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Interpreting Judge Lynn

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A tweet from Daniel Kaplan today, relating a statement from Judge Lynn during today's hearing, has gotten folks very bent out of shape.  There have been quite a few angry comments about Lynn not getting it, being stupid, gratuitous insults, and the like, and I expect a chest-thumping Galloway or JFE column tomorrow about how out of touch the judge is.

Here's the tweet in question:

Bankruptcy judge tells Ryan it seems that its the MLB loan to the team, not bankruptcy,that is causing difficulties like signing free agents

While Twitter has its virtues in terms of getting news out quickly, one of the problems it has (and all news does, really) is that you end up with sound bites that lack context.  And I think that's the problem here.

Because at the end of the day, the judge is correct.  The Rangers' problem is that MLB is having to advance funds to the franchise to keep it afloat, and as a result, the Rangers can only spend what MLB allows them to spend.  It is the budgetary constraints that MLB has put the team under, as a condition of continuing to loan the team money, that is keeping the team from being able to sign international free agents or take on more salary, not the bankruptcy proceeding.

Now...ultimately, the bankruptcy proceeding has to get resolved before the MLB loan situation can get resolved, because it doesn't sound like the Rangers are going to have enough cash flow anytime in the immediate future to get out from under MLB's thumb, and Tom Hicks, of course, isn't going to inject any of his personal capital in the team right now, given that its parent company, Hicks Sports Group, by all accounts is essentially insolvent.  This whole fight with the creditors is the result of HSG not having enough in assets to cover all of its liabilities, which is why the creditors are trying to squeeze the sale of the Rangers for every penny.  If they don't get it now, they'll never get it from HSG.

So if Tom Hicks were to inject any capital into the team right now, it would most likely first have to go to pay off the MLB loan, and then be used to add payroll or do whatever.  And that would be tantamount to Hicks throwing his money away, since any additional capital money put into the team right now would ultimately result in that much more money going to the creditors -- Hicks isn't going to get that money he puts in now back.

But once the ownership sale goes through, the loan to MLB gets repaid, and the new owners can spend and budget as they see fit, without having to get MLB's permission to shoot off the fireworks in the second inning even if the little kid in the miniature park doesn't hit a home run.  New ownership should be in a position to be able to let the Rangers take on payroll that MLB won't let them take on right now.

So in that sense, in that context, Judge Lynn is technically correct.  The reason the Rangers can't add payroll right now isn't because of the bankruptcy, it is because MLB won't let them add payroll when MLB is having to give the Rangers money to keep them afloat.

And in that sense, it is the loan from MLB, not the bankruptcy, that is restricting the team's movements.