Tag Archives: Jamie McCourt

Why the McCourt Deal Should’ve Never Been Accepted, a Full-er Analysis

We got a guest post today. A couple of months ago, I wrote a retrospective on the McCourts’ purchase of the Dodgers in 2004. Steve Parsons wrote a very good comment (you should read it) and I asked him to write a full response. Parsons has worked in sports business for years and currently writes for rotocommunity.com.

Amid the embarrassingly public divorce of the McCourts, the calls from Peter O’Malley to sell the franchise and the possibility of a court-ordered sale as part of the dispute over ownership (complete with a whodunnit tale of lawyers swapping clauses in a post-nuptual agreement), there is a cloud over the Dodgers immediate future.

What’s sad is that this didn’t have to happen. Back in 2004, several potential buyers made a bid on the Dodgers, including the McCourts, former Commissioner Peter Ueberroth and billionaire philanthropist Eli Broad.

The McCourts’ bid was problematic to begin with. Baseball gave them an exclusive window in which to complete the deal and it was immediately obvious that the family, who had recently failed in a bid to take over Frank’s hometown Red Sox, had no cash with which to make the purchase. The McCourts, as it turned out, would have to take out loans and otherwise leverage nearly the whole amount–they provided less cash than a veteran middle reliever’s salary to the project.

Baseball has strict rules regarding a teams debt-to-equity ratios and the McCourt deal violated these rules. So Commissioner Bud Selig made an exception to the debt-equity rules and allowed the McCourts to take, in addition to other loans of a similar amount, a $200 million loan from NewsCorp (the Dodgers’ owner) that would count as equity, by having the loan made to one of Frank McCourt’s development entities using its assets as collateral rather than those of the Dodgers. In retrospect it was lucky the league made such an exception. NewsCorp and the McCourts eventually sold most of the parking lot for just over $200 million.

Broad’s offer by contrast was almost entirely cash. The sole part of his $430 million dollar offer that was not cash involved an $80 million dollar loan from NewsCorp (or a $16 million dollar credit on the purchase price). Broad, unlike McCourt who had left a trail of failed projects, isn’t known for defaulting on loans.

The divorce papers show that the Dodgers are now encumbered with $433 million dollars in debts, or slightly more than what the McCourts “paid” to acquire the Dodgers. That doesn’t include the $200 Million dollars that the family and NewsCorp settled on for the sale of 24/25ths of the parking lot. The Dodgers have been repeatedly turned down for refinancing, are under restrictions from their primary creditors as to how much deferred compensation they may take on and are running on a business plan that only allows them to stay afloat if they sell 3.8 million tickets each and every season (a figure they have reached only once in their history).

None of this needed to be the case. The Dodgers currently are extremely profitable, generating $72 million in operating revenue in 2009. But they’re saddled with such debt that whoever owns the team must pay $28 million in debt service and an additional $34 million in revenue sharing. The Debt-to-equity rules are totally gone. The McCourts have even mortgaged the parking outside Chavez Ravine. They’re not necessarily draining the franchise of every penny of cash and leaving the creditors, the team and the fans to pay the bills, but given the recent findings in the courtroom, it’s hard to imagine they weren’t.

Early predictions, including my own, thought that the McCourts would have to sell the franchise within 3-5 seasons. I leaned on the latter end because right about now marked the end of the period (about five years) wherein new owners may take advantage of baseball’s sweetheart tax-exemption deal that’s part of it‘s special relationship with anti-trust laws. It’s been five seasons and the only thing that’d prove this wrong is if the divorce proceedings get drawn out.

