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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.  

   

W

L

PCT

POST

1

Yankees

674

460

.594

6

2

Red Sox

654

480

.577

6

3

Angels

647

487

.571

5

4

Phillies

630

504

.556

4

5

Cardinals

629

504

.555

4

6

Twins

619

517

.545

4

7

White Sox

600

535

.529

2

8

Braves

598

536

.527

3

9

Dodgers

593

541

.523

4

T10

Rangers

579

555

.511

1

T10

A's

579

554

.511

1

12

Mets

577

557

.509

1

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

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