May 24, 2010, 2:36 PM EST
UPDATE: OK, some more research leads me to believe that the answer in the headline is “no” A-Rod is not going to get stiffed. At least probably not.
It’s possible and, in “prepacked” bankruptcies like this one, common, for the debtor (i.e. the Rangers) to file for bankruptcy when it has the assets
to cover the liabilities but can’t pay the liabilities exactly as they come due. This sort of Chapter 11 may allow the debtor to hold a sale — say, to someone like Chuck Greenberg! — to get fresh
cash and to restructure the timing of payments.
Upshot: A-Rod and all of the other creditors (which includes Mickey Tettleton of all people) are still quite likely to get their money, even if there is some sort of delay or disruption.
I think we all learned something today kids: bankruptcy is difficult to understand. And kind of boring, frankly. So unless a ballplayer shoots someone this afternoon, it’s going to be actual baseball content for the rest of the day.
2:09: I am obviously not a bankruptcy expert, but thankfully some of you are, and you have informed me that I got some stuff wrong below. Let me, to the best of my ability, fix it.
The notion that unsecureds don’t get paid is not accurate. They do get paid, and often, but it’s usually pennies on the dollar. Moreover, they are paid at the same rate, so if Alex Rodriguez gets, say, 50 cents on the dollar, all the unsecured creditors get 50 cents on the dollar. It would not be kosher, then for A-Rod to get his $24.9 million and the others to get stiffed.
The practical implication of this is that yes, A-Rod is likely to get at least partially stiffed. Because if he gets all of his $24.9 million, all the creditors get all of their money and then, by definition, there is no point of a bankruptcy (i.e. a bankruptcy is defined by owing more money than you have). Since the Rangers filed for bankruptcy it means they don’t have enough money to pay all of their unsecureds at a 100% rate. That means that A-Rod should not get all the money he thought he’d get and all of the ugly union/team dynamics set forth below come into play.
Another point of clarification: there can’t be a “side deal” between the Rangers and A-Rod, because that would violate bankruptcy laws which prohibit a debtor agreeing to make preferential payments to certain creditors before the filing. I didn’t intend that meaning when I said “side deal” — I really meant that there was some understanding on A-Rod’s part that he would be taken care of in the normal bankruptcy process — but that seems far less likely given the pro-rata thing outlined above, even if it were proper for the Rangers to make such an assurance, which I’m not sure is the case.
I’d ask that the bankruptcy experts among you continue to help me out with this stuff, but for now anyway, it seems like, yeah, A-Rod is gonna walk away with less money than he bargained for. I can’t help but think that this will become something of a problem for baseball going forward.
1:15 P.M.: Pfun Pfact from the Rangers bankruptcy filing: the largest unsecured creditor is Alex Rodriguez, who is still owed
$24.9 million in deferred compensation from his big $250 million deal.
“Unsecured” means that Mr. Rodriguez does not have any collateral for the amount of money he is owed. Unsecured creditors rarely if ever get any of the money they’re owed when the debtor goes into bankruptcy. Your mortgage company is secured (i.e. it has a lien on your house) which means that if you stiff them, they can take the house back to satisfy what you owe them. Your credit card company, in contrast, is an unsecured creditor. If you stiff them they can try to collect from you and can ruin your credit rating, but they can’t take your stuff and, for the most part, once you file bankruptcy, its game over for them. Which is the biggest reason why credit card companies donate a lot of money to Congressmen in order to get them to make it harder for you and I to file bankruptcy.
But that’s a subject for another blog. Let’s you and I stick to Alex Rodriguez. Is A-Rod SOL? Are the Rangers going to really just walk away from the money they owe him? The short answer: I don’t know.
The longer answer: man, I can’t see them just doing that. Lots of teams owe deferred compensation to players. Indeed, I think the Diamondbacks spent more time in the last decade working on deferred comp deals than they did playing baseball games. If a team were to suddenly renege on a major deferred compensation deal you’d have to think that the union would scream and the other teams — who might like to convince some of their own high-priced players to take deferred compensation — would scream even louder. If there’s a chance they’re going to get burnt, why would any player take such a deal again?
As is the case with the Tom Hicks creditors, I can’t help but think that there is a side deal to pay Mr. Rodriguez what he is owed, be it from the Rangers or some other source.* Otherwise, the team and the league will have just created a big labor headache that no one needs.
*How that is specifically being done — if indeed it is being done — is a pretty interesting question, because I think it’s unprecedented in baseball history. The most recent parallel I can think of is Mario Lemieux, who was owed so much in deferred compensation that he just up and converted all that debt into an equity stake with the Penguins and now owns the team. That can’t happen with A-Rod because baseball prohibits players from doing such a thing. Seems like it would have to be a cash thing.
- Blue Jays sign Dayan Viciedo to a minor league deal 7
- Chris Sale will be sidelined for three weeks with foot fracture 10
- Aramis Ramirez says 2015 will be his last year 32
- Francisco Rodriguez re-signs with the Brewers 9
- If addiction is an illness — and it is — Josh Hamilton shouldn’t be suspended 295
- Pirates open to massive extension for Andrew McCutchen 18
- Report: Josh Hamilton had a relapse this offseason that “involved at least cocaine” 86
- Yankees don’t plan on having to pay A-Rod’s $30 million in home run milestone bonuses 51
- If addiction is an illness — and it is — Josh Hamilton shouldn’t be suspended (295)
- San Francisco — and all of California — will consider a smokeless tobacco ban that includes MLB parks (131)
- Report: The Yankees were “fuming” at how A-Rod handled his early arrival to spring training (114)
- Cuban prospect Yoan Moncada reportedly signs with the Red Sox for $31.5 million, plus $31.5 million in penalties (106)
- Brian Sabean says that California taxes are a hindrance to the Giants signing free agents (102)