Posted Under: Johanna's View
Yesterday, the Commissioner of Baseball seized control of the Los Angeles Dodgers, presumably ending the McCourt family saga in relation to the team. According to several reports, including this Bob Nightengale piece, Frank McCourt took out a personal loan last week to cover payroll, taking on more debt. The Commissioner office, already concerned about the amount of debt the team carried, expressly forbade McCourt from doing just that. Though the loan was made to McCourt and not to the Dodgers, no doubt it was made against his assets, including the Dodgers. McCourt also had no plan to make payroll next time.
McCourt bought the team more highly leveraged than any owner is presumably allowed to be. He mortgaged a couple of parking lots in Boston which he owned to the previous owner, FOX, as part of the sale. FOX had to foreclose on those properties less than two years later. McCourt has shown he doesn’t pay his debts.
Selig, and Major League Baseball, isn’t just worried about the debts McCourt is accruing for his sake. They are worried about what happens when all of his creditors come after him and he is forced into bankruptcy. Just as last summer MLB assumed control of the Texas Rangers briefly, MLB wants to have a say in where this asset goes. MLB cannot allow a team to go into a bankruptcy hearing, as then the courts not MLB will determine the next owner. The power of being the only recognized business with Anti-trust protection is that you get to say who gets in the ownership club. Any kind of court hearing could undo that privilege.
A few years ago, MLB began demanding that teams maintain an income to debt ratio, projected three years out. That was a hard line kept in place for years, until the economy went into the tank, attendance and sponsorship dollars dried up, and teams which had already borrowed money didn’t have the income to maintain that ratio. The Mets are suffering through this now as well. The difference between the Mets and the Dodgers however is that the New York team’s ownership has other assets which will recover from the poor economy. The Dodgers ownership has already sold or leverage all those other assets, and the team itself is already highly leveraged.
Many writes are comparing this to MLB taking over the Montreal Expos, and in some ways that is better than the comparison of the Rangers. The ownership issue is unlikely to be resolved as fast as that in Texas. The difference from the Expos is that the Dodgers will never be allowed to leave Los Angeles, and that in that case, ownership of the Expos wanted to sell the team, while here McCourt doesn’t want to give it up.
Interestingly, Jamie McCourt has come out and said she is glad the Commissioner has made this move, so that some transparency can come to the process. Though she may still be a 50% owner of the team, she will not regain any kind of control. She also probably won’t see much money from any sale- as that will seemingly go directly back to Frank McCourt. Still, Jamie McCourt is correct. Some transparency will come to the situation. Fans of the team can relax a bit, and know that MLB won’t let anything bad happen to this storied franchise, at least not anything further.
McCourt never should have been allowed to own a team, and some day the book will be written explaining why he was allowed to. That one will be a good one, I have no doubt. MLB is setting the Dodgers back on the right path, lets just hope the McCourts haven’t taken the franchise too many miles out of the way already.