These were supposed to be the gravy years for Bud Selig. With his contract up for expiration at the end of 2012, the commissioner should have been spending most of his time touting league growth and labor peace.
But instead, Selig is dealing with the mess that Frank McCourt is making of the Dodgers. McCourt has turned into your cousin Eddie. You told him he could stay a while on the couch, and instead, he’s raiding the fridge and talking about you behind your back.
McCourt is Veruca Salt. He’s now stomping his feet saying he wants what’s his, and if he can’t he’s going to make a scene. You can see him holding his breath now.
Where the O’Malley’s build the Dodgers as an edifice to community in Los Angeles; where News Corp. bought them as an edifice to their portfolio, Frank McCourt has built the Dodgers into an edifice of self.
As McCourt has run the value of the club into the ground, been investigated by the California Attorney General for dealings with the Dodgers’ charitable organizations, he’s gotten personal. The most recent is tying amount of salary that the owners set for Bud Selig after growing league revenues from $1.4 billion in 1995 to $7 billion in 2010, to the amount of money that McCourt took from the Dodgers so that he and his former wife Jamie could live an opulent lifestyle.
"The claim that $100 million was taken out of the Dodgers over the course of seven years is patently false," said McCourt in a court filing. "Moreover, even taking the Commissioner's false claim that $100 million was taken out of the Dodgers at face value, it is difficult to understand how the Commissioner can complain about this when he pays himself a salary of approximately $20 million a year -- meaning that he has taken out between $120 million and $140 million from baseball revenues during the same period that he complains about $100 million being taken out by the owner of a team."
The reality, of course, is Selig makes $18.35 million. That amount was set in 2009 after making $17.5 million.
Selig has been lambasted for letting McCourt own the Dodgers in the first place. In Boston, fans have breathed a sigh of relief that he could have nearly owned the Red Sox. The reality is, McCourt lucked out and stumbled into the Dodgers.
Malcolm Glazer, MLB and NFL Rules
Frank McCourt was never supposed to wind up with the Dodgers. Malcolm Glazer was ahead of him. So was former Seattle Mariner owner Jeff Smulyan and Los Angeles developer Alan Casden, who initially had a higher bid than Glazer, were well in front of McCourt. He was a fallback plan, and even then, very nearly didn’t wind up with the club. When News Corp put the Dodgers up for sale, the deal was supposed to go to Malcolm Glazer.
The problem was, Glazer owns the NFL Tampa Bay Buccaneers. That bumped into problems with the NFL.
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 club outside the NFL. Glazer had been trying since April of 2002 to make both happen, and 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, they were concerned with Ed’s "management credentials."
"We'd love it to be moving more quickly," a News Corp. executive said to the LA Times regarding the negotiations, "but it's not."
Impatient, News Corp Pushes for McCourt
It didn’t move faster, and News Corp got impatient. Looking 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 to due as much with how he had money wrapped up as to whether there will better bids available. He would have never been able to pull either of those sales off without other investors. The Dodgers was about being at the right place at the right time for McCourt.
From the get go, there were concerns, namely how McCourt would pay for the Dodgers, but Allen & Co. said not to worry. It was there…. Just not “there”.
If there were a point where MLB could have stepped in and tried to put a foot down, it could have been when they heard McCourt had a liquidity problem – everything was tied up in property – and the purchase would be highly leveraged, so much so that it would be in violation of the league’s debt service rule.
As it does now, the problem for the league is one of stopping sales transactions unless they are exceptionally fragile. With News Corp it was a delicate balancing act. They wanted out, and had been for some time. They were impatient as the Glazer deal had floundered. They were the league’s national broadcast partner through Fox. They were now pushing for McCourt.
Red flags were thrown almost immediately about the sale structure and McCourt was struggling to get the deal done. Talk was that McCourt would get the green light at the owners meetings in November of 2003, but it had to be taken off the agenda because McCourt still has not forwarded most of the paperwork that the commissioner's office needed to review before scheduling a vote.
Selig kept saying that he trusted Allen & Co. to pull the sale together without any issues. McCourt’s people kept pointing to the protracted sale process between the O’Malley’s and News Corp. Of course the difference there was News Corp had billions to draw from. McCourt had little to none.
Eli Broad Steps in at the 11th Hour
Along with this, the community started to stir. McCourt had been virtually invisible, not saying anything in the media or otherwise about his plans for the Dodgers. As the exclusivity deadline for McCourt to close the deal approached Los Angeles developer and billionaire philanthropist Eli Broad stepped in.
Broad said he would be a fallback in case McCourt couldn’t make the deal happen. L.A. Mayor James Hahn backed Broad.
"As to what significance the development with Eli Broad has is a question for News Corp.," then MLB president Bob DuPuy said. "As for baseball, we have no reaction in the sense that News Corp. has asked us to process the McCourt application and that's what we're attempting to do. I think both the buyer and seller want it done and that's what we're trying to do."
News Corp didn’t care about Broad. After all the work they had put in with Glazer and now McCourt, they wanted out. A Fox Group official said to the LA Times that company execs "were not entertaining Broad's offer and were pressing ahead with McCourt.”
MLB could have pushed McCourt to sell assets to allow him to have more cash in the deal, but the league was concerned that if that needed to happen, it could depress the sale price, something the league is always looking to avoid.
"We've been told by Allen & Co. and McCourt that he'd be able to finance the purchase on his own if need be," DuPuy said.
McCourt Lands the Dodgers
In the end, McCourt was approved on Jan. 29 of 2004 as new owner of the Dodgers, but there was a lot of talk amongst Executive and Ownership Committee about the deal. They were nervous about the extent to which McCourt was leveraged.
Here’s how financial structure for McCourt worked out:
In three separate transactions, News Corp loaned McCourt $196 million. The remaining $225 million of the $421 million sale was done through Bank of America.
The Fallout in the Front Office
You’ll likely never get Bud Selig (or any of the owners) on record, but if you could have polled them 6 months after the sale to McCourt, they would have said they had made a mistake. Some of the best front office execs were either fired or left the organization following McCourt’s purchase.
President Bob Graziano, executive vice president of business Kris Rone left over what was deemed philosophical differences with Frank and Jamie McCourt. 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.”
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.
Who’s to Blame?
The Dodgers are a victim of circumstance. Glazer being unable to get around the NFL’s rules… the issue with Ed Glazer not being a suitable management fit for MLB… News Corp pushing for the sale…. McCourt’s liquidity problem that Allen & Co said would never be an issue. No one thing is the true catalyst. The league was in a no-win situation and are now dealing with Frankruptcy, and I’m sure they hate themselves for it.
One day, Frank McCourt will no longer own the Dodgers. All owners are simply stewards of club ownership. The name and the brand far outlive those that have owned them over the decades. What you hope is that MLB has learned its lesson. If it feels wrong, and the particulars are bad, then if you can’t stop a sale, the least they can do is force partnerships that can take the edges off. Who knows what would have happened if there would have been more of a group partnership as opposed to just Frank and Jamie McCourt pushing for the new Think Blue?
Maury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, and is a contributor to Forbes SportsMoney blog.. He is available as a freelance writer. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network (select his name in the dropdown provided).
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