Chalk up another black mark against MLB Commissioner Bud Selig. The commissioner believes that Frank McCourt is qualified to own a baseball team, but Mark Cuban isn’t.
When McCourt was approved as the owner of the Dodgers in 2004, the commissioner’s signature was all over the deal. Every potential purchaser of an MLB franchise must receive Selig’s blessing prior to the owners’ official vote. The commissioner has hand-picked ownership groups in Boston, Florida, Washington, Milwaukee, Oakland and Texas. For reasons that aren’t readily apparent, Selig promised McCourt the inside track on the next available franchise when he lost out on his hometown Red Sox in 2002 after Selig engineered a sale to the John Henry group.
What we do know, thanks to financial documents introduced in a Los Angeles courtroom, is McCourt put up less of his own money to purchase the Dodgers than George Steinbrenner did 30 years earlier when he purchased the Yankees for one-fiftieth the cost. Virtually the entire purchase price of $430 million was debt. With those terms, anyone could have purchased the Dodgers.
The Dodgers’ financials are on display thanks to the continuing soap opera masquerading as a divorce trial featuring Frank and his wife Jaime, both of whom claim ownership of the team and neither of whom is qualified to step foot anywhere near Dodger Stadium except as a paying fan. Those documents reveal that team revenue has nearly doubled during the McCourt years, from $156 million in 2003, the year before they purchased the team, to $286 million last year. Yet the debt on the club remains essentially the same as it was on the day McCourt became the owner, $433 million.
Despite a Major League payroll of $119 million last year, the team showed a net profit of only $8.4 million. While the team did contribute $34 million to MLB’s revenue-sharing fund and used $28 million more to service debt, that still left $105 million, much of which the McCourts milked from the team to sustain their lavish Hollywood lifestyle.
According to a report in the Los Angeles Times, between 2004 and 2009 the McCourts took $108 million in personal distributions from the Dodgers. That sum included Jamie’s annual salary of $2 million as president of the club until Frank fired her last year and Frank’s salary of $5 million per year. Jamie owns seven homes, which cost approximately $7 million per year in mortgage payments and related expenses, while Frank lives in a $40,000 per month rented condominium. Two of the couples’ four sons are also on the Dodgers’ payroll - for a total compensation of $600,000 per year - even though one son has another full time job and the other is a full-time graduate student.
At the same time Selig honored his promise to McCourt and allowed the Boston parking lot mogul to enter MLB’s private club, he also capitulated to former Dodgers owner Fox News Corp’s request for a hasty exit from the ownership ranks. Fox was MLB’s primary TV partner at the time, and the owners didn’t want an unhappy camper in their midst, especially one who had financial leverage it might decide to exercise.
MLB owners also violated their own rules when they approved the Fox-to-McCourt deal. The league once required an equity-to-debt ratio of 60-40, a rule that was honored more in the breach than the observance. When the owners threatened to start enforcing the rule, the union complained, believing the rule restricted teams from lavishing players with long term, multi-million-dollar contracts. As part of the 2002 Collective Bargaining Agreement, the commissioner was allowed to substitute a new rule, where debt couldn’t exceed ten times a team’s net income.
One option for the presiding judge in the McCourt case is to order a sale of the Dodgers, pay off the creditors, and distribute the remaining proceeds to the McCourts in some fashion. But if either of the McCourts is allowed to continue owning the Dodgers, they will undoubtedly destroy what’s left of the once-proud franchise.
In order to prevent that from happening, Selig should step in and do what’s right for the Dodgers and MLB: Order the team sold to anyone not named McCourt. At this point, the idea of Mark Cuban participating in owners meetings should look mighty appealing.
Jordan Kobritz is a staff member of the Business of Sports Network. He is a former attorney, CPA, and Minor League Baseball team owner. He is an Assistant Professor of Sport Management at Eastern New Mexico University and teaches the Business of Sports at the University of Wyoming. He looks forward to your comments and can be contracted, here.
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