Report: XFL Bankruptcy Filing Holds Clue Of Possible Return

According to Daniel Kaplan of The Athletic, the XFL could possibly be on its way to a return. Could Vince McMahon have declared Chapter 11 to save the league? Signs are pointing out that it could be the case.

XFL President Jeffery Pollack is still on the payroll and according to Kaplan reached out to venues about restarting agreements.

 “XFL president Jeffrey Pollack has called venues in St. Louis and Seattle about reinstating the lease agreements.”

Daniel Kaplan

“But was that just a cutthroat finance ploy by McMahon to ride out the pandemic and resultant economic turmoil without paying the costs of operating the league? That’s what was asked by one former team official, who passed on the tips about Seattle and St. Louis. A representative for Visit St. Louis, which oversees the Dome at America’s Center where the BattleHawks played, confirmed Pollack had reached out about the lease.

When asked about the possibility McMahon may have filed for Chapter 11 protection to restart the league, a spokesman hired by the XFL wrote in an email, “The response to this filing will speak for itself.”

Daniel Kaplan

When the XFL canceled their 2020 season on March 12th, then shut the league down for good almost a month later on April 10th, it seemed like the league was done forever. Then it became more likely the league was down for good when, on April 13th, the league filed for Chapter 11 bankruptcy. 

This was not the worst-case scenario for the XFL. Chapter 11 bankruptcy basically allows a business to be restructured without having the burden of paying all of its debts. This is a much better type of bankruptcy than Chapter 7, which the Alliance of American Football (AAF) had to go through a year ago. 

In a Chapter 7 bankruptcy, the entity (like the AAF), throws up its hands, gives up and sells all of its assets.  In a Chapter 11 bankruptcy, the legal entity (like Alpha Entertainment, the owners of the XFL) are saying that they have a good business but are going through some tough times and just need a little help.  

In any bankruptcy, there are two classifications of creditors – secured and unsecured.  The debt owed by the XFL to the secured creditors is, as the name implies, secured. An example of this is financing a car. If you borrow money to buy your car, the loan is secured by the car.  If you stop making payments, the lender can repossess your car, sell it, and use the money it receives to offset the amount you owe. 

Money owed to unsecured creditors does not have any asset backing up or securing the debt.  This would be like your credit card.  If you stop making payments on your credit card, your credit might be ruined and the bank may stop extending your credit, but at the end of the day, the bank would have a hard time collecting what you owe. 

Now, on to the XFL.  Alpha Entertainment, by filing for Chapter 11 bankruptcy, is basically saying they have a good business but given the current pandemic and having to shutter their seasons half way through, they can’t live up to our financial commitments.  Alpha Entertainment is asking the bankruptcy court to help renegotiate with it’s unsecured creditors.  Those could include the coaches, players, stadiums and other vendors?. 

How do the secured and unsecured creditors get paid? Well, if the assets were sold off, the secured creditors get paid first and if there is any money left over, the unsecured creditors get paid proportionately based upon how much they are owed relative to all of the other unsecured creditors. 

In the case of the XFL, the assets could include the name “XFL,” the new rules that were created by the league, the design of the football, team names, television contracts, and even the contracts with the very stadiums that the league is trying to renegotiate with.  

Vince McMahon, individually, apparently is a secured creditor, so some  or all of his investment would be recouped first. In all likelihood, there would be little if anything left for the unsecured creditors – the stadiums, coaches, etc.  This creates an incentive for these unsecured creditors, through the court process, to renegotiate with the XFL. 

One piece of evidence of this is that McMahon as Alpha Entertainment is proposing that the season ticket holders should get their money back for games that didn’t take place, thus taking priority over all other unsecured creditors.  If McMahon was not planning on resurrecting the XFL, why would he care? 

Yes, it would be nice to take care of the little guy but it’s more likely that he wants some goodwill and wants those season ticket holders to renew their commitments when the “new” XFL comes into being when sports are allowed to resume – hopefully before we all lose our minds and we can stop watching axe throwing and competitive cornhole.  

Yes, there are others who could “bid” to acquire the assets of the XFL, but Vince McMahon could certainly do so as well.  This would allow McMahon to essentially renegotiate all of the XFL contracts with the blessing of the bankruptcy court.