To say that the saga of the McCourts and Major League Baseball has gotten ugly is to say that Vin Scully is an OK broadcaster. You’re just scratching the surface. And, if Frank McCourt gets his way. It could get uglier.
Major League Baseball took the gloves off this past week, threatening to terminate the Dodgers in an effort to get Frank McCourt to sell the Dodgers. McCourt, who was never the first choice to land the Dodgers in the first place, acquired the storied club in a deal that was almost entirely leveraged through loans by seller News Corp and Bank of America. Since then, the value of the franchise has increased (as has all of MLB’s other clubs), but in the midst of the ride, the McCourts siphoned off $180 million to live an extravagant lifestyle. When the two became embroiled in one of the most expensive divorces in California history, Frank began going after money to pay for it by seeking loans. When he ran out of places that would grant them, FOX granted upfront money and McCourt began getting advances on sponsorships.
When MLB rejected an extension of the FOX television deal over concerns about how upfront money in the deal was to be used, Frank threw the club into bankruptcy and since then, it’s been war with the league.
Now, McCourt has decided to basically become a suicide bomber. With the league threatening to force McCourt to sell and seeking to disqualify his legal team, McCourt is looking to inflict as much damage on MLB as he can. He’s running into the building strapped with dynamite and if he’s going to go down, he’s going to inflict as much collateral damage as possible by asking the bankruptcy judge in the Dodgers’ Chapter 11 case to allow discovery on other MLB clubs and Commissioner Selig himself to say that the Dodgers have been treated unfairly compared to other franchises.
As the headline on Bill Shaikin’s LA Times story says, McCourt is looking to go on a fishing expedition, with the Marlins a key target. The Marlins, who have thumbed their nose at MLB’s revenue-sharing system, are one of the league’s most profitable, by living off welfare. How so? In the last publically reported revenue sharing numbers, the Marlins received $20,946,573 in 2002, $21,030,000 in 2003, $31 million in 2005, $47,982,000 in 2008 and $43,973,000 (see MLB revenue-sharing data). Meanwhile, they diverted funds (and presumably still do so) through a “Management Company” called Double Play Company that was established since 1999. Double Play is owned by Marlins owner Jeffery Loria (see Corporation Wiki diagram of Double Play Company with Loria as its head and how it is tied directly to the Marlins). Through this shell company, $2.6 million has been diverted back to the Marlins, which was increased to $2.8 million in 2008 and increased to $3.2 million in 2009 (see page 34 of the leaked Marlins financial documents and get more details from Jeff Passan’s article from 2010).
McCourt could go after the Mets (Madoff connection) or Rangers (HSG bankruptcy) or Astros (proposed sale to Jim Crane which is leveraged), but here’s the thing: the judge isn’t likely to allow it.
At the heart of the Dodger Chapter 11 case is exiting bankruptcy. McCourt has said that if MLB had simply approved the FOX extension, everything would be fine and the Dodgers would have loads of capital to work from.
The problem was (and has been) that of the $385 million that would come from the extension, McCourt would divert $173.5 million to pay legal bills, etc. as part of his divorce. MLB isn’t going for that, and there’s precedence to back it up.
The Commissioner has rejected “Robbing Paul to pay Peter” television extensions before. Tom Hicks had a proposed FOX extension rejected (sound familiar?) when his Hicks Sports Group was on the edge of bankruptcy. In that case, as is the case with the Dodgers, the league rejected the deal saying it was not in the best interest of the Rangers, or baseball. Frank, you’re going to bump into that.
On the now proposed deal to auction the television rights of the Dodgers off that last week the league said was “dead on arrival”, the bankruptcy court could push that through, but will be weighing FOX’s contractual right (the deal does not expire until 2013 and they have right of first negotiation on a new extension no earlier than Nov of 2012). FOX is now suing to stop that auction.
So the “fishing” expedition is really saber-rattling. For one, it’s not just MLB that McCourt is trying to put on trial, it’s all sports leagues that have their own rules that they apply to clubs. Why not have McCourt go after the NFL, or NBA, or NHL? Where does it stop? The court has to remember the precedent that would be set with such a ruling.
But, that doesn’t mean McCourt isn’t going to lawyer up to the nTh degree. One might say that it’s been his modus operandi prior. But, make no mistake there is the capacity for a blood-bath. The discovery phase, if the court allows McCourt to say that the league is treating the Dodgers differently than other distressed clubs, could be exceptionally damaging with sensitive information being publically exposed (just look at the leaked Marlins docs as an example).
In the end, McCourt is taking the “nuclear option”. If he’s going out, he’s going out with a bang… and he’s taking as many down with him as he can. Maybe instead of “Owner of the Dodgers” McCourt’s title should read, “Professional Bridge Burner”.
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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