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June 23, 2011

The BP Broadside

Billions for Bankers, But Not One Penny for the McCourts!

by Steven Goldman

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The great irony of the Frank and Jamie McCourt looting of the Dodgers’ treasury to support their personal lifestyle is that anybody cares.

The McCourts spun off various Dodgers operations into separate companies, then awarded themselves extravagant salaries for “managing” them. They put two of their children on the payroll, even though they were apparently not working for the team at the time. They spent money on healer Vladimir Shpunt to send “positive energy” to the Dodgers from Boston, and threw away $100,000 on flowers, but somehow turned making payroll each month into an Indiana Jones-style cliffhanger.

Were the Dodgers a public company, with both small and large shareholders to answer to, you would think there would be outrage and a demand for the removal of these oxpeckers from the corporate back. Yet, given the debauched state of Wall Street and our own complacency about the diversion of wealth from the middle of the economy to the pointiest part of the pyramid, it’s entirely possible that even profligate plunderers as obvious as the McCourts would skate on by.  

On June 18, the Washington Post published a lengthy story on how the growing income inequality in America is driven by executive pay:

[I]t has reached levels not seen since the Great Depression. In 2008, the last year for which data are available, for example, the top 0.1 percent of earners took in more than 10 percent of the personal income in the United States, including capital gains, and the top 1 percent took in more than 20 percent… A mounting body of economic research indicates that the rise in pay for company executives is a critical feature in the widening income gap. The largest single chunk of the highest-income earners, it turns out, are executives and other managers in firms, according to a landmark analysis of tax returns by economists Jon Bakija, Adam Cole and Bradley T. Heim. These are not just executives from Wall Street, either, but from companies in even relatively mundane fields such as the milk business.

Relative to the economy, most Americans have either made the same amount of money or gone backwards since the 1970s. Yet the economy is much larger than what it was back in the stagflation days of Nixon, Ford, and Carter, and although we have had more than our share of doldrums since then, particularly now, there have been periods of growth as well. So why didn’t a rising tide lift all boats, as the cliché promises? Christmas got diverted into a select few pants pockets.

We are now venturing out of baseball and into the realm of executive compensation, for many years now a controversial subject. Executives supposedly mastermind the plots that improve company performance (or at least their stock market performance, which isn’t always the same thing), but are they really worth as much as they’re getting? Are they worth $1 million plus benefits, stock options, perks like jet planes? $5 million?

That is not a question I feel qualified to answer, but what is fascinating is that given the controversy of the subject, there hasn’t been much in the way of protest. After all, it is not just successful companies that are in the habit of paying their executives millions, but unsuccessful ones as well; they walk away with big bucks even as their companies crash and burn. The rank-and-file employee defaults on his mortgage when he loses his job, whereas these guys walk away with big payouts. Two examples: Borders, still in bankruptcy, stores shuttering faster than cicadas after their 24 hours are up, asked “to hand out more than $8 million in executive bonuses, including nearly $1.7 million to President Mike Edwards.” Then there is the infamous case of AIG, which took billions from the federal government only to hand back over $200 million to its own managers.

That last one angered a lot of people, but think about it: AIG was just one company, and similar payments (in differing amounts) are made every day across the country for a total that must reach into the billions of dollars. Yet, $200 million is a good enough example. There are 4,000 $50,000-a-year workers hidden in $200 million in bonuses, 4,000 breadwinners that aren’t working because the bonuses got prioritized. But more to the point, that’s a hefty chunk of assets that aren’t being put back into the operation (whatever the operation) because they’ve been thrown into the pockets of people you’re already paying.

Again, it’s not my intention to litigate this particular issue in the pages of Baseball Prospectus, but to point out that although the McCourts are a particularly inept and grasping version of kleptocratic management in action,  they are in no way unrecognizable. They are a common type who happened to overreach and get caught. They are not too different from those that ran the banks that wound up with all that worthless debt after the subprime mortgage market imploded. They pushed their companies to do things that weren’t sensible because, well, they could, and in the short term it brought them gratifying amounts of money. The long term was less of a concern.  













