A year ago, Foley & Lardner‘s Mary K. Braza and Kevin R. Schulz took a call from an investment group led by baseball Hall of Famer Nolan Ryan and Pittsburgh lawyer Chuck Greenberg, asking the Milwaukee attorneys if they would represent them in their purchase of the Texas Rangers.
At the time, both Braza and Schulz were still heavily involved in what would be the successful acquisition of the Chicago Cubs by the Ricketts Family. Considering that the $845 million sale of the Cubs marked the single largest transaction ever for a North American sports franchise, the two attorneys figured the Rangers deal would move at the speed of a Ryan fastball.
“We thought, we know how to negotiate these. No problem,” joked Braza, who is chair of the firm’s Sports Industry Team.
But from the time the attorneys got involved on Labor Day, 2009, to final approval of the deal on Aug. 12, more than 35 attorneys from eight Foley offices, including 10 from Milwaukee, provided expertise in 23 different practice areas.
While the sale of the Cubs involved both the team and its previous majority owner, the Chicago Tribune, going through bankruptcy, the Rangers deal threw even more legal curveballs at attorneys.
What began in January as a competitive bidding process amongst several groups for ownership of the franchise spiraled into a tense, one-day, court-ordered bankruptcy auction this summer that ended with Major League Baseball’s approval of the $590 million sale.
“It was difficult to imagine anything getting dicier than the Cubs transaction,” said Schulz, who was also involved in the 2004 sale of the Milwaukee Brewers. “It’s not something we were looking for, but it’s just the way the deal evolved.”
When he and Braza came on board, they expected to represent Rangers Baseball Express LLC in a relatively straightforward bidding process to purchase the team from owner Tom Hicks, whose investment group was insolvent.
Traditional franchise transactions, such as the $220 million purchase of the Brewers by a group led by California investor Mark Attanasio, involve a bidding process and approval of a sale agreement by at least three-quarters of the 30 major league teams.
After going through more than 20 versions of a purchase agreement, Braza submitted in January what her legal team thought was the winning bid.
“Our focus turned to getting our financing in place and locking in all our investors and locking in all our banks,” she said. “By the end of April it was clear we weren’t going to reach an agreement with the banks.”
The transaction was challenged by creditors of the ballclub’s holding company, who wanted more money and a restructured deal. That forced attorneys to move forward with a consensual bankruptcy plan.
An involuntary bankruptcy would have been a “hammer” for creditors against the Express group, said Schulz, and jeopardized the entire deal.
After developing a reorganization plan and filing for bankruptcy on May 24, attorneys strategized to get the club through the process as quickly and cheaply as possible.
“One of the unique natures of this is the league really acts as a regulator of debt for the teams,” Braza said. “The banks, while they had the right to approve any sale, their actual lien on the team assets was limited to $75 million. So it was around that concept that the bankruptcy was built.”
But as the process evolved, lenders pushed the availability of other bidders that could enter the fray and eventually the court set a date for an auction.
Dallas Mavericks owner Mark Cuban and Houston businessman Jim Crane emerged as the sole competition, but Braza was confident that the Express group had an edge because it had the support of Major League Baseball and financing in place.
Investors had even banked $260 million in advance of the sale to reinforce their commitment to the deal.
“That is unusual,” Schulz said. “Normally that would fund on the day of closing and investors stay with their money beforehand.”
The Crane-Cuban group also had to clear a financial threshold with each bid, because the Express group was the “stalking horse,” or first bidder in the auction.
Each time the two sides presented bids to the presiding judge, the Crane-Cuban group had to top the Express group by $24 million.
“That became the real negotiation that took place behind the scenes – what was the value of our bid as opposed to their bid?” Braza said. “Should theirs be discounted?”
Beyond the financial momentum, she and Schulz said their attorneys also viewed the Aug. 4 auction date as a good karmic sign.
It marked the 17th anniversary of one of baseball’s most infamous brawls. In 1993, Ryan, pitching for the Rangers, hit Chicago White Sox third baseman Robin Ventura with a pitch. Ventura, then 26, charged the mound against the 46-year-old Ryan, who put Ventura in a headlock and landed several hard punches.
“That had become sort of a rallying point for us,” Braza said. “We found some significance around that date and thought we’re going to use this.”
Ultimately, Ryan and the other investors used their checkbooks to muscle out the competition.
After trading four bids in the last hour, the Express group made the final one and the Crane-Cuban contingent conceded shortly before 1 a.m. on Aug. 5.
“The crowd spontaneously erupted in a standing ovation,” said Schulz, who likened the scene to a walk-off home run. “I had to go back the next morning to read the judge’s closing remarks because people were cheering at the time.”
Neither Braza nor Schulz had ever been involved in such a complex transaction, but both said they would welcome the challenge again.
“There wasn’t a lot of precedent for something like this,” Braza said. “But now I think we feel like there isn’t much we haven’t seen.”
Jack Zemlicka can be reached at firstname.lastname@example.org.