You're wrong. Bankruptcy judges reassign contracts and blue pencil them to achieve that all the time. The franchise would not cease to exist, its ownership would just change, and the creditor's committee, not the mlb would have the most say.
While you are correct that certain contracts may be restructured in bankruptcy court, but incorrect in the assumption that it also applied to franchise agreements. That, or perhaps you are confusing the "franchise" as in Florida Marlins Baseball Club, LLC with the franchise agreement, which allows Florida Marlins Baseball Club LLC to utilize certain assets of MLB. The franchise, as in team, can be assigned in cases outside of MLB (antitrust prevents such action), but not the franchise agreement without consent of the franchiser. In such cases, such a business without a franchise agreement becomes worthless.
With regard to MLB, thanks to the antitrust exemption, no court has any say in any action regarding the who owns an MLB franchise. Even an existing owner cannot choose who to sell to without consent of MLB, and MLB has, under Selig, often turned down the highest bidder (Red Sox and Dodgers perhaps being the most notable), or, in the case of the Twins, prevented the sales altogether. Further, the exemption gives MLB the right to at any time, even on whim, terminate a franchise agreement and contract a team unless such action is expressly prohibited by the CBA (MLB and MLBPA agreed in 1994-95 to remove labor relations, and thus the CBA, from the antitrust exemption). In the case of bankruptcy, as noted in an earlier post, MLB can eliminate a franchise and not violate the CBA, and there is nothing any court can do about it under the antitrust exemption.
Even without contraction, with the antitrust exemption MLB can at any force out an owner either by forcing a sale to another party (the Reds being taken from Marge Schott, though officially a "voluntary" sale), take over the team itself for a price it determines (Expos), or suspend an owner from operations (Steinbrenner when convicted of illegal campaign contributions to Nixon and obstruction of justice). Of course, as a practical matter, such actions would today likely bring a suit to remove the antitrust exemption. While that may sound good to some, supposedly it would also likely kill off the minor league farm systems as we know them as MLB teams would lose reserve rights to minor league players. Then again, that could mean Nats could bring up any minor leaguer to fill a hole on the MLB roster. I guess the minor league would become to MLB as the CFL is to the NFL.
Outside of MLB, you first need to understand that a franchise agreement is similar to a lease agreement, except franchisers have even more rights than leasers under bankruptcy law. The assets and rights thereto provided in a franchise agreement belong to the franchiser, and the franchisee has temporary and restricted rights to use those assets, which are generally intangible in nature. To the franchisee, the franchise agreement is not an asset, but instead more similar to a debt obligation. In fact, MLBs D&B listing is as
Lessors of Nonfinancial Intangible Assets. The franchiser is the sole and exclusive owner of the assets. Since 1979, certain aspects of bankruptcy enabled the franchiser to terminate the franchise agreement as in 1979, franchise agreements have fallen under the FTC. As a result, there is a document called the Financial Disclosure Document (FDD) that is part of all franchise agreements, which contains mandatory items for franchise agreements and renewals. Even prior to 1979, the courts did not have power to assign a franchise agreement if the franchiser did not desire to do so. Since 1979, however, the franchiser is enabled to terminate the agreement upon the filing for bankruptcy (or any other "good cause") of the business operating under the franchise agreement, or its owner. In some states (not sure about NY - under whose laws all MLB franchises are subject), it also includes bankruptcies of any businesses in which the owner is an officer or director, or has a significant investment. In many (ludicrous) instances, "good cause" has even been interpreted as high profitability of all things, and the franchiser was permitted to terminate the agreement, take over the operation, and pocket all the profits.