Why was McCourt allowed to buy the Dodgers? Selig may have felt an obligation to McCourt as he evidently did to Jeffrey Loria for the way in which the Red Sox sale was handled (John Henry’s bid was financially worse than the primary competitors bid, but was hand selected for approval by Selig). Loria’s Marlins ownership is widely seen as a quid pro quo for not pushing the anti-competitive nature of that sale. McCourt also owned extensive parking areas in Boston that Selig may have thought could be used to build a new, higher capacity park for the Red Sox (at government expense; under Selig, teams don’t pay for their own parks, even if they must lie about their finances to get the deal as was the case in the Marlins new stadium where the Marlins lied about their profits according to team documents obtained by Deadspin).

More troubling given the current financial mess was the waiving of the debt to equity rules. The basic idea that an ownership group must have the capital to buy and to run a franchise. The Brewers, which had been owned by the Selig family (not Alan “Bud” Selig himself), were clearly afoul of those rules themselves. The Brewers, under Selig himself, had taken out loans from an organization run by the late Carl Pohlad, the owner of the Minnesota Twins. At the same time, Selig was trying to arrange for Pohlad to gain hundreds of millions of dollars from baseball to contract the Twins – and what a good move that would have been for baseball. Was Selig unwilling to enforce the debt-to-equity because of his and his family’s own situation?

Ultimately, the Dodgers are still a profitable franchise. Even after the debt service, the Dodgers reported an $8.4 million profit for 2009. If a solvent owner can be found, the Dodgers can begin the process of unwinding the labyrinthine debts and encumberments that may be the McCourts’ lasting legacy once the bitter taste of their ownership has worn off. But whoever takes over the Dodgers will have to deal with a franchise that has been sucked dry of cash and is mortgaged to the hilt and beyond. Or worse, one or the other of the McCourts might retain the franchise and the ever-accelerating race to bankruptcy will start anew.

Somewhere, Eli Broad has a bitter smile on his face. Dodgers fans, and indeed baseball fans, are left with just the bitter.



Filed under Los Angeles Dodgers, MLB

McCourt Trial Getting Really, Really Messy

For more, go to Dodger Divorce. Follow Molly Knight and Josh Fisher on twitter.

Frank came into this trial with an upper-hand. He had a document, signed by Jamie, stating he was the sole owner of the team. He still shows up to the stadium irregularly and I think most Dodger fans would agree he came off as the figurehead of the team during the McCourts’ tenure as owners. For better or worse.

It was known before heading back into the courtroom yesterday that there were two possible MPAs, one set that had “inclusion” written in several key places and one set that had “exclusion” written in several key places.  Jamie’s main angle was she didn’t know what she was signing away.

Well, this happened today and yesterday:

  • Jamie McCourt, who practiced as a lawyer for almost two decades, said she didn’t read the MPA (the supposed post-nuptial) that she signed because it was “boring” and she trusted both Frank and Larry Silverstein, the lawyer that drew up the MPA, to have her best interest at heart.
  • Larry Silverstein admitted under oath that he switched the MPAs and didn’t tell Jamie.

Testifying Tuesday at the couple’s Los Angeles divorce trial, Larry Silverstein says he changed the agreement in 2004 after it was signed — and didn’t tell Jamie McCourt the new version gave her husband sole ownership.

Fisher and Knight tweeted at about the same time that the judge took special interest in asking questions to Silverstein about this.

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Revisiting the McCourt’s 2004 Purchase of the Dodgers

Josh at Dodger Divorce posted that it’s possible Dennis Gilbert, an insurance business owner and Dodger season ticket holder, may be in line to buy the Dodgers if/when the McCourt(s) put it up for sale.

Gilbert was part of the Greenberg/Ryan group that attempted to purchase the Texas Rangers, but was ultimately shot down. Josh astutely pointed out how poetic it would be if Gilbert didn’t receive his second choice of teams to own and ended up with his first choice, as opposed to Frank McCourt, who failed in his bid to get the Red Sox, his favorite team, but successfully purchased the Dodgers.

All of this got me thinking about when this all started.

In January of 2004, Frank McCourt officially announced himself as the new owner of the Dodgers, along with his wife, Jamie. The opening press conference was an era of good feelings. The Dodgers were no longer run by corporate ownership. There was a name and face to the franchise owners again.