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The McCourts got their perks, they got their undeserved, inflated salaries while treating the team as a kind of perpetual-motion piggybank. Yet, not only did the team eventually run out of assets that could be leveraged for ever more dough, it was not particularly successful on the field. Despite the team’s .523 winning percentage (through 2010) and four postseason appearances during the McCourt ownership, the team has had largely mediocre records over the last six years. Joe Torre’s 95-win season of 2009 stands out as a fluke in a sea of 80-something seasons. Actually, let’s go ahead and include it. Even given full credit for the 90-win seasons of 2004 and 2009, the Dodgers’ 2004-2010 winning percentage ranks only ninth  in the majors for that period. Given the resources that the Dodgers should have as a team in one of baseball’s best markets, this has to be ranked as a disappointing performance. The Dodgers should have the same expectations as the Yankees, Red Sox, and Angels, but have repeatedly failed to live up to that standard. Some have argued that the McCourts are not baseballs worst owners because the Dodgers have been better than the Mets. This is damning the McCourts with faint praise (while also serving as a devastating indictment of New York’s National League team).

None of the big bankers has gone to prison for helping to wreck the world economy with their mess of ill-considered loans, and while voices have been raised calling for investigations and indictments, those calling for Frank and Jamie to be tarred, feathered, and ridden out of town on a rail are far louder, and likely more effective as well. Bleed us dry, no problem. Bleed our baseball team, and buddy, you've got a problem.

Ironically, had their transgressions taken place in a real company, the McCourt’s misappropriations and outright grabs from a poorly-run would have received far less attention and protest. The company would have folded, Frank ‘n’ Jamie would have walked away with golden parachutes likely far more extensive than the one they’re squabbling about now. Their real sin wasn’t venality, it was thinking too small and aiming too low. They shouldn’t have bought a baseball team and looted tens of millions of dollars, they should have bought a bank and looted billions.

Steven Goldman is an author of Baseball Prospectus. 
Click here to see Steven's other articles. You can contact Steven by clicking here

Related Content:  Managers Of The Year

31 comments have been left for this article. (Click to hide comments)

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Brilliant. Just plain brilliant.

Now what?

Jun 23, 2011 08:30 AM
rating: 3

Another inspired piece Steven. This was excellent.

Jun 23, 2011 08:42 AM
rating: 3
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Next time, could I get a bit more baseball and a bit less political screed?

Jun 23, 2011 09:21 AM
rating: -10

Have to agree on that. Feel free to mark negative if you have to. Steven has talent and the point is fair; it's just not that interesting (or entertaining) from a baseball standpoint.

Jun 23, 2011 12:00 PM
rating: 0

Wonderful essay, Steven. And that someone calls it too political, when you mentioned nary a politician (beyond to reference historical periods of stagflation) or political party, hints at one of our country's deeper problems--that the top 1 percent of earners have Stockholm Syndromed the rest of us into thinking amuck capitalism is what America is all about.

And on a different note, flowers are lovely, so spending $100,000 is far from a throw away. $21 mil for three years of Juan Uribe, now that's tossing cash in the dumpster.

Jun 23, 2011 10:17 AM
rating: 14

If anyone should understand the dynamics that drive executive pay, it's someone who comments on the salaries of professional athletes. Alas, no.

The rest of the article is typical simplistic, incendiary, populist commentary on an incredibly complicated series of events involving an ecosystem in which millions of bad decisions rooted in greed were made, but in which only those with concentrated decision making power can be broadly observed and criticized. I hope your article lambasting the anonymous bimbo at Hyde Park Cafe in Tampa in 2005 who couldn't stop talking about flipping properties is forthcoming, because it is equally deserved.

