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May 1, 2012

Bizball

The Frank McCourt Era Is Over

by Maury Brown

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It took a day longer than expected, but shortly after 10 AM PT on May 1, the sale of the Los Angeles Dodgers from Frank McCourt to Guggenheim Baseball Management LLC (“GBM”)  for $2 billion took place. The Dodgers’ new ownership includes Mark Walter as control person, Earvin “Magic” Johnson, and Stan Kasten as CEO of the organization.

The Los Angeles Dodgers stated, “The Dodgers emerge from the Chapter 11 reorganization process having achieved its objective of maximizing the value of the Dodgers through a successful Plan of Reorganization, under which all claims will be paid. The Dodgers move forward with confidence - in a strong financial position; as a premier Major League Baseball franchise; and as an integral part of and representative of the Los Angeles community.”

Three-thousand and fifteen days. Or, eight years, three months, and two days. That’s how long Frank McCourt owned the Los Angeles Dodgers. His tenure now over, $1.588 billion cash has been moved out of escrow from Guggenheim Baseball Management, making the sale final. As part of the sale, GBM will assume $412 million in debt that the Dodgers have incurred under McCourt’s watch, and with it, the new owners get the Dodgers, Dodger Stadium, and the land upon which Dodger Stadium is built. In a separate deal for $150 million, GMB will partner with McCourt to develop the land around Dodger Stadium. But while McCourt is a partner, he does not get the revenue from the parking lots; that will go to GMB.

The deal had been set to close on Monday because McCourt owes his former wife, Jamie, $131 million as part of his divorce settlement.  McCourt had wisely set up “bridge funding” for $140 million in case the deal did not occur on time. Due to the complexities of the deal—one that has been called the most complex sports franchise sale ever—an agreement was not reached until Tuesday. After settling with his former wife, Jamie, Frank McCourt will walk away with $1.457 billion outside of the $150 million land sale. They say you should never reward bad behavior, but apparently, McCourt didn’t get that memo.

Frank McCourt purchased the Dodgers in January of 2004 for $421 million. It took two separate transactions for the Bostonian to get the money together.  News Corp., who owned the Dodgers at the time, loaned McCourt $196 million. The remaining $225 million of the $421 million sale was done through Bank of America. The entire deal was leveraged from the get go, and it had the league nervous.

While MLB has been skewered for ever allowing McCourt to purchase the Dodgers in the first place, the deal was a forced marriage. News Corp. had reached an agreement in principle with Tampa Bay Buccaneers owner Malcolm Glazer in January of 2003, but when the sides tried to close the deal, it ran into complications with both the NFL and MLB’s ownership rules.

At the time, MLB had rules in place stating that 60 percent of any club sale had to be cash (the rest could be financed). To that end, Glazer couldn’t come up with the cash without leveraging the Buccaneers, which was against the NFL’s rules.

The NFL has rules stating that if you’re going to purchase a club in another league, you can’t use NFL assets as collateral to get loans to make the purchase. The NFL also requires that you have an independent management team in place for the new club. Glazer had been trying since April of 2002 to make both happen, but he couldn’t. One idea on the management side was to have his son Ed, who lived in Los Angeles, run the Dodgers. That didn’t fly well with MLB. As one executive put it at the time, they were concerned with Ed’s "management credentials."

As News Corp. got itchy and impatient, they began searching for a fallback. Wanting to get out from the Dodgers as fast as possible, they looked to Frank McCourt—who had missed out on the Red Sox and Angels—to complete a sale. The reasons that McCourt missed out on both of those sales had as much to do with how he had money wrapped up as they did with whether better bids would be available. He would have never been able to pull either of those sales off without other investors. The Dodgers purchase was about being in the right place at the right time for McCourt.

While billionaire philanthropist Eli Broad stepped in at the 11th hour at the behest of civic leaders in Los Angeles, News Corp. had had enough and settled on McCourt. The sale went through and, with it, problems began almost immediately.

President Bob Graziano and Executive Vice President of Business Kris Rone left over what was deemed philosophical differences with Frank and Jamie McCourt. Graziano had been with the Dodgers for 18 years, so the shift came as a bit of a shock. As noted in the LA Times on March 9, 2004, “sources familiar with the situation said that both questioned the viability of a business plan based on a best-case scenario. If that best case doesn't totally evolve—and seldom do all of the pieces fall in place in baseball —Graziano and Rone were concerned, the sources said, about McCourt's long-term operating potential given the level of the debt servicing in his highly leveraged purchase of the club.”

