Tuesday, October 18, 2011

The Sad Sack Los Angeles Dodgers and Frank McCourt

After a failed attempt to purchase the Boston Red Sox seven years ago, Frank McCourt paid $425 million to buy the Los Angeles Dodgers in 2004. The Dodgers, one of sports more fabled sports franchises, have gone from baseball’s penthouse to the sports’ outhouse in one short year.

This is largely because of McCourt’s very messy and public divorce from his ex-wife Jamie. The McCourt’s managed to settle their issues Monday, resulting in Frank gaining full control of the Dodgers.

It remains to be seen if McCourt, who placed the Dodgers in bankruptcy on June 27, will retain control and ownership of the team.

Two years and three days after the couple announced their separation, Frank McCourt agreed to pay Jamie $130 million. A bankruptcy court in Delaware will now decide if Frank McCourt can retain the club by auctioning future television rights (over the objection of current rights holder Fox), or side with Major League Baseball's request to put the club up for sale.

The reported settlement between the McCourts would end the community property dispute over whether the Dodgers were owned solely by Frank or co-owned by the couple, who divorced earlier this year with a settlement contingent on MLB's approval of a new TV deal with Fox for a reported $3 billion.

MLB did not approve the TV deal claiming to be concerned that some of the $385 million upfront payment would be used for Frank McCourt's personal purposes, including funding a settlement with his ex-wife.

Frank McCourt then placed the Dodgers in bankruptcy and now proposes another sale of media rights as the club's best path out of bankruptcy. MLB, Fox and Jamie McCourt have opposed that plan, and a weeklong court hearing is scheduled to begin Oct. 31 in time for the Dodgers to be active in the free-agent market.

The dispute between the McCourts evolved from a marital agreement Frank McCourt claimed gave him sole ownership of the club, and gave Jamie McCourt ownership of the couple's nine homes.

However, three conflicting versions of the marital agreement surfaced and a judge ruled that none were valid, putting legal ownership of the club in limbo.

According to his Dodgers bio McCourt’s great-grandfather founded the original construction company in 1893. Over the past 117 years and through four generations the McCourt name has been associated with almost all of Boston's major modern development projects, from the Back Bay to Logan Airport, Union Wharf and the original Central Artery.

In 1977 Frank McCourt founded The McCourt Company as an offshoot of the original firm.

McCourt, 58, is active in a variety of educational and civic organizations. He sits on the Board of Regents of Georgetown University, from which he graduated in 1975.

He is a member of the board of the Greater Boston Chamber of Commerce, the Boston Municipal Research Bureau, the Artery Business Committee, Youth-Build Boston and the Make-A-Wish Foundation. He also supports an array of civic, educational and charitable causes in South Boston.

A Boston native and longtime Red Sox season ticket holder whose grandfather was a part owner of the Boston Braves, McCourt has had a lifelong passion for baseball.

Previously, McCourt had made unsuccessful bids to purchase the Red Sox and the Anaheim Angels.

Fun times began for the Dodgers in July 2007 when the Los Angeles Times reported that McCourt bought a trophy house in Malibu — a glass landmark by architect John Lautner with a $27-million price tag — and then doubled up with the $19-million house next door, building a small replica of his much less pricey Cape Cod estate.

A warning from his finance manager that borrowing from the Dodgers for the purchase of the second Malibu residence is "disconcerting/discouraging and something I think we should try very hard to avoid," goes unheeded.

At the MLB trade deadline in 2008, the Dodgers acquire Manny Ramirez from the Boston Red Sox.

The Dodgers quickly establish Manny as their most marketable player. Manny blows up in their faces at the start of the 2009 season after testing positive for performance enhancing drugs and is suspended for 50 games. The Dodgers owed Manny more than $10 million. He was subsequently allowed to go to the Chicago White Sox on a waiver claim in late August.

On October 16, 2009: Frank and Jamie McCourt each declares ownership of the Dodgers, with Frank saying he owns 100% of the team and Jamie saying she owns half.

October 22, 2009: Frank McCourt fires Jamie as chief executive of the Dodgers. Frank sends his estranged wife a letter asking her to contact human relations to arrange a time to return to her office and gather her belongings.

October 24, 2009: Commissioner Bud Selig says Major League Baseball will monitor the ownership dispute but doesn't expect it to have a major effect on day-to-day operations of the Dodgers.

Oct. 27, 2009: Jamie McCourt officially files for divorce from Frank and asks the court to reinstate her as CEO of the Dodgers.

Sept. 1, 2010: The Dodgers Dream Foundation comes under investigation by the California attorney general's office for payments it made to club executive Howard Sunkin. According to tax returns, Sunkin, the charity's chief executive, earned a salary of nearly $400,000 in 2007, almost a quarter of the foundation's budget.

Dec. 7, 2010: The judge in the divorce case invalidates the postnuptial marital property agreement that Frank McCourt claimed provided him with sole ownership of the Dodgers. In the wake of this decision, McCourt's lawyers say McCourt will use other legal avenues to establish his sole ownership of the Dodgers. Jamie McCourt's lawyers say she will be confirmed as the co-owner of the team as community property of their marriage.