Jun 23, 2011 10:29 AM
rating: -1

Not that it has much to do with baseball, but since we're already on the subject, a good read on the financial shenanigans of recent years is Reckless Endangerment: How Outsized Ambition, Greed, and Corruption Led to Economic Armageddon by Gretchen Morgenson and Joshua Rosner. This book is able to keep polemic to a minimum because the facts it presents are damning enough all by themselves.

Jun 23, 2011 10:49 AM
rating: 1
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Stick to baseball, Goldman. You know something about that.

Jun 23, 2011 10:49 AM
rating: -4

International banks knowingly disperse upwards of a trillion dollars in toxic instruments onto the world economy --- and ignorant home-buyers are "equally" to blame?

You can't be serious with this.

Let me guess. In the little ecosystem we call planet earth, global warming was caused by what? Cows and their irresponsible farting?

Jun 23, 2011 11:22 AM
rating: 4
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You have a fatally flawed understanding of what happened. What do you think was in those toxic instruments, anyway? Cow farts?

Jun 23, 2011 11:50 AM
rating: -4

Yes, but the creation of these toxic instruments allowed the financial effect of these bad loans to be multiplied many times over. The loans in and of themselves did not cause a major economic crisis; the billions of dollars on side bets on said loans was what nearly destroyed the economy.

Jun 23, 2011 13:30 PM
rating: 6

What he said.

Jun 24, 2011 11:59 AM
rating: 0

Steven, any time you have occasion to discuss broader social issues within the context of a baseball analysis, please go for it.

Jun 23, 2011 10:40 AM
rating: 12
Matt Kory

Here here! Well done (again), Steven.

Jun 23, 2011 22:59 PM
rating: 0

Excellent article, Steve, though one nitpick- oxpeckers actually remove ticks other parasites from the animals the ride on, so it's beneficial for the animal. The McCourts, on the other hand, are clearly not.

Jun 23, 2011 10:57 AM
rating: 8

Can you please keep your pro-oxpecker politics out of this baseball conversation!?

Jun 23, 2011 12:42 PM
rating: 12

McCourt is closer to Koslowski from Tyco who was fired, sued and jailed (now serving an 8-15 year sentence) for his spending of company funds for private use. Look it up!

Jun 23, 2011 12:49 PM
rating: 6

Alas, TYCO was a public company, the Dodgers private. In a sense the McCourts were free to use the Dodgers as a private piggy bank despite the public's emotional, not financial, investment in them.

Which is not to say that I am happy that the McCourts, if they HAD to land a franchise, got the Dodgers and not my beloved BoSox. Much of the fault here lies with Selig and MLB's failure to conduct a thorough due diligence of the McCourts as potential buyers of a keystone franchise.

Jun 23, 2011 21:34 PM
rating: 4

This is the under-reported, under-esamined crux of the matter. When Fox wanted to sell the Dodgers, a definitively iconic franchise, the best Bud and MLB could find was Frank McCourt? Once again, it's the scions of Bowie Kuhn who are to blame for their failure as stewards of the game. Given that one fifth of the income earned in this country goes to gazillionaires surely it can't be that hard to compile a short list of grown-up baseball fans with money to spend who will resist the urge to suck the $ out of their teams a la Gordon Gekko and actually try to invest $ to win a pennant or two. Sure Frank and Jamie are punchlines, but for them you can blame Bud.

Jun 26, 2011 19:00 PM
rating: 1

Anyone know if Zuckerberg is a baseball fan?

Jun 27, 2011 08:56 AM
rating: 0
David Greene

More support for this kind of commentary within the context of a baseball analysis. Greed and corruption are not the province of one political party or another.

Jun 23, 2011 13:24 PM
rating: 11

This is really becoming my favorite column going.

All great points to be sure, though the broader theme in particular is pretty fascinating. It's an odd facet of the Fan Experience that we can get genuinely outraged about something that we'd either accept or shrug off as matter of course in real life. Baseball tends to be a sort of proxy for our own idealism and morality but in a well-contained and potentially understandable universe. The real world variables aren't there in such a daunting quantity.