And to that, I was happy. I’m sure a lot of people were.

Said acting Commissioner Bud Selig:

The sale of the Los Angeles Dodgers to Frank and Jamie McCourt heralds the beginning of a new era of family ownership for one of the game’s most storied franchises. This transaction meets all of Baseball’s debt service rules and financial requirements in every way. We at Major League Baseball are confident that Mr. McCourt, as a rabid and knowledgeable fan and successful businessman, will devote the time and energy necessary to make the franchise a great success.

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Filed under Los Angeles Dodgers, MLB, MLB history

McCourts embarrassed further in divorce court

Or rather, maybe just Frank, since Jamie’s been fired.

This comes from Bill Shaikin:

The Dodgers could seek to keep their player payroll below last year’s level through 2018 while the average ticket price and club revenue could nearly double, according to confidential financial documents included in a court filing last week.

The documents, submitted by former Dodgers chief executive Jamie McCourt in divorce proceedings against owner Frank McCourt, offer a rare glimpse into the finances of a major league club.

The documents — prepared by the McCourt management team in May to solicit Chinese investors for a partnership that could have included the Dodgers, a soccer club in Beijing and another in the English Premier League — show that the Dodgers spent $128 million in player compensation for their 40-man roster in 2007, then spent $123 million in 2008.

They spent $132 million last season, according to figures from the commissioner’s office, which included in its accounting deferred payments to Manny Ramirez and Andruw Jones.

The projections show the Dodgers planning to cut it to $107 million this year, with slight annual increases thereafter. In 2018, player compensation is estimated at $125 million.

The document anticipates a significant rise in club revenue, from $295 million in 2008 to $529 million in 2018, and in the average ticket price, from $29.40 in 2007 to $53.50 in 2018.

That bolding and italicized emphasis are mine.  That is an enormous jump.  A couple people put this in perspective, namely baseball musing’s post said it would be illegal for the team to raise ticket prices without winning and it’s very hard to win while lowering the payroll.

Dodger Thoughts blogger Jon Weisman said something even smarter:

The documents, Shaikin writes, were “prepared by the McCourt management team in May to solicit Chinese investors for a partnership that could have included the Dodgers, a soccer club in Beijing and another in the English Premier League.” They’re designed to make the Dodgers’ profiteering, if you will, look as glowing as possible. It doesn’t seem to me that the scenario they describe is any more realistic than one that suggests the Dodgers have cheap ticket prices and top-of-the-line payroll. The truth is somewhere in between.

Again, emphasis is mine.

This divorce has been a roiling, tumultuous mess since it kicked off this off-season, when it was announced Jamie McCourt had been having an affair with an employee. Then payroll was frozen, the team was unable to even offer arbitration to a handful of players who were knowingly going to turn it down and no above-average free agent signings were made.  Meanwhile, Jamie came out with knives drawn in the first court hearings–holy moly was she gunning for embarrassing him at the start of this–and here we are today.  The proceedings are only gonna get worse and the problems may not hurt the Dodgers now, while they’re getting yearly shots at the playoffs, but in 2011-2014, when the team won’t have any farm talent stocked because they couldn’t shell out for the money to draft players.

I’m a Dodger season ticket holder.  I went to my first game in those seats when I was six days old and I’ve seen a lot happen in that time–and a lot of failure. I’ve been critical of the McCourts before, but they’ve done a lot more good for the franchise than bad and they’re a very big reason for why the team has seen so much success in the past five years.

As much as I appreciate what Mr. and the former Mrs. McCourt have done to turn this team around from the polished turd it was, I think it’d be in everyone’s best interest–the McCourt family’s, the fans’, the team’s and even the franchise’s itself–if the team were sold as quickly as possible and this page in the Dodgers’ history book was turned.

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Filed under finances, MLB