By MONTE BURKE
LOS ANGELES, CA - AUGUST 31: Frank McCourt, o...
Frank McCourt (Image by Getty Images North America via @daylife)
Frank McCourts over-leveraging of his baseball team has finally caught up with him. Today Major League Baseball announced it has taken control of the financial operations of the Los Angeles Dodgers, one of the premier sports franchises in the world, from McCourt. My colleague, Nathan Vardi, and I wrote about the financial troubles of the team and McCourt last month.
The Los Angeles Times Bill Shaikin was the first to report the news.
McCourt and his wife, Jamiewho are currently embroiled in a nasty divorce caserepeatedly used the Dodgers as collateral for lavish real estate spending. McCourt bought the team in 2004 for $430 million, borrowing all but $9 million of the purchase price. Court documents revealed that McCourt accumulated $459 million in debt from 2004-2009.
The spending continued, but the lending dried up. Despite two recent loans from cable partner Fox, McCourt still appeared to be in dire financial straits. Selig recently turned down a proposed $200 million to McCourt loan from Fox.
Taking over the Dodgerssomething the NBA recently did with the New Orleans Hornetswas a move MLB resisted, especially in the wake of the bankruptcy of the Texas Rangers and the financial troubles of the New York Mets.
But now, Seligs hand has been apparently forced.
Forbes values the Dodgers at $800 million. My colleague , Mike Ozanian, says MLB should have no problem selling the team if forced to do so. The reason: its cable television rights, currently owned by Fox, which pays them over $30 million a year, are due to expire in 2013. The NBAs Los Angeles Lakers recently landed a reported 20-year, $3 billion agreement with Time Warner Cable. The Dodgers could expect at least that much in a similar deal.
McCourts ownership run has been financially troubled from the start. In 1977 he founded the McCourt Co., a Boston-based commercial real estate firm that specialized in parking lots. Two years later he married his college sweetheart, Jamie Luskin. As McCourts business thrived, he hungered for a Major League Baseball team. In 2002 McCourt made an unsuccessful bid for the Boston Red Sox. A year later he looked over the Los Angeles Angels of Anaheim. Finally in 2004, when Rupert Murdochs Fox Entertainment Group wanted to get rid of the Los Angeles Dodgers, McCourt realized his dream.
He didnt have to spend much of his own money to do it. The sale price for the ball club and its stadium in Chavez Ravine was $430 million. McCourt borrowed all but $9 million of the purchase price, an unusually large amount of financing. That sum included a $196 million loan from Fox, which used one of McCourts South Boston parking lots as collateral. (Fox later sold the lot for $205 million.)
Major League Baseball approved the deal, apparently believing McCourt would eventually work his way out from under the load. And under McCourt the Dodgers have had healthy returns. Last year revenues were an estimated $246 million (net of revenue sharing) and operating income was $32.8 million. FORBES estimates that the Dodgers value has nearly doubled to a current $800 million under his ownership. But the debt increased, too, and now stands at 13 times Ebitda, a problem that came to light in late 2009 when Jamie McCourt filed for divorce.
The central issue in the divorce is the Dodgers. Frank contends that the team is solely his. Jamie believes they are a shared asset. The trial is currently on break, and there is no new court date scheduled. It may not be taken up again until early next year, and how it will end is anyones guess. But whats clear from the court documents is that Frank McCourt used the team as collateral to rack up $459 million in debt from 2004 to 2009.
Over that period McCourt took $108 million of the money in personal distributions and funneled it into the couples real estate purchases. It also supported the couples very expensive lifestyle, says David Boies, the superlawyer representing Jamie. The McCourts bought eight houses across the country, including a $28 million Malibu mansion. (A house in Cabo San Lucas was sold last year.) In 2006 McCourt turned two of the stadiums parking lots into a separate company, then took a $60 million loan against it. He used $12 million of that on the team and took the rest of the money, court documents say. According to Raman Sain, a principal at accounting firm Holthouse Carlin & Van Trigt, who studied the McCourts legal documents on behalf of the Los Angeles Times, Frank McCourt borrowed $23 million against the team in 2008 and $8.5 million in 2009.
According to Sain, in 2009 every dollar in free cash the Dodgers earned was used to make payments on the interest on the debt, not the principal. (The Dodgers dispute this.) It doesnt help that many of the Dodgers deferred player salaries, like the $20 million still owed to former outfielder Manny Ramirez, are coming due. The McCourts financial statements since 2009 have not been publicly available. Boies says the team has added tens of millions of dollars in debt since then, but not, apparently, as much as Frank McCourt would have liked. Though the Dodgers say they have paid back all debt accrued since 2009, in the last two years the team has been turned down for loans from Citibank and the founder of the TV infomercial company Guthy-Renker. A possible business venture with Chinese investors, which would have added some cash to the larder, fell through. Last year the Dodgers took an undisclosed cash advance from cable partner Fox. And in February the Dodgers requested a $200 million loan from Foxusing the teams next four years of cable rights as collateral. Selig did not approve it.
And now hes been forced to run the team.
