Home Runs and Strike Outs: Analyzing Team Bankruptcies

As Yogi Berra said, “It ain’t over till it’s over.” So, too, does the expression apply to Chapter 11 restructuring. In recent years, Chapter 11 and sports teams have played ball. Five teams filed for bankruptcy in just the last three years alone,¹ and financial distress is affecting other teams.² Reasons for sports team bankruptcies include systemic liquidity issues (e.g., low ticket sales, high player salaries and burdensome debt), and intellectual property and antitrust issues. Sports team bankruptcies also involve fundamental power struggles between team owners and other parties, raising legal issues not present in other types of bankruptcy cases.

Bankruptcy Sales Come With Hurdles

Section 363(b) of the U.S. Bankruptcy Code³ authorizes sales free and clear of liens, claims and encumbrances—an attractive feature for sports team buyers. Take the case of the Phoenix Coyotes, which suffered significant negative EBITDA (earnings before interest, taxes, depreciation, and amortization) from 2005-2008, prompting a search for a purchaser or strategic investor. The search resulted in a potential purchaser that conditioned the transaction on implementation through bankruptcy.⁴