Has Bankruptcy Become a Weapon for Team Owners to Circumvent League Control?

A 5 Part Series by Blake Williams

 

united_states_bankruptcy_court_seal

With a total of 11 professional sports franchises filing bankruptcy and considering the unique ways that franchises attempt to use it to their advantage, bankruptcy has truly become a peculiar feat within sports culture.  While the rate of filings among professional sports franchises is not very high, three MLB franchises and two NHL franchises have filed for chapter 11 protection within the last seven years.  While these franchises’ respective circumstances have been unique, most of their financial troubles were caused by the majority owner defaulting on loans, disputes between the league and the franchise, or subpar performance on the field leading to poor support from the local community (the Cubs being the notable exception).  Overall, team bankruptcies must be judged as successes because 9 of the 11 franchises successfully reorganized and remain active in the same city they were in when they filed.

It’s particularly peculiar, that of the 11 franchises that filed bankruptcy over the last 45 years, six of them have been from the National Hockey League.[1]  Patricia Moses of Portfolio 101 explained that, “It turns out that NHL teams have a higher likelihood of failure because the teams have less cash flow and the owners usually have a lower net worth than owners of other sports franchises”.[2]  The NHL has 30 teams, which means that 20 percent of the league has filed for bankruptcy protection at least once. The Pittsburgh Penguins are the only team that has filed twice. Also, the Cleveland Barons were the last major league sports franchise to cease operations due to its bankruptcy filing and subsequent merger with the Minnesota North Stars (now the Dallas Stars).

The MLB seems to have caught the latest bankruptcy bug.  The MLB has had five franchises file for bankruptcy, with three of the filings having occurred since 2009. This means that one out of six franchises have filed.  The most interesting fact is that as of recent, it’s not the small-market teams that are filing, but rather the big-market teams.[3]  No NFL or NBA teams have ever filed for bankruptcy protection.[4]

 

Stay Tuned for Part II: Reasons Teams File for Bankruptcy

 

[1] Patricia Moses, 4 Reasons Pro Sports Team File for Bankruptcy, Investopedia (Mar. 9, 2011),  http://www.investopedia.com/financial-edge/0311/4-reasons-pro-sports-teams-file-for-bankruptcy.aspx.

[2] Patricia Moses, 4 Reasons Pro Sports Team File for Bankruptcy, Investopedia (Mar. 9, 2011),  http://www.investopedia.com/financial-edge/0311/4-reasons-pro-sports-teams-file-for-bankruptcy.aspx.

[3] Matt Egan, The Latest Weapon in the Pro Sports Playbook: Bankruptcy, Media Advertising: FOXBusiness (July 01, 2011), http://www.foxbusiness.com/features/2011/06/30/pro-teams-throw-chapter-11-into-playbooks.html.

[4] Joseph Checkler, Sports Teams’ Secret to Success After Bankruptcy: File Again!, The Wall Street Journal (June 27, 2011), http://blogs.wsj.com/bankruptcy/2011/06/27/sports-teams-secret-to-success-after-bankruptcy-file-again/.

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