After that, McCourt was supposed to lure Mike Dee, the Red Sox’ Executive VP of Business Affairs, to the Dodgers to replace Gaziano. It never happened. Derrick Hall, Dodger Senior Vice President also fled. Along the way, there were firings, including GM Dan Evans, who was left hanging while whispers of Billy Beane and Paul DePodesta wafted about as replacements. When McCourt did bring in DePodesta, it lasted all of 20 months (from February 16, 2004 to October 29, 2005).

But it got worse. While the problems in the front office were mounting, the pilfering of funds from the Dodgers surfaced as part of the divorce from his wife, Jamie. As Jamie considered herself part owner of the Dodgers, she requested a lavish list of Dodger “benefits”  as part of her divorce filing. She was to continue receiving paid dinner and lunch five days a week, club-paid-for private and country club memberships, a 24-hour driver, fresh flowers daily, gifts sent from the ownership office, and hair and makeup for Dodger events.

On top of this, the Dodgers’ charitable Dream Foundation was investigated by California Attorney General Jerry Brown in 2010 over what was seen as funds coming out Dream Foundation to benefit Jamie McCourt. In a report by the LA Times, it was said that, “In a letter to the Dodgers Dream Foundation dated March 3, the attorney general's office said the foundation in 2008 had authorized a consulting contract worth $122,352 in violation of state requirements governing charity funds. The money was ordered repaid to the charity, and foundation attorney William Choi said Frank McCourt complied.” All told, the investigation into Dream Foundation for improper expenditures totaled $361,432 in 2007 and 2008. That also included a bonus payment of $239,080 to Dodgers executive Howard Sunkin. "Whatever was going on with the Dodgers Dream Foundation was directed by either Frank or Jamie McCourt," Rob Manfred, MLB's executive vice president said at the time.

McCourt threw the Dodgers —yes, the Los Angeles Dodgers, a cornerstone club that saw Jackie Robinson break the color barrier, was one of the first two teams to relocate to the west coast, and which operates in baseball’s second largest market—into bankruptcy. He tried to leverage the Dodgers’ current media rights deal with FOX ahead of it expiring. As Commissioner Selig said in his letter to McCourt rejecting the proposed plan to sell the media rights to pay off Dodger debt, “While other clubs have received signing bonuses and other up-front payments as part of media rights deals, the $385 million that would be accelerated as part of the Proposed Transaction far exceeds any up-front payment previously received by any other club. No other owner has sacrificed so much of his team’s future for immediate payoff.”

In the end, McCourt bent and settled, but the damage was significant. While the Dodgers are one of the key teams to watch early in the 2012 season—they hold the second-best record in MLB behind only the Rangers—they’re ranked sixth in average attendance at 38,759. Last season, they finished even worse: 11th, with an average attendance of 36,236 and a total attendance that was under three million for the first time since 2000.

Year

Avg Attendance

Rank

2004

43,065

2

2005

44,489

2

2006

46,401

2

2007

47,617

2

2008

46,056

3

2009

46,440

1

2010

43,979

3

2011

36,236

11

2012

38,759*

6*

*Through 11 games of 2012 season

A Bright New Day?
For fans of the Dodgers, today is the first time they have an ownership that they can have faith in since the O’Malley family owned the team. Ever since News Corp. purchased the Dodgers in 1997 for $311 million, fans have never really had an ownership group to get excited about.

Many feel that the Dodgers may be active at the trade deadline (though they don’t have a deep well of prospects to deal from), but they are likely to be major players in the off-season. Along the way will be a new television deal that will likely see a floor of $4 billion but may get as high as $5 billion.

Don’t cry for Frank McCourt; he’s got all that money. Of course, owning an MLB club is also about the visibility of owning a sports franchise. Fans should be relieved to know that through his ownership of the Dodgers, Frank McCourt will never own any portion of a MLB club again. It’s also likely that through his poor running of the Dodgers, McCourt will never be allowed to own a major league sports property in any league. Farewell, Frank. Don’t let the door hit you on the way out.

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

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