In papers submitted in Delaware bankruptcy court Tuesday, the league objected to the Dodgers' request for authorization to enter into a $150 million financing arrangement with JPMorgan Chase in order to meet cash flow needs.
MLB told the court, "Having siphoned off well over $100 million of club revenues and obviously unable to distinguish between his personal interests and those of the club, Frank McCourt has driven the Dodgers into a liquidity crisis so severe that, absent extraordinary measures, the club would be unable to make its payroll."
After trading sharply worded briefs over the proposed financing, attorneys for the league and the team agreed the Dodgers could proceed with their proposed financing on an interim basis pending the outcome of a July 20 hearing.
At that hearing, MLB can ask to replace McCourt's loan with a loan from the league on better terms.
Among other effects, Tuesday's ruling means McCourt will be able to make the Dodger payroll Thursday. The agreement includes reducing a proposed exit fee for the lending group from $4.5 million to $250,000, and removing certain deadlines regarding the sale of broadcast rights.
McCourt filed for Chapter 11 protection Monday in an apparent move to prevent Major League Baseball from seizing the team.
In a statement released late Tuesday afternoon, Bruce Bennett, an attorney for the team, said "The Dodgers got everything we wanted from today's hearing. The Dodgers can operate as business as usual."
MLB Commissioner Bud Selig said bankruptcy is not in the best interest of baseball.
"The action taken today by Mr. McCourt does nothing but inflict further harm to this historic franchise," Selig said in a statement Monday.
The team is deep into the red, with former players owed millions. Even Hall of Fame announcer Vin Scully is due more than $150,000 as part of his contract, court documents show.
Last week, Selig denied a TV deal with Fox Sports that would have given McCourt a quick infusion of cash. The Los Angeles Times reports that under the MLB Constitution, Selig has the right to revoke the ownership of any team that files for bankruptcy.
"It's going to be the same rules inside a bankruptcy. You can't file for bankruptcy and get away from MLB. MLB can still say, 'Hey, we have a right to bless anything you want to do with the team,'" said Bob Rasmussen, dean of USC Gould School of Law. "So, the McCourts and MLB are still locked in their little dance."
This is all unfolding in the middle of a nasty divorce battle between Frank and his ex-wife and former Dodger CEO Jamie McCourt, who described the bankruptcy filing as disappointing. She said that Frank McCourt has a "rule or ruin philosophy."
A judge ruled in December that a postnuptial marital agreement that gave Frank McCourt sole ownership of the Dodgers was invalid. That cleared the way for Jamie McCourt to seek possession of half the team under California's community property law.
In April, MLB assumed control of the team. Former Texas Rangers President Tom Schieffer was appointed to monitor the team on behalf of Selig, who said he took the action because he was concerned about the team's finances and how the Dodgers are being run.
The divorce settlement, which is now void due to Selig's decision against the Fox deal, called for a one-day trial in August to determine if the Dodgers are in Frank McCourt's name or if the team should be considered community property and sold.
"It's very difficult to see how Frank McCourt can resist MLB, but legal matters can take interesting turns," said UCLA Law professor Lynn Lopucki said. "The next step is where it gets interesting. MLB could ask for the removal of Frank McCourt. That's where things could get really sticky."
Many Dodger fans say they're ready to move on to a different owner.
"It's sad that it had to come to this, seriously. I hope they sell it soon, because there are so many enthusiastic people out there waiting to get that thing going again," said Dodger fan Estelle Moore.
On Facebook, thousands are saying it's time for Mark Cuban to save the Dodgers. Fans want the Dallas Mavericks owner to buy the team.
On Twitter, long-time talk show host and Dodgers fan Larry King remarked, "No major sports team in the history of sport has ever been brought down lower than the Dodgers. Changes should be made."
Radio host Marcellus Wiley has long defended McCourt but admits he's running out of options
"This is baseball we're talking about, but Frank McCourt is trying to throw some 'Hail Maries' right now. Doesn't look like it's going to work," Wiley said.
The season on the field has been rather disappointing for the Dodgers as the team is locked in a battle to avoid being in last place in the NL West. Monday night, however, the Dodgers beat the Minnesota Twins 15-0.
The Associated Press contributed to this report.