On Wednesday, December 5, 2018, USA Gymnastics (USGA) filed for chapter 11 relief in the United States Bankruptcy Court for the Southern District of Indiana (Case No. 18-09108). USGA is the national governing body for gymnastics in the United States. It receive this designation from the U.S. Olympic Committee (USOC) and the International Gymnastics Federation.
USGA sets the rules and policies that govern the sport of gymnastics, including selecting and training the USGA teams for the Olympics and World Championships and promoting and developing gymnastics on the grassroots and national levels.
USGA’s recent Chairman of the Board, Kathryn Carson, emphasized that the bankruptcy filing was intended to reorganize–not liquidate–the Organization. Indeed, the filing should allow the USGA to continue its day-to-day operations, while it continues to search for a new Chief Executive Officer.
The Organization has assets of approximately $6.5 million in cash and investments, but it is estimated that it faces potential liabilities between $75 million and $150 million stemming from lawsuits (about 100) initiated by victims of Larry Nassar’s sexual abuse. Nassar was sentenced to 60 years in federal prison on child pornography charges and another 40 to 125 years in prison for a decades-long string of sexual abuse. His victims number more than 150 current and former gymnasts, including several Olympic champions. Per the automatic stay, a bankruptcy filing should halt all such victims’ litigation against the Organization.
Any settlements with victims will ultimately be funded by insurance bought by USGA prior to the Nassar scandal. The amount of insurance available to pay victims should not be affected by the chapter 11 filing. Apart from those insurance proceeds, however, the Organization appears to have no other significant assets to pay claims.
The bankruptcy filing also comes one month after the USOC announced it was taking initial steps to disband the governing body for decisions in the dealing with the Nassar scandal. USOC spokesman, Patrick Sandusky, has said that the USOC is “reviewing the effects of the bankruptcy filing on the pending proceeding to revoke USA Gymnastics’ recognition.”
In addition to enjoining the victims’ litigation, the bankruptcy filing should also halt the USOC’s effort to de-certify the USGA. In short, as USGA’s Chairman of the Board has acknowledged, the filing should provide the Organization with critical “breathing room” from litigation to continue running the sport at the grassroots and national level.
Categories: Bankruptcy Filings