Chaos relating to Dodger’s payroll as MLB eyes takeover

In a move that surprised no one, Los Angeles Dodgers’ owner Frank McCourt filed for Chapter 11 bankruptcy protection in Delaware June 28. McCourt is alleging that because Major League Baseball’s commissioner, Bud Selig, has refused to accept a $3B television agreement between the team and FOX, the team has suffered damages that will not allow them to meet payroll.

Selig’s main concern stems from the fact that he feels like McCourt, who purchased the team almost entirely on credit in 2004, has inappropriately used team funds in the past, such as:

• Paying his two sons millions for no tangible benefit to the team.

• Using over $100M to fund his family’s lifestyle.

• Paying a Russian “faith healer” $600K to send the team “V Energy” from his home in Boston.

McCourt’s financial decisions could be described as odd, or rather, fraudulent. Yeah, that seems a bit more appropriate.

Finally, after Jaime, Frank’s estranged wife, was uncovered to have had an affair with a club employee, the mood became a bit more tense around Chavez Ravine, with the couple announcing their separation literally hours before the Dodgers took the field in the NLCS 2009. Both sides entered into a protracted legal battle, which is still underway today.

Because Frank was unbelievably over-leveraged (maybe he should have asked for some “V Energy to be sent his way), and the credit crunch was taking away a number of different sources for loans, Frank was compelled to turn to the team’s sponsors to generate the income needed to run the Dodgers on a day-to-day basis. He attempted to get a loan from FOX in February for $200M, only to have that rejected by Selig. To meet payroll early in the season, McCourt would get a $50M personal loan from FOX, circumventing Selig’s approval, and drawing the commissioner’s ire. MLB would send in their own staff to monitor the team, and ensure that if Frank stepped out of line, the team would be taken over by the league under the “for the good of the game” clause.

When it came time to meet payroll for May, McCourt turned to the team’s sponsors, asking them to pay in advance, at a heavily-discounted price, in order to give the beleaguered owner enough cash flow to make it through the month. Problem was, June’s payroll would be almost impossible to meet, and with a number of deferred payments needing to be met in June as well, McCourt did what anyone with mounting debts and a fading public persona would do- he got defensive and litigious, suing Major League Baseball, and in turn, creating a level of disarray, distrust and disenfranchisement rarely seen between a league, owner, team and fans within the professional sports landscape.

This story has a lot of parallels to the American economy. Under-qualified buyers purchasing assets that they couldn’t afford with unscrupulous loans, and the subsequent loss of value on those assets due to their overvaluation. As banks have seen from some homeowners going through foreclosure, Major League Baseball is seeing with McCourt – when you let unqualified buyers purchase something beyond their means, and then ask them to rescind control later, many will trash the asset before giving it up.

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