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United League united no more

In an email sent Monday United Sports Equities CEO Brad Wendt announced the seven teams in independent United League Baseball (the Alexandria Aces, Amarillo Dillas, Brownsville Charros, Edinburg Coyotes, Laredo Broncos, San Angelo Colts, and Harlingen WhiteWings) as well as the league itself are on the market and available for purchase. For everyone involved, the bankruptcy filing means the end of United League Baseball as we know it — and it also means the probable continuation of a nasty legal battle. We’ve reviewed court filings from both sides; here’s the story.In an email sent Monday United Sports Equities CEO Brad Wendt announced the seven teams in independent United League Baseball — the Alexandria Aces, Amarillo Dillas, Brownsville Charros, Edinburg Coyotes, Laredo Broncos, San Angelo Colts, and Harlingen WhiteWings — as well as the league itself are on the market and available for purchase. The announcement came after the league declared Chapter 11 bankruptcy in a Broward County (Fla.) court on Dec. 29, 2008.

The sale means many things. But most assuredly we’re seeing the end of United League Baseball as we know it, with the most likely outcome four teams being absorbed into the Golden Baseball League or the American Association, perhaps as early as the 2009 season. But nothing is assured, and it would not surprise any insiders if the bankruptcy proceedings took longer than expected, forcing the buyer to wait for a 2010 opener.

(A note on the bankruptcy: Chapter 11 is a less-severe version, allowing a corporation to reorganize and shed assets. Litigation against a company filing for bankruptcy is suspended, with the federal bankruptcy court assuming control of the legal situation. So by filing in bankruptcy court, United League Baseball basically cut off the three existing lawsuits against it, as well as superceding the temporary restraining order.)

That the league is facing many issues is a matter of public record: league founders John Bryant and Byron Pierce as well as former San Angelo Colts owner Harlan Bruha have three lawsuits filed against the league. Bryant says his ownership of North Texas franchises and a small stake in the league are imperiled by the potential sale of the league, Pierce says he’s still owed monies from the original purchase of the league, and Bruha wants to regain control of the Colts and Foster Field because of alleged nonpayment by the league. Pierce and Bryant won a temporary injunction in the fall, preventing any changes to the league; a bankruptcy filing by the United Baseball League supercedes that injunction, freeing the way for United Sports Equities to sell the assets of the league.

But the story goes far deeper than just a bankruptcy filing.

As with any court case, one set of filings presents one side of the argument. We’ve had a chance to review court filings from both sides, and not always a pretty picture emerges. Both sides feel they’re the wounded party in the matter, and it’s clear from the tone of the documents there are some hard feelings on both sides of the matter.

The relationship began in January 2006 when Brad Wendt, Gary Wendt and others purchased the assets of the United Baseball League from John Bryant and set him up as CEO, a position he held through December 2006 when he resigned. The business plan for the league was simple: Expand rapidly and collect yearly dues to pay back the initial investment.

John Bryant, a former Congressman, was key to the expansion efforts; his role was to bring in businessmen to buy teams in new markets. But expansion is hard in the best of circumstances, and given the league’s limitations both in terms of markets and competition from the independent American Association, it was exceptionally difficult. In their court papers, the Wendts portray Bryant as ineffectual in his position, failing to come up with expansion opportunities for the league. The relationship was still sturdy enough for both sides to sign a Feb. 27, 2007 expansion agreement, giving Bryant the rights to one or more ULB teams in 16 counties in and around north Texas. A later March 9, 2007 agreement was basically the divorce settlement between the two sides: it provided Bryant $250,000 and the franchises, though Bryant retained 199,000 shares of United Sports Equities, the parent of the league.

But there were two important clauses in these agreements. First, the franchise agreement called for Bryant to pay league dues – money the United League Baseball is still owed. Second, in the March 9 document, there’s fairly standard legal language releasing the Wendts and United League Baseball from any future liability or threat of legal action.

Despite the clause, Bryant filed suit on Aug. 22, 2008 alleging United League Baseball was involved in fraudulent activities designed to depress the value of Bryant’s 199,000 shares in United Sports Equities, as well as devalue his franchises. In addition, Bryant argues the league purposely underreported expenses in order to hide profits from league shareholders. The allegations were persuasive enough for Bryant to be awarded a temporary restraining order prohibiting United League Baseball from liquidating any assets.

For their part, the Wendts say they put $8 million into league operations and initial investments, while Bryant never put in a dime past sweat equity and withdrew the offer to include his share of hockey’s Portland Winter Hawks in the initial deal. The losses, they say, were real, but they allege the league lost more than $7 million in 2006 and the beginning of 2007 when Bryant was in charge; the league, they say, lost only $1 million in 2008 and was expected to be profitable in 2009.

Byron Pierce’s cause of action is more clear-cut. He is suing the league for the $10,452.645 owed him from the initial sale of the United League. An initial check cut by United League Baseball on Aug. 1, 2008 bounced; a second check was never cashed by Pierce before he filed suit. It’s hard to see ULB prevailing in this instance.

The bankruptcy filing, as we noted, suspends the three lawsuits against the league. It also postponed the sale of Foster Field, the home of the San Angelo Colts; that asset will be sold as part of the league fire sale. We don’t expect all six teams to come back even if a bankruptcy proceeding goes quickly; the folks in Alexandria and Harlingen are apparently already talking with the independent Continental Baseball League about ballpark leases. (Brownsville, though listed as an asset, is nothing more than an idea on a piece of paper; no leases, no assets, nothing.)

The end, alas, won’t be pretty for either side. There are many more allegations thrown around in the court filings, a lot of stuff that at the end of the day probably won’t be deemed too relevant by any judge. The bankruptcy sale should generate enough to income to pay off the unsecured creditors – the municipalities and companies owed for league operations – as well as a small amount for the secured creditors (the Wendt family, who estimate they lost $8 million on their ownership of the league). After the Florida bankruptcy court approves the dissolution of assets, the lawsuits against United League Baseball can continue. But there won’t be much left to that carcass: there’s the real chance John Bryant could end up with franchise rights in a dead league, and the Wendts will be forever reminded of their ill-fated excursion into pro baseball.

That’s OK; entrepreneurs need to take their lumps when a dream fades. The real losers in this are the folks who laid in their lot with United League Baseball: real-estate developers like Richard Hope, whose plan for a Brownsville development was submarined by the league’s woes, the many vendors who provided top-notch services to the league and its teams, and the front-office employees who worked hard to make the indy circuit work.