MLBAM), which launched in 2000. The company houses digital assets and runs

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English soccer’s Manchester United ($1.47 billion purchase in 2005). After Pro Baseball Players and Managers the Cubs deal closed, ’s investment group approached Foley’s Who Graduated from Law School team to help with purchase of the Texas Rangers in 2010 for $593 million. (Florida State University Law School) The Rangers made consecutive World • Led the St. Louis Cardinals to the 2006 and titles Series appearances in 2010 and 2011 and signed a long-term telecast deal • Was once quoted as saying: “Law school didn’t teach me how to the 25 ball or how to run or how to pitch. But, because of law school, I see the game worth a reported $1.6 billion. Foley’s playing out in front of me on the field in a very different way. My legal training Milwaukee lawyers also worked on the taught me to put myself in our opponents’ dugout. Law school taught me how sale of a significant minority interest in to analyze and how to best deal with a specific situation. … The best degree the NFL’s Cincinnati Bengals in 2011. Other Foley offices helped secure a baseball manager can get is a J.D. The law degree taught me how to study, deals such as a purchase of the NFL’s how to think, and how to implement and develop a strategy.” Jacksonville Jaguars this year for $770 (University of Michigan Law School) million. • Founder of baseball’s farm system With these large transactions • As an executive, signed in 1945 under its belt, Foley’s sports industry • Inducted to Hall of Fame in 1967 team (nearly 60 lawyers in 11 offices (University of Cincinnati Law School) across the country) was ready to tackle • Led to six pennants and three World Series titles another mega-deal. • Inducted to Hall of Fame in 1964 (Cornell University Law School) Due Diligence • Star for Orioles Led by Braza’s counterpart in • Managed 16 seasons Washington, D.C., Irwin Raij (the other • Inducted to Hall of Fame in 1945 cochair of the sports industry team), John Montgomery “Monte” Ward ( Law School) Foley’s lawyers began discussions with • Organized baseball’s first players union Guggenheim’s ownership group to • Pitched an 18-inning, shutout in 1882 make a winning bid for the Dodgers. • Inducted to Hall of Fame in 1964 The biggest tasks: due diligence to facilitate Guggenheim’s valuation Sources: Baseball Almanac, http://www.baseball-almanac.com/; National analysis and strategic counsel. Baseball Hall of Fame, http://baseballhall.org/hall-famers. “Most people who get into ownership of a sports team do not As Braza and the sports industry and M&A work, so I was a natural fit have a history in the business of sports. group sought new frontiers, it was for this deal,” Schulz said. “This was a They’ve made their wealth in other perfect timing for Schulz. He was a turning point for me and the firm.” industries,” Braza said. “So they don’t Foley summer associate in 1998 and After the Brewers transaction, big know what these transactions will worked on some corporate legal matters sports team spenders sought Foley’s look like, how the team is valued. In for the Brewers. After joining the firm representation, including the Ricketts addition, many prospective buyers want in 1999, he helped the Brewers and family, which purchased the Chicago this as a unique, long-term investment, with sponsorship Cubs in 2009 for $845 million. “The a legacy to be continued by their agreements and local television and Ricketts family approached a lawyer in children. After these initial discussions, radio agreements, among other matters. our Chicago office and said they were we’ll start bringing in lawyers to deliver “Then a few years later, the Brewers interested in the Cubs,” Braza said. expertise on the details.” went up for sale,” Schulz said. “I got a call, and from there, we put In January 2012, Foley’s lawyers In 2005, , who went together a team to work on it.” began reviewing tax implications, player to Columbia Law School, purchased the At the time, the Cubs transaction and stadium contracts, sponsorship Brewers for an estimated $223 million. closed as the biggest deal in baseball agreements, employee benefits, public Foley represented the sellers, led by to date, and the third biggest deal in financing, and real estate issues, among the Selig family, which had owned sports, surpassed only by the National others. Whereas litigation zones are the Brewers since 1970.24 “I had been Football League’s Miami Dolphins often called “war rooms,” lawyers filled doing mostly commercial transactions ($1.1 billion purchase in 2009) and virtual “data rooms,” reviewing details

