And the Walls Came Tumbling Down

 

Embattled Los Angeles Dodgers owner Frank McCourt held a press conference in New York City on April 28 after meeting with Major League Baseball officials over MLB’s takeover on April 21 of the day-to-day operations of the franchise. This step was taken by Commissioner Bud Selig after he concluded that the Dodgers were in financial difficulties as a result of the continuing uncertainty over the outcome of McCourt’s divorce case with his wife, Jamie.

The impact of this long-running divorce saga was covered in these pages back in October, 2010. Frank McCourt has saddled the Dodgers with over $400 million in debt since his purchase of the club back in 2007. At that time he installed his wife as an executive with the club and the couple’s fight over who owns what interest in the club has been a centerpiece of the divorce soap opera.

Major League Baseball officials accused the McCourts of using some $108 million in club revenues for personal expenses since 2008. Meanwhile it was reported that in early April Frank McCourt took out a $30 million personal loan to make payroll for team operations personnel.

Many people believe that the McCourts are exhibit A on how not to run a sports franchise.

The possibility still exists that the divorce court judge in charge of the pending dissolution of the marriage might craft an order that forces Frank McCourt to sell the team. The same judge has already invalidated a document signed by the couple in 2008 that Frank argued gave him sole ownership rights to the team and precluded it from being considered community property under California law. Two copies of the document were eventually found to exist, signed by the parties at different times. One word in each document was different and the attorney who prepared the document testified in court that he had made a mistake when initially preparing the document and simply prepared another copy correcting them mistake.

In his press conference McCourt argued that MLB and Bud Selig are teating him unfairly and that the new TV rights deal he has negotiated with Fox Broadcasting will make the Dodgers financially solvent for years to come. He also threatened a lawsuit if MLB doesn’t back down in its plan to operate the team.

McCourt made his fortune in the 1980s and 90s in Boston by leveraging real estate deals. He managed to purchase the Dodgers while investing almost no hard, cold cash. He has proven himself to be a great deal maker and self-promoter who may or may not know much about running a large business. Many critics argue that he knows little about topics such as ethics.

The Dodgers have lost an estimated $200 million in value in the time Frank McCourt has owned the club. The club may well have a net worth at this point of less than $100 million. How can anyone manage to buy such a valuable asset and put up no cash of his own? Why did MLB stand idly by while he saddled the Dodgers franchise with over $400 million in debt?

The lifestyle of the McCourts is the stuff of celebrity gossip shows (see the October Digest article). This entire situation offers a great case study for anyone studying the finances of sports teams and sports management. Frank McCourt and the Dodgers are just one side of the coin. The trustee appointed by a New York court to try and recover assets embezzled by Bernie Madoff is seeking some $350 million back from the two owners of the New York Mets, arguing that the money was derived from illegal schemes operated by Madoff that had to be known about at least in part by the Mets owners. Major League Baseball just finished brokering the sale in 2010 of the Texas Rangers following the messy bankruptcy of the team’s former owners.

It seems that object lessons abound everywhere one looks in baseball. To read more about the saga of Frank McCourt and the Dodgers click on the two links found below.

Issues involving the financial aspects of sports are important to sports administrators at every level Those persons who have detailed knowledge of these subject areas can mean the difference between success and failure in a job setting. For more information on these courses of study go to http://ussa.edu.

 

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