April 20, 2011: Baseball Commissioner Bud Selig says he will appoint a trustee to oversee day-to-day operations of the Dodgers, effectively removing Frank McCourt from power.

June 17, 2011: Frank and Jamie McCourt announce that they have come to an agreement over ownership of the team and terms of the divorce, with contingencies. Mainly that Bud Selig must approve a long-term television contract between the Dodgers and Fox.

Now things start to get interesting.

June 20, 2011: Major League Baseball announces that Selig has rejected the TV deal with Fox, nullifying all terms of the agreement the McCourts had settled on three days earlier.

But wait…there’s more.

June 27, 2011: The Dodgers, with a payroll of an estimated $30 million due at the end of the week, file for bankruptcy protection, further throwing the ownership of the team into question.

June 28, 2011: A Delaware judge clears the way for Frank McCourt to borrow $150 million from a hedge fund to cover his looming bills, keeping the embattled Dodgers' owner in charge for now.

July 7, 2011: The bankruptcy judge rejects the Dodgers' demands to depose Commissioner Bud Selig and obtain a wide range of documents about other teams' financial, security and television deals.

July 18, 2011: Attorneys for the Dodgers owner argue in a Bankruptcy Court filing that Frank McCourt would be signing "a deal with the devil" by accepting a loan offered by a commissioner intent on stripping McCourt of his team.

July 19, 2011: Frank McCourt and Bud Selig head into Bankruptcy Court, with each side trying to persuade the judge not to let the other control the Dodgers' finances.

July 22, 2011: A bankruptcy judge rules that Frank McCourt cannot use a loan he arranged to run the Dodgers for the rest of the season.

Aug. 7, 2011: A Los Angeles Times reports suggests the Dodgers likely to lose $27 million because of dramatic decline in attendance.

Sept. 23, 2011: Major League Baseball asks a federal bankruptcy judge to order the sale of the Dodgers, arguing in court papers that Frank McCourt's plan to retain ownership of the team is "dead on arrival."

Sept. 27, 2011: Fox Sports sues the Dodgers, trying to halt the proposed television rights sale that Frank McCourt says is his key to emerging from bankruptcy as the team owner.

On October 7, a bankruptcy judge rules that Selig and MLB had better prove why they believe Frank McCourt violated baseball rules during his ownership of the Dodgers if that is their rationale for forcing the sale of the Dodgers.

"The Commissioner's relationship with LAD, including his refusal to approve the media rights sale, is what is at issue," U.S. Bankruptcy Judge Kevin Gross wrote in his ruling, using "LAD" to refer to the Dodgers, "not what 29 other teams have and/or have not done and why the Commissioner approved or rejected their requests.

"LAD either breached or didn't breach the Baseball Agreements — the actions of other teams do not bear upon the issue."

If Frank McCourt manages to maintain control of the Dodgers it will be in large part to him being allowed to sell the teams’ local TV rights.

In April, and on the verge of not being able to pay his Dodgers payroll, McCourt reached a 17-year $3 billion agreement selling the Dodgers television rights to Fox. Two months later, acting in what he believed was the best interests of the game, Selig rejected the proposed media rights sale.

Fox had reportedly advanced the Dodgers $50 million in April and another $50 million in May helping them meet their team payroll both times.

“Critically, the transaction is structured to facilitate the further diversion of Dodgers assets for the personal needs of Mr. McCourt,” Selig said in a statement on June 20 that led to McCourt filing for Chapter 11 bankruptcy protection. “Given the magnitude of the transaction, such a diversion of assets would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans.”

On September 27 Fox sued the Los Angeles Dodgers claiming to reject any proposed sale of the Dodgers' television rights that does not abide by the terms of the current contract.

Under that deal, Fox retains exclusive negotiating rights through November 2012, as well as the right to match any other offer. The auction process proposed by McCourt and his advisers would not preserve those rights.

The suit also seeks unspecified damages, claiming the Dodgers have violated the current Fox contract, in part by sharing confidential broadcast rights information.

In the next few weeks, and maybe longer, Frank McCourt will have two major hurdles to overcome. The first is Bud Selig wanting him out as Dodgers owner believing that McCourt has violated the rules of baseball and the Fox lawsuit.

On September 1 Bill Burke, founder of the L.A. Marathon, Chinese investors (two banks) and others, offered Frank McCourt $1.2 billion to buy the Dodgers. McCourt insists he wants to own the Dodgers.

An offer of $1.2 billion is well over fair market value. For McCourt, who paid $425 million for the Dodgers, this offer is an opportunity to end his terrible stewardship of the Dodgers.

For reasons only Frank McCourt knows he remains steadfast in his belief he is the right person to own the Dodgers. His record as the teams’ owner indicates it’s in the best interest of the Dodgers that he sells the team.

For Sports Business News this is Howard Bloom. Sources cited and used in this Inside Report: The Los Angeles Times and MLB.com

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