More applicably, I think there's some comfort in being openly outraged at the McCourts because there's a really decent chance that something will change. Once Frank inevitably fails to make payroll and MLB will seize full control. Sure, there will be legal battles for awhile, but Frank will run out of cash and that'll be that. Anger directed towards "real world" corporate compensation and the ever-widening gap between the rich and the rest of us will generally just lead to some level of despair because things just ain't gonna change. Whether you like the status quo or not, the system is quite well entrenched and even a President running on a platform change and reform still has the same advisers from Goldman Sachs as the last presidents.

Anyway, I think the thesis is that we as baseball fans in general and Dodger fans in particular (a group of which I've been a part for quite awhile) see a rather electrifying opportunity for a dynamic change that, perhaps, we wish we could see in the non-baseball world as well.

Jun 23, 2011 13:48 PM
rating: 7

Nice article Steven. I call BS on these delicate paper daffodils whose sensibilities are allegedly bruised by your analysis of a situation that clearly overlaps broader social concerns. Nice work. To pretend that we can examine sports ownership issues without considering political considerations is ridiculous. Growing income inequality is a fact. Thanks for having the courage to shed some light.

Jun 23, 2011 15:28 PM
rating: 9

You forgot to mention anywhere in the article that the McCourts did not pay a dime in state or federal income taxes for several years while they were sucking money from the Dodgers.

If you are still wondering why there is not much outrage, you should look into who owns the mass media outlets and why are they trying to stir up outrage over illegal immigrants and foreign workers. The rich simply have great marketing programs that shift blame for the shrinking middle class from the top to the bottom of society.

Jun 23, 2011 18:47 PM
rating: 5

Yes, of course, we need more workers since the unemployment rate is so low.

Jun 23, 2011 20:56 PM
rating: -2

The number of jobs flowing out of the country is like a firhose compared to a leaky faucett that is illegals coming in. Ask yourself, if consumer prices are not dropping, then who is taking home all these extra profits?

Jun 23, 2011 22:47 PM
rating: 0

Great article Steven...we are witnessing the biggest bank robbery in history, except this time it is the banksters that are committing the robbery -- and their frontmen at the private federal reserve are leading the way

Jun 24, 2011 04:10 AM
rating: -1

Baseball is my refuge. Keep that other crap off these pages since it is almost everywhere else. I agree with the basic sentiment of the column, but just don't like seeing the subject here. I'm sure a few more other franchises will be affected by the ecopolitical times before the pendulum swings back the other way.

Jun 24, 2011 10:43 AM
rating: -2

Stupid owners who waste their team's resources are nothing new, and fans, the "citizens' of the baseball "nation", vent fury about it all the time. I guess the question in my mind is, do they really hurt baseball, i.e., do they harm the baseball "economy" overall, or do they just shift the balance of power within it?

Jun 24, 2011 11:20 AM
rating: 0

Steven Goldman roolz.

Jun 28, 2011 06:04 AM
rating: -1

If you are going to venture into broader social issues (and please do), then please recognize that your assumptions became more controversial and you therefore need to take greater care that they are sound.

You wrote “relative to the economy, most Americans have either made the same amount of money or gone backwards since the 1970s.” I would like to see a source for that statement. I couldn’t readily find median individual income, but median household income has risen since the 1970s after adjusting for inflation: http://www.davemanuel.com/median-household-income.php. Furthermore, most academics in the field believe that the cost of living index during most of this period overestimated inflation, so that the rise in real income is understated.

There has been an increase in income disparity among Americans during the past three decades. However, most economists would agree that a larger problem is that the long-term growth rate of our country’s gross domestic product seems to have slowed during the 1970s from about 3% annually to 2% annually. This makes it much more difficult for a rising tide to lift all boats, to use your metaphor.

Jul 04, 2011 05:55 AM
rating: 0
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