It’s fitting that Tom Hicks’ final move as owner of the Texas Rangers went down to defeat. In more than a decade in the sports business, Hicks often failed spectacularly as an operator, financier and developer.

His record wasn’t likely to change in Chapter 11. Bankruptcy court is one place where rich owners and top executives don’t have the clout to match their egos. They often lose control of the process, while judges and creditors seize the agenda.

There’s a popular notion that bankruptcy is a slick way to dump debts and bad contracts, and then get back to business as usual. Cases involving the Rangers and another entity with Arlington ties—Six Flags—prove otherwise. Bankruptcy is more like a jump ball, with no guarantees for the home team. And the public exposure can be painful.

If Hicks was banking on a home field advantage, expecting to exploit an anti-Yankee sentiment, it never materialized. Fort Worth Judge Mike Lynn and Southlake restructuring officer William Snyder sided with Hicks’ opponents from New York on the most crucial question—whether to auction the team to the highest bidder.

That decision prolonged the process, jacked up the price, and put Hicks’ contracts under a microscope. His reputation, already reeling, sunk to subterranean levels.

In court filings, Snyder reported that the Rangers had always been grossly undercapitalized, and dependent on loans and capital infusions to cover the bills. Since 2002, it lost money in every year but one.

Hicks even failed to fund more than $45 million in deferred salaries for his players. Those obligations are considered so fundamental that Major League Baseball requires the money be held in escrow.

If Hicks was cutting corners there, why not everywhere? That narrative grew in bankruptcy, talked up by the hedge funds that had bought up Hicks’ debt at a deep discount. They made a credible argument that Hicks had given a hometown discount to his handpicked buyers, Chuck Greenberg and Nolan Ryan. In exchange, Greenberg-Ryan OK’d some sweetheart deals for Hicks.

Whether it was greed, hubris or a strategic miscalculation—or maybe all three—Hicks gave creditors a giant target. And by thinking Chapter 11 would force a quick resolution, he voluntarily entered a venue where his protagonists had as much standing as anyone.

When creditors are owed more than $525 million, they have the motive to scratch and claw for everything, and Hicks gave them plenty of ammunition. The deal he first pitched for the sale of the team included a side agreement for parking lots, vacant land, and a centerfield office building that Hicks had separated from the team and Rangers Ballpark.

The original sale also included an above-market contract for charter flights, the transfer of some bills to the team, and a Rangers pledge to cover Hicks’ legal costs if creditors sued. For three years, Hicks was supposed to get season tickets, parking passes, and the title of chairman emeritus.
All this was valued at $75 million, for an owner who should have been run out of town.

Creditors locked on to Hicks’ self-dealing, both as a symbol and a pot of gold. They saw it as another example of an executive ruining a company with borrowed money and still getting a golden parachute. Part of their reaction was personal. Most was economic. This was money that should have been theirs, creditors believed.

In his rulings, Lynn excluded the side deals from the bankruptcy, letting bidders decide what to put into their auction offers. His findings helped lure Mark Cuban into the bidding—and no one wasted money on the parking lots. In the end, Greenberg-Ryan and their investors had to pony up almost $100 million more for creditors, most of it coming at Hicks’ expense.

Investors have been betting on distressed debt for decades, but the Rangers’ case put a spotlight on a new breed—hedge funds playing on another level. As their targets meander toward failure, they buy up bonds on the cheap, challenge management, and go toe-to-toe in court, usually armed with a war chest.

“I write textbooks for a living, and I’m going to have to rewrite the chapter on bankruptcy,” says Stanley Block, a long-time finance professor at Texas Christian University. “Everything’s changing.”

The same brand of aggressive investors played a decisive role in the restructuring of Six Flags. Junior bondholders took over after offering a competing plan that paid off senior creditors in full. Existing owners got wiped out, along with much of the debt; again, justice was served.

In both cases, challenges from the hedge funds led to much higher recoveries. That alone justifies their tactics, given that bankruptcy is supposed to maximize the return to creditors.

With a clean slate, the buyers poured in hundreds of millions of dollars and brought in new leadership to stage a turnaround. At Six Flags, it’s a lot easier to revive an operation after interest payments are cut by $125 million a year. And with the Rangers, the key is keeping Ryan in charge of the team and Greenberg in charge of the business. The Rangers spent most of 2010 in first place and impressed fans by cutting beer and parking prices.

Although both companies cleansed their balance sheets, bankruptcy wasn’t painless. Greenberg-Ryan had to pay a much higher price, and Six Flags purged much of its leadership and spent nearly $83 million on fees. Investor and former Six Flags board member Dan Snyder, who won a proxy fight for the company in 2005, walked away with nothing. CEO Mark Shapiro was promptly fired, along with other senior execs.

In July, Six Flags moved its headquarters from New York to Grand Prairie and hired new leaders with big equity deals. The reshuffling will save $17 million a year in corporate overhead alone.

The maneuvering underscores another trade-off in bankruptcy and another consequence of losing control: Top executives often lose their jobs, too.

Mitchell Schnurman is the business columnist for the Fort Worth Star-Telegram. For the past five years, his column has been named the “Best in Business” by the Society of American Business Editors and Writers.