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.
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- James - May 24, 2010 at 1:34 PM
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here’s to anyone or any situation that involves sticking it to aroid!
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- mike - May 24, 2010 at 1:38 PM
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Cot’s has A-Rod’s deferred money listed at $40 million but the filing has it at $25 million. Was a portion of the money insured?
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- Grammar Police - May 24, 2010 at 1:38 PM
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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.
I think it’s “…harder for you and me to file bankruptcy.”
captcha: obscures that
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- Art Deco - May 24, 2010 at 1:40 PM
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Craig, wouldn’t some “side deal” for the Rangers to pay A-Rod be prohibited in bankruptcy as a preference and subject to being set aside by the other creditors? I’d think the league would have to step in to make the payment.
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- Craig Calcaterra - May 24, 2010 at 1:40 PM
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Good question. It’s possible that there had been a big payment made that might not have been reported. Possible that part of the deferred money is coming from Hicks or an allied entity instead of the team. No clue, really.
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- Dan - May 24, 2010 at 1:44 PM
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Art is right that any preference to pay A-Rod would be disallowed. Even if they paid him off before the filing the court can go back and claim his payment was a preference and get it back.
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- Josh Fisher - May 24, 2010 at 1:47 PM
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Putting A-Rod ahead of any other unsecured creditors in the 11 would be a big problem.
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- Craig Calcaterra - May 24, 2010 at 1:48 PM
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I didn’t mean to use the term “side deal” to mean some sort of pre-filing deal that would normally be considered a preference. It’s just possible, isn’t it, that he gets paid as a top unsecured while other unsecureds get nothing or pennies on the dollar? This isn’t a rhetorical quesion: I really don’t know because I’m not a bankruptcy expert (obviously).
Either way, though, what happens with A-Rod will be interesting to watch. If he’s stiffed, it has big consequences for players and how teams do business. If he’s paid, the mechanics of that will be highly scrutinized by the bankruptcy court.
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- Josh Fisher - May 24, 2010 at 1:54 PM
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No, that’s not ok. All sorts of problems result from one unsecured creditor getting more than any other.
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- BCTF - May 24, 2010 at 1:59 PM
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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.
Damn those congressmen making it harder for deadbeats to not pay their bills. Shame on them.
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- Widener74 - May 24, 2010 at 2:00 PM
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The Texas Rangers do not owe any money to Alex Rodriguez. He let the Rangers off the hook for all compensation when he voluntarily terminated his contract with the Yankees in 2007. The real smarts behind that move (the opt-out) is now more evident. Boras realized that the Yankees were more likely to meet A-Rod’s part of the payroll going forward than the Rangers. Maybe he saw the financial problems looming at that time. Who knows? But his client works out a new contract with a more stable partner. And all of that deferred money gets threaded into the new deal.
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- mike - May 24, 2010 at 2:09 PM
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Kevin Millwood, Vicente Padilla and Michael Young are also listed as unsecured creditors to the tune of about $17 million.
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- Craig Calcaterra - May 24, 2010 at 2:11 PM
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All: thanks for the comments. I just updated the post to (hopefully) fix some of my errors on the bankruptcy stuff. Please keep the comments coming. I’d prefer the post to, you know, actually be correct.
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- dlf - May 24, 2010 at 2:14 PM
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Not really. A promise to pay may be an executory contract that could be avoided, but it isn’t a preference until there is a transfer.
Beyond that, a chapter 11 plan can and often will differentiate between subclasses of unsecured creditors. Whether allowable depends on the reasons for the distinction, but employees and former employees are often treated differently than trade creditors.
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- Bankruptcy Clerk - May 24, 2010 at 2:16 PM
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It’s great to read about bankruptcy while taking a break from reading about bankruptcy.
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- dlf - May 24, 2010 at 2:17 PM
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[i]Since the Rangers filed for bankruptcy it means they don’t have enough money to pay all of their unsecureds at a 100% rate.[/i]
Since the Rangers filed for bankruptcy it means they don't have enough money to pay all of their unsecureds at a 100% rate.[/i]Not necessarily. There is no requirement in the Bankruptcy Code ..." permalink="http://hardballtalk.nbcsports.com/2010/05/24/are-the-rangers-going-to-stiff-alex-rodriguez/#comment-51391"]
Not necessarily. There is no requirement in the Bankruptcy Code that a voluntary debtor must be insolvent. Businesses with more assets than liabilities, but with cash flow issues will not infrequently file bankruptcy to change when debts are to be paid, but not reduce the amount owed.
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- Craig Calcaterra - May 24, 2010 at 2:19 PM
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Sorry B.C.
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- RobRob - May 24, 2010 at 2:34 PM
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Wow. What a surprising turn of events. MLB helps transfer the ownership of a club from one crony to another at the expense of the players. I’m shocked.
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- Moses Green - May 24, 2010 at 2:40 PM
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This filing is a technicality to satisfy some necessary pre-sale conditions. Bud’s letter of agreement is page 21 of 21 of the available bankruptcy filing, and in it he states that he only approved this to facilitate the sale and because all creditors of Texas Rangers Baseball Partnership would be paid in full. He did not distinguish between secured and non-secured creditors, and I would guess that each creditor will be paid in full.
The whole thing was prepackaged and the pertinent documents in the individual agreements were not disclosed anywhere that I could find them.
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- Jonny5 - May 24, 2010 at 2:44 PM
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I say the players union needs to pay whatever difference there is from what he gets. Or what good is it for?
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- Ross Johnson - May 24, 2010 at 2:51 PM
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Craig,
You still don’t have it right. Rodriguez is an unsecured creditor of the Rangers, not of Hicks Sports Group. The Rangers aren’t in financial trouble – Hicks Sports Group is. “If” (and it’s a big if) the MLB imposed sale to Greenberg/Ryan goes through at $575 million, all of the Rangers creditors, including the unsecured ones, like Rodriguez, are paid off in full. The remaining cash from the sale, projected to be $280 million, flows to Hicks Sports Group, the equity owner of the Rangers. This money is then to be turned over to the creditors of HSG, paying them about 50 cents on the dollar.
The punchline though is that A-Rod will get 100% of the money owed to him.
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- Craig Calcaterra - May 24, 2010 at 2:53 PM
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OK, just made my last update. Based on all you guys have told me and some studying up of my own on the side, I’m pretty comfy now saying that A-Rod and the others probably won’t get stiffed.
This post, its updates and everything I’ve said about it today has been brought to you by Difficult yet Boring Topics like Bankruptcy Law.
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- AMusingFool - May 24, 2010 at 3:04 PM
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Damn those congressmen making it harder for deadbeats to not pay their bills. Shame on them.
You might want to check your facts before broadly generalizing. Half of all private bankruptcies are driven by medical bills. And over half of the people involved have insurance.
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- sc - May 24, 2010 at 3:22 PM
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Ramble on Rose.
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- ecp - May 24, 2010 at 3:25 PM
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Widener, the Rangers most certainly owe Alex Rodriguez the money; he’s listed in today’s legal filing as the largest unsecured creditor:
http://www.zerohedge.com/article/texas-rangers-file-bankruptcy-alex-rodriguez-lose-25mm-deferred-comp-largest-unsecured-credi
