Frank McCourt

From BR Bullpen

Frank H. McCourt, Jr.

Biographical Information[edit]

Frank McCourt was the troubled owner of the Los Angeles Dodgers. After losing out on the bidding for the Boston Red Sox, the Boston, MA area real estate developer purchased the Dodgers from Rupert Murdoch and FOX in the 2003 off-season. His purchase was one of the most highly leveraged team purchases to date, but was still approved by Major League Baseball as they were anxious to get rid of Murdoch, who was seen as having tarnished the reputation of one of baseball's most prestigious franchises during his tenure as its owner. There were no other serious bidders for the team, and it is estimated that McCourt's purchase for $430 million was very much a bargain. McCourt made a splash by hiring young general manager Paul DePodesta, of Moneyball fame, and the team improved on the field. However, by the time the team made the postseason in 2006, DePodesta had been replaced by the more "old-school" Ned Colletti.

Veteran Joe Torre was brought in as manager after the 2007 season and the Dodgers reached the NLCS in consecutive seasons in 2008 and 2009, only to lose to the Philadelphia Phillies both years. Things went sour in 2010 however when McCourt's wife Jamie, who had been named Chief Executive Officer of the Dodgers, sued him for divorce and claimed that she had joint ownership of the team, dragging it into messy legal proceedings. Concerns also mounted over McCourt's ability to pay the sizable debt he had incurred in purchasing the team, given the record divorce settlement he was expected to have to make to his ex-wife and the difficult times his real estate empire was going through.

In April 2011, Commissioner Bud Selig stepped in and had MLB assume control of day-to-day operations of the team; on April 25th, he named former Texas Rangers President Tom Schieffer as "Monitor" on behalf of MLB. For his part, McCourt named outspoken Steve Soboroff as team President, who immediately threatened to sue MLB over its actions. However, those proved to be empty words as Soboroff had to concede that the financial situation was indeed dire, and he himself resigned on June 25th. At the heart of the dispute was a planned 17-year broadcasting contract negotiated between McCourt and FOX, worth $3 billion, that would have provided McCourt with immediate financial breathing room, but at the cost of the team's long-term interest in the Commissioner's view. McCourt accused MLB of having exercised a veto over the proposed contract, something which MLB denied through a formal statement, claiming it did not approve the deal as it needed further investigation, especially in light of information that FOX had provided a $30 million loan to McCourt earlier that month. There was also speculation that McCourt had siphoned off close to $100 million in revenue from the Dodgers to pay for the couple's lavish lifestyle, and that he was intending to do the same with revenue from the proposed broadcast deal, which would make the inevitable future sale of the team much more problematic for MLB. Another brick fell in early May when it was reported that in spite of the $30 million loan from Fox, McCourt was in danger of not being able to meet payroll obligations for May, a situation that could have prompted a full takeover of the team by MLB.

These financial shenanigans prompted his ex-wife Jamie McCourt to ask a Los Angeles Superior Court Judge to order the immediate sale of the team, claiming that Frank's actions were endangering the team's value. On June 17th, McCourt came to an agreement with Jamie on divorce proceedings, allowing a judge to hold a one-day trial in August to determine whether the Dodgers were his sole property, or community property of the couple. Commissioner Selig then upset that agreement three days later when he rejected the proposed television deal between McCourt and Fox Sports for "not being in the interests of the Los Angeles Dodgers franchise, the game of baseball and the millions of loyal fans of this historic club." Selig added that the deal "would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans." The rejection also invalidated the terms of the divorce settlement reached between Frank and Jamie. As McCourt was relying on the television deal's approval to meet immediate payroll demands and operating expenses, he was under threat of defaulting on his obligations and having MLB put up the club for immediate sale.

On June 27th, McCourt filed for bankruptcy protection in a Delaware court, hoping to delay a takeover of the club by MLB. In a surprise twist, it was MLB that offered McCourt a loan, allowing him to meet payroll obligations for June. However, all was not sweetness and light. As a lawyer for MLB put it in the bankruptcy proceedings: "Having siphoned off well over $100 million of club revenues and obviously unable to distinguish between his personal interests and those of the club, Frank McCourt has driven the Dodgers into a liquidity crisis so severe that, absent extraordinary measures, the club would be unable to make its payroll." MLB's move meant that McCourt would not have to turn to an onerous loan from a hedge fund to stay afloat, but it strengthened MLB's hold on the team. Still, McCourt wanted to go ahead with his riskier financing option, in order to keep MLB at bay, but bankruptcy Judge Kevin Gross ruled on July 22nd that MLB's loan proposal provided "substantial economic superiority", underlining that because McCourt held a previously undisclosed financial interest in Highbridge, the hedge fund that would have provided the alternate loan, his judgment was "compromised" and he was in a conflict of interest. McCourt was ordered to accept MLB's loan offer to ensure liquidity, while MLB was to keep that loan separate from its other interests in the Dodgers franchise, including its monitoring of the team's finances.

On October 17, 2011 the McCourts announced that they had reached a divorce settlement, whose terms were later revealed to include a $131 million payment to Jamie by April, 2012. While this meant that Jamie would no longer oppose the sale of the Dodgers' broadcast rights, it did not put Frank out of the woods, as MLB was still pushing for the bankruptcy court to force the sale of the team. Indeed, on November 1st, he had to come to an agreement with MLB to sell the team through a court-supervised process. Bids had to be submitted by January 23rd, and the next day, newspapers reported that some 20 bidders for the team were lined up, including at least 8 very serious groups that included both investors with deep pockets and prominent figures from the sports and entertainment world. This ensured that McCourt would make a huge profit from the sale, likely enough to get him back on a sound financial footing. In late February, the groups were winnowed down to seven, with some groups pulling out of the bidding for various reasons and others being set aside for having made a non-competitive offer. On March 14th, the list was narrowed down to four final bidders, with the front-runner being hedge-fund manager Steve Cohen, who was rumored to have offered $1.6 billion - half of it in cash - for the team. However, on March 27th, it was announced that the winning bid was that of the group "Guggenheim Baseball Management Inc.", headed by investor Mark Walter, former NBA star Magic Johnson and executive Stan Kasten. They had bid a staggering $2 billion, with an additional $150 million for the land around Dodger Stadium, meaning that McCourt would come out with hundreds of millions in profit, even after paying back the loans he had contracted to buy the team and his costly divorce settlement. A few weeks later, MLB conceded that the process through which the team was sold set a dangerous precedent, since it demonstrated that the way to extract maximum value for a team is to go through an auction process, and because any future disputes arising from the sale of the team would need to be settled by the bankruptcy judge and not by the Commissioner as had historically been the case, removing a huge lever of influence. In addition, some of the financial clauses in the deal governing sharing of cable TV rights and revenues from the lands around the ballpark were kept confidential between seller and buyer, and could well turn out to be inimical to MLB's interests.

In September of 2012, the saga took another turn, as Jamie McCourt contested the divorce settlement reached the previous October, claiming that her ex-husband had greatly understated the value of the team at the time. She explained that as a result of the team's sale, Frank ended up with 93% of the couple's assets and her with 7%. When negotiations to alter the settlement failed, she filed a motion in a Los Angeles court asking for the settlement to be tossed out, given the vast difference between the true value of the couple's asset, and the estimate used to reach the original divorce settlement.

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