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Court Documents Show Los Angeles Dodgers Are Awash in Debt PDF Print E-mail
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Written by Maury Brown   
Thursday, 02 September 2010 13:59

DodgersAs if Tom Hicks placing the Texas Rangers into voluntary bankruptcy wasn’t lesson enough, now comes word that Los Angeles Dodgers owner Frank McCourt is so over-leveraged, that he has found it exceptionally difficult to find additional financing for the club.

McCourt purchased the Dodgers in 2004 for $430 million, most of which was leveraged. According to a report by the Los Angeles Times, court documents from the McCourts divorce case show that the club has now assumed $433 million in debt as of last year. According to the report, “McCourt was turned down at least three times — by Citibank, by a Chinese investment group and by a Southern California infomercial king — in trying to secure additional financing last year, according to documents filed in the divorce case between him and his estranged wife, Jamie.”

Dodgers CFO Peter Wilhelm said in a deposition that Citi declined to engage in any meaningful negotiations.

"They did not feel that the Dodger organization had the capacity to take on more debt," Wilhelm said.

The analysis within the report adds that if a sale of the Dodgers were to occur today, the return would be a return of just “10 cents on the dollar”.

The club has been finagling structure of player contracts, possibly in an attempt to keep cash flow at operating levels. Many of the club’s players have had deferred compensation, which could add to further woes if the club were to somehow collapse under the debt weight. While Manny Ramirez has moved on to the White Sox, he will continue to receive deferred comp from the Dodgers (the $45 million for 2009-10 has $30 million deferred through 2013). There is another $30 million in deferred compensation on the books for Andruw Jones, Rafael Furcal, Hiroki Kuroda, Jason Schmidt and Orlando Hudson.

The court documents and analysis by the LA Times showed:

  • The Dodgers generated $72 million in operating revenue last year but had a net profit of $8.4 million, largely because of $28 million in debt service and $34 million in revenue-sharing payments. Baseball requires the teams that generate the most money help support the ones that generate the least.
  • The debt is not projected to drop significantly until at least 2013. The Dodgers' business plan is based on selling 3.8 million tickets every season, a number the club has hit once in six years. The team is projected to sell 3.6 million tickets this year, based on current attendance.
  • Bank of America, the Dodgers' lead lender, last year restricted the team to $66 million in deferred player compensation at any one time, a provision called "unusual but not unprecedented" by a high-ranking baseball official, speaking on condition of anonymity because of the court case.

When the LA Times contacted the league to get comment from Commissioner Selig, the response was that he does not comment on the finances of individual teams.

But, as a matter of commentary, if there was ever a time for Selig to talk to the owners about the level of debt they are carrying, he needs to (once again) do so. While the Rangers falling into bankruptcy was embarrassing, for the Dodgers to do so would pale by comparison.

It may also be why the fight between Frank and Jamie McCourt to control the club, instead of selling it and splitting the proceeds may be more than just about their egos. Selling the club would be difficult with all the assumed debt, and certainly would not get back what is owed.

The idea that it could be déjà vu all over again (a reference to Hicks and the sale of the Texas Rangers) should have Selig working overtime to get all clubs in alignment. It’s time for the league to consider a more stringent version of the 60-40 rule that used to be in place.

Maury BrownMaury 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, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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