Why did Major League Baseball take over the Los Angeles Dodgers?

Fans are reeling, law scholars are debating the legal fallout, and business analysts are examining the corporate lessons from this week's announcement by Commissioner Bud Selig that Major League Baseball is assuming control of the Los Angeles Dodgers.

The decision demonstrates MLB’s commitment to do everything in its power to preserve the value of the Dodgers, says baseball attorney Alan Gover.

The team has been reeling from declining attendance, a $30 million personal loan to make payroll, and concerns about safety after an opposing fan was beaten unconscious on Opening Day. Because the Dodgers are one of the most storied franchises in baseball history and home to the second-largest baseball market, the implications are expected to go far beyond baseball and the city.

Commissioner Selig is acting “to ensure that this club is being operated properly now and will be guided appropriately in the future,” he said in a statement, mentioning "deep concerns" with the team's finances.

'Too distinguished to fail'

“The continuing deterioration of the 'Dodger blue' label has been as big a threat to baseball as the financial collapse was to Wall St. This is not a case of too big to fail so much as too distinguished to fail,” says Jason Maloni, chair of the sports practice of Levick Strategic Communication. “As drastic a measure as this is, people will look back on this as a turning point in Dodger history and a good thing that brought stability.”

Once known as the team that broke the major-league color line with Jackie Robinson, the Dodgers moved from Brooklyn to Los Angeles in 1958. As the Los Angeles Dodgers, they won five World Series championships between 1959 and 1988, boasting such stars as Sandy Koufax, Fernando Valenzuela, and Kirk Gibson, and managed by Walter Alston and Tommy Lasorda.

“Certainly, this is one of the top franchises in all of sports. When it has gotten to the point where the commissioner has to step in and take over, it means there are very serious problems that need to be dealt with,” says Carmen Policy, former president of the San Francisco 49ers and Cleveland Browns.

The Dodgers' financial problems stem from the divorce proceedings between owner Frank McCourt and the now-fired Dodgers executive Jamie McCourt, who has claimed 50 percent ownership in the team.

“Lessons in this [reach] beyond the sports world, on the importance of staying focused on what you are about as an organization,” says Mr. Maloni. “This is more distraction than the team has ever had before.”

Selig said he will appoint an MLB representative in a few days, to oversee all aspects of the "business and day-to-day operations" of the Los Angeles Dodgers.

“The Dodgers’ lenders should feel reassured by the commissioner’s actions,” says Mr. Gover, a partner at White & Case LLP, which represented Rangers Baseball Express LLC in the 2010 Texas Rangers Baseball Partners bankruptcy case. “They may even feel comfortable making an additional loan as long as the trustee stays in charge,” says Gover, referring to the $30 million personal loan taken out by Mr. McCourt to cover April payroll.

“All Selig wants is for the team to be successful and not be an embarrassment to the game. His actions should incentivize other lenders to want to do business with baseball teams.”

Baseball law

The case will test the legal power of the commissioner’s office. Several times in the past, the commissioner's office has ruled against owners, including intervening with Cincinnati Reds owner Marge Schott, who served as president and CEO from 1984 to 1999. Ms. Schott was banned from managing the Reds after making slurs against groups including African-Americans, Jews, and Japanese people. Shortly afterwards, she sold the majority of her share in the team.

At issue are the legal implications of the phrase “the best interests of baseball,” which has given commissioners virtually limitless power. The US Supreme Court has exempted baseball from federal anti-trust laws since 1922, a finding upheld in several cases since.