Turner Broadcasting in court this week over teams' sale

ATLANTA — Five years have passed since the deal fell through for Texas car dealer David McDavid to buy the NBA's Atlanta Hawks and NHL's Atlanta Thrashers from Turner Broadcasting System.

But the question of whether Turner disregarded a verbal agreement to sell those teams as well as the Philips Arena operating rights to McDavid — and then passed his financial information on to a group that eventually became the teams new owners — will be aired in Fulton County Superior Court this week.

Atlanta-based Turner could be on the hook for as much as $500 million for its part in the collapsed deal, according a transcript from an April court hearing.

But one analyst said that figure or a smaller one, if eventually paid, won't be a huge hit for Turner's parent company, New York-based Time Warner, which has 3.647 billion outstanding shares.

"This isn't something that makes me think it will have a meaningful impact on Time Warner's stock because these lawsuits never pan out to be as large as the headline numbers," said Alan Gould, an analyst with Natixis Bleichroeder.

When McDavid signed a letter of intent to buy the teams and arena rights in April 2003, the value of the proposed deal was placed at $350 million-plus by people within the company and the McDavid group.

The final deal between Turner and the group that bought the team, the Atlanta Spirit, was valued at $250 million. But the two deals were structured very differently, so the total amounts cannot be compared directly, Jim McCaffrey, an executive at Turner Broadcasting who negotiated with McDavid and with the Spirit group, said at the time.

In a court document filed in September, attorneys for Turner stated that "TBS is not liable to plaintiffs for any amount of damages, interest or litigation expenses."

The September document — known as a pre-trial order — and the transcript from an April hearing are two of only a small number of documents in the case, filed in June 2005, that have been made public. The rest have been sealed.

Meanwhile, the Atlanta Spirit — an eight-man group that agreed in September 2003 to buy the professional sports teams, as well as the rights to Philips Arena — is having its own spat. In part, it's over how much co-owner Steve Belkin would receive for selling his 30 percent stake. That high-profile fight is leading to a trial in Montgomery County, Md., scheduled for early next year. The Spirit group includes Rutherford Seydel, son-in-law of Turner Broadcasting founder Ted Turner, as well as Turner's son, Beau. Both men own small percentages of the teams.

The outcome of McDavid's lawsuit will have no impact on who owns the teams or the arena rights. The trial is scheduled to start Wednesday morning with a jury selection. Attorneys say they expect the hearings to last at least a month. The September court document states the possibilities of settling the case as "poor."

"We trust in the common sense of Georgia jurors, who will conclude that no agreement was ever reached between Turner and the McDavid Group," said Misty Skedgell, a Turner spokeswoman.

McDavid is represented by attorneys from the Atlanta firm Bondurant, Mixson and Elmore . Attorneys for Turner Broadcasting are from Troutman Sanders .

"Mr. McDavid looks forward to a Georgia jury making Turner Broadcasting live up to its agreements," said H. Lamar Mixson, one of McDavid's attorneys.

Some of the members of the Atlanta Spirit have testified in depositions and may be at the trial, court documents show. Absent from the witness list, however, is Ted Turner's name. Neither attorneys for McDavid or for Turner Broadcasting would say why.

Ted Turner has distanced himself greatly from Turner Broadcasting, which includes networks TNT, Cartoon Network and CNN. But he was vice chairman of Time Warner at the time the deal was done.

Turner was one of two Time Warner board members who objected to the sale of the Hawks and Thrashers assets to McDavid, an April court transcript says. Then, "the very next day Ted Turner's son-in-law walks into the office of Turner's chief negotiator and says, 'I want to buy the assets along with the same terms you're selling to the McDavid group,'" McDavid's attorney Steven Rosenwasser said, according to the April transcript.

McDavid, a former part owner of the Dallas Mavericks, signed a letter of intent with Turner Broadcasting to buy the Hawks, Thrashers and Philips Arena in April 2003. The parties then spent more than four months negotiating details.

The letter of intent that said Turner would negotiate exclusively with McDavid expired in July. Turner announced in September it struck a deal to sell the teams and Philips Arena operating rights to the Atlanta Spirit group.

McDavid's attorneys point to several things, including a draft press release from Turner announcing they were selling the team to him, to support their side, the April court transcript states.

According to the September court document, the $500 million McDavid is seeking includes the difference between the contract price and the value of the teams and the rights to Philips Arena on the date McDavid said Turner breached its contract with him. It also includes losses from fraud, punitive damages and an amount equal to where McDavid said he would be had the deal not collapsed, according to documents. And, it includes 7 percent annual interest from the time McDavid said Turner breached its promise to McDavid to the time a judge rules.

Attorneys for Turner, on the other hand, say the parties could not agree on some key issues, including one that involved bonds on Philips Arena. When the arena was built, Turner Broadcasting pledged the Hawks' franchise as collateral — up to $60 million — in case it defaulted on its obligation to make the annual bond payments.

McDavid's lender required that lien be released for the sale of the teams to go through. Turner agreed to post a $60 million letter of credit to release the lien — but wanted assurance from the McDavid party that it would post substitute collateral, if necessary, according to the April transcript.

Jim Lamberth, an attorney for Turner, said at the April hearing that Turner wasn't sure that would happen, the transcript states.

"This was a $60 million issue to Turner, your honor, because we're talking about a requirement that would require the parties, the McDavid Group, to post a $60 million letter of credit or some other comparable collateral," Lamberth said, according to the court transcript.

Kristi Swartz writes for The Atlanta Journal-Constitution.