Unable to settle lawsuits with hundreds of Nassar survivors or fend off the U.S. Olympic Committee on its own, USA Gymnastics is looking to bankruptcy court for a bailout.
By filing for Chapter 11, as the governing body did Wednesday afternoon in the U.S. Bankruptcy Court for the Southern District of Indiana, USA Gymnastics gets to hit the pause button on all “pending actions” it faces. The legal wranglings with survivors, the USOC’s efforts to revoke its national governing body status, even the almost $340,000 in severance it still owes former CEO Steve Penny — they all come to a halt.
At least temporarily. But USA Gymnastics hopes it will buy enough time to resolve the lawsuits and convince the USOC that its days of embarrassing — and avoidable — missteps are over.
“We’re not looking to close our doors. We absolutely will continue as a not-for-profit organization to serve our sport,” Kathryn Carson, new chair of the USA Gymnastics board, said on a conference call. “We are continuing to pursue all aspects of our current operating model and hope to maintain our NGB status.”
It’s a gamble, though. Already seen by many as caring more about its own interests than the health and safety of its athletes, the bankruptcy filing could be viewed as one more craven move designed to limit USA Gymnastics’ legal liability and preserve its NGB status.
"The leadership of USA Gymnastics has proven itself to be both morally and financially bankrupt,” John Manly, an attorney for many Nassar survivors, said in a statement. “They have inflicted and continue to inflict unimaginable pain on survivors and their families.”
The USOC isn’t necessarily sold, either. It said it is reviewing the filing to see what effect it has on the Section 8 complaint, its process to revoke an organization’s governing body status.
“Financial stability and viability are essential for a national governing body to operate in the best interests of the athletes,” spokesman Patrick Sandusky said in a statement.
“The USOC is committed to fulfilling its responsibility and obligation to ensure that each organization accepted for membership as a national governing body has the capacity and capability to provide the support, protection, and services that we expect for all Olympic athletes in the United States.”
That’s where it gets tricky.
With a few exceptions, Chapter 11 protects debtors — USA Gymnastics, in this case — from losing their assets. NGB status isn’t one of those exceptions, but the USOC could go to the bankruptcy court and ask that the Section 8 complaint be allowed to proceed.
The USOC had already picked the three-person panel to hear the complaint before USA Gymnastics filed for bankruptcy, though no hearing date had been set.
The USOC could argue that it’s not in the best interests of athletes or the gymnastics community to have to wait for USA Gymnastics to emerge from Chapter 11 before determining whether it should keep its NGB status. It also could point to the bankruptcy itself as reason USA Gymnastics should not be the NGB.
USA Gymnastics has lost all of its major sponsors in the two years since it was revealed that Larry Nassar, the longtime USA Gymnastics physician, had molested more than 350 girls and young women under the guise of medical treatment. The federation does not have enough assets to pay plaintiffs in the 100 lawsuits it faces, and will instead rely on its insurers to settle the claims.
It will be the bankruptcy judge now who decides how much the claims are worth. But in financial statements released last month, USA Gymnastics estimated it would cost between $75 million and $100 million to settle the lawsuits.
“Despite being a highly successful sporting organization … they’re financially insolvent. Because of their failure to handle the Nassar situation, they’ve rendered themselves financially fragile,” said Dionne Koller, director of the Center for Sport and the Law at the University of Baltimore.
“I don’t see how evaluating their fitness going forward needs to be stayed,” added Koller, who specializes in Olympic and amateur sport law. “There’ll be a legal fight about it, for sure. I think ultimately the USOC has the winning argument there.”
Bankruptcy provides a sure solution to the worst of USA Gymnastics’ problems. But for how long, and what happens after, is far from certain.
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