10 – Wisconsin Lawyer – September 2012 Sports Law about the Dodgers’ assets, liabilities, and potential opportunities. More Online … Because the costs of yearly operation can be unpredictable, Looking at the sports pages differently potential owners seek new revenue Foley & Lardner attorneys Mary K. Braza and Kevin opportunities. Right now, baseball Schulz talk about their involvement in the sports law broadcasting and media rights are industry, the roles of lawyers in big sports transactions, how their firm built a particularly valuable. Under the MLB nationwide sports practice, and their favorite teams. View the video with this Constitution, clubs have a right to article online only at www.wisbar.org/sportslaw. authorize radio and, by means of over- the-air, cable, and satellite technology, 4 a potentially lucrative broadcasting MLC, art. II, § 2(b). the telecasting of games in “home 5Id. transaction to the mix.” 6 television territories.”26 Id. § 2(b)-(c). 7Id. art. XI, § 3. For instance, the Brewers 8See Ted Curtis, In the Best Interests of the contracted with Fox Sports Wisconsin Closing the Deal Game: The Authority of the Commissioner of to telecast a minimum of 150 games Major League Baseball, 5 Seton Hall J. Sports After an auction in New York, Frank L., 5-8 (1995). per season, and those broadcasts are McCourt announced Guggenheim 9Id. at 29. 10ESPNLA.com, Bud Selig says MLB will run restricted to the Brewers’ defined Baseball Management as the winning market.27 In contrast, the National Dodgers, April 21, 2011. bidder on March 27.31 The bankruptcy 11Kim Masters, California’s most expensive Football League reserves broadcasting court approved the transaction, which divorce?, thedailybeast.com, April 9, 2010. rights to the league, and redistributes 12Carla Hall, A baseball love story veers off the would allow McCourt to exit bankruptcy profits evenly among its 32 teams, base paths, L.A. Times, Aug. 23, 2010. and pay all creditors.32 He set a closing 13MLB.com, Press Release, MLB statement including the Packers. MLB also has date of April 30, which coincided with regarding the Dodgers, April 20, 2011. contracts with national broadcasters, 14MLC art. VI, § 1. the payment date for $131 million he 15Id. § 2. such as Fox, which hold broadcasting 16 owed his ex-wife under an agreement.33 Id. rights to certain games, including the 17See Curtis, supra note 8, at 5-33. Schulz packed his bags for California, 18 All-Star Game, the playoffs, and the Ken Gurnick & Barry M. Bloom, Commish: TV the final stage of a tumultuous and deal not in Dodgers’ best interests, MLB.com, World Series. historic transaction in sports. On May June 20, 2011. Teams such as the New York 19Even Brunell, McCourt must pay Ramirez 1, Frank McCourt transferred his Yankees and the $8.33 million by June 30, CBSsports.com, June ownership to Guggenheim Baseball 13, 2011. have started their own networks, 20 Management in exchange for $2.15 Gurnick & Bloom, supra note 18. 21L.A. Times, MLB statement on Dodgers-Fox retaining the broadcasting rights while 34 reaping the big revenue rewards. billion. Braza and Schulz said the clients TV deal, June 20, 2011. benefitted from Foley’s ability to field 22331 F.3d 1177 (11th Cir. 2003) In turn, these teams can sign the 23Jorge L. Ortiz, MLB’s advanced media arm 28 a national, cross-disciplinary team with big money players. After 2013, the pulls in profits, USA Today, Dec. 5, 2007. new Dodgers owner could do the sports industry experience. Foley’s prior 24Espn.com, Selig has run team since 1970, Jan. experiences with the Brewers, the Cubs, 19, 2004. same, or let broadcasters compete for 25Bob Nightengale, TV deals for Angels, Rangers broadcasting rights.29 Indeed, Frank and the Rangers, among others, allowed open door for other teams, USA Today, Feb. McCourt’s telecast renewal attempt it to quickly assess the prospects for a 10, 2010. new ownership group and provide the 26MLC, art. X, § 3(a)(b). with Fox Sports West 2 was estimated 27Bob Wolfley, Fox Sports Wisconsin to televise to be worth $3 billion. Braza said Los legal services to close the deal. 150 Brewers regular-season games, Feb. 23, Angeles is a hot spot for broadcasting, “League rules create additional 2012; Don Walker, Brewers, FS Wisconsin twists in sports deals,” Schulz said. have a new TV deal, April 30, 2009. sharing a large telecast territory of 28Tom Van Riper, TV money is a game changer southern California with the Los “Transactions involving manufacturers for baseball and the Dodgers, Forbes Mag., are not the same as transactions in Major April 2012. Angeles Angels of Anaheim, which 29LATimes.com, Dodgers settle with Fox, ending in January acquired former St. Louis League Baseball. Our team was able to battle over TV rights sale, Jan. 10, 2012. Cardinals slugger and Brewer nemesis bring this unique experience to the table. 30ESPNLA.com, Albert Pujols’ contract This was a deal to remember.” completed, Jan. 5, 2012. Albert Pujols in a monster deal worth 31L.A. Dodgers, Press Release, Dodgers and $240 million.30 Frank McCourt announce agreement with “This was a unique opportunity,” Endnotes Guggenheim Baseball Management, March 27, 2012. said Braza. “It was driven in part by 1Major League Constitution (MLC), art. I. 32CNN.com, Bankruptcy court approves sale of the potential to enter a broadcasting 2Id. at art. II. Los Angeles Dodgers, April 14, 2012. deal in the next year or two. Already, 3Selig served as the “interim” commissioner from 33ESPNLA.com, Dodgers say case still on track, 1992 to 1998, the year he was elected permanent April 6, 2012. Los Angeles is a great baseball city commissioner by a unanimous vote of the MLB 34ESPNLA.com, Sale of Dodgers finalized, May geographically, but then you add club owners. 2, 2012.

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