Thursday, February 18, 2010

Filings running wild (updated).

It was about time for some new divorce news, though I didn't expect the newest developments to be this explosive. Let's start with the Wall Street Journal's John Emshwiller
In Thursday's court filing, Ms. McCourt said that her husband's personal financial statement as of Sept. 30, 2008 showed his net worth at $834.9 million. However, a follow-up personal financial statement showed that as of last June 30, Mr. McCourt's net worth had dropped to $163.4 million. Ms. McCourt's filing contends that the second financial statement was prepared after the couple separated and its results were "fabricated" through "blatant balance sheet manipulations" to show a much lower level of wealth. Ms. McCourt's filing contended that the "net equity value" of the assets of Mr. McCourt's enterprises was in excess of $2 billion. 

In filing for divorce in October, Jamie McCourt asked for $488,000 per month in temporary support. The revised request -- for $988,845 per month -- reflects property-tax bills as well as additional records that her lawyers claim can show the couple averaged $2.3 million per month in salaries, distributions and perks starting in 2004, when the McCourts bought the Dodgers.
Frank McCourt still would have $1.3 million per month to maintain his lifestyle, her lawyers wrote. 
"Jamie fully recognizes that the . . . award which she will be seeking will be viewed by many people as being astronomical," according to the filing. "That may very well be the case. But Jamie's request also has been thoroughly documented . . . as being wholly consistent with the parties' marital lifestyle." 
As we've discussed, Jamie's legal position demands that she go after every available dollar. Greedy? Yes. Justifiable? Absolutely. Back to Emshwiller for a moment
Ms. McCourt's attorneys included in their filings a private placement memorandum, dated May 2009, where Mr. McCourt appears to be proposing to sell a share in the Dodgers as part of the creation of a global sports enterprise. The memorandum said that an entity---Global Sports Partnership LLC, to be run by Mr. McCourt's operation---would own the Dodgers and professional soccer teams in England and China. 
And let's close for the night with Shaikin, on perhaps the most important Dodgers news, which concerns more local revenue streams: 
The Dodgers intend to launch cable channels in English and Spanish in 2014, after the expiration of their contract with FSN, with annual profit projections of at least $150 million, according to documents in the filing. Alternatively, the Dodgers estimate they also could sign a five-year extension with FSN for $300 million, according to the deposition of a club executive. The Dodgers remain interested in building an NFL stadium adjacent to Dodger Stadium, and in persuading City Hall to lift zoning restrictions and allow "over a million square feet of mixed-use developments" in the stadium parking area, according to the filing.
Both pieces discuss how much the McCourts were taking out of the Dodgers (approximately $2.3 million each month) and the financial maneuvers required to do so tax-free. Needless to say, there's a ton to discuss about these most recent filings, and we'll get there tomorrow.


Hey, it's tomorrow! Some quick thoughts:

  • If you're Jamie, aren't you at least a little bit wary of waving your arms in the air and declaring you haven't paid taxes in the last several years? I mean, if her strategy is "it's my stuff too," that would seem to carry over to IRS problems. It could all be kosher, but there's also the public relations side of things. As commenter Mike suggests, it's tough to ask for support from a community you extract millions from without personally paying a dime. Especially in California right now.
  • Emshwiller's article in the WSJ notes that Frank (and Jamie?) have racked up $390 million of debt seemingly secured by ticket sales. This looks, to me, like the mystery debt service piece, and could go a long way to explaining why those season ticket renewals matter so much. I haven't seen the instrument, but it could well be a "floating" line of credit, so the availability of loan proceeds depends on ticket sales. As renewals go up, so does the borrowing base of the credit facility. Layman's terms: your ticket dollars might flow through to a financier; Frank might have already been paid for your future ticket purchases. This piece is something I want to know much more about.
  • Shaikin provides a description of "how Frank McCourt hopes to transform the Dodgers from a baseball team into the anchor of a sports business empire." Emshwiller has a 7% share in that business empire costing $150 million. That puts the value of the whole venture at about $2.1 billion. This strikes me as pie-in-the-sky talk, for now. But interesting, nonetheless.
Lastly, and this is important: remember that all of this comes from Jamie's filings. Frank's will probably be  equally (but oppositely) outlandish, and the truth likely resides somewhere in the middle. Jamie's legal team's job hasn't changed: live on the border of reasonableness. The spousal support issue is one that might very well be settled between the parties. It's in their best interests to make seemingly-outrageous claims at this stage. That's not to say we can't learn a great deal from this part of the process. But it's just that: a waypoint on the journey.


  1. Paid no taxes since acquiring the team?!? That's going to go over real well with the fan base and any politicians he has to negotiate with in the future.

  2. Shaikin quotes Jamie's brief as claiming that Frank "keeps two of his sons on the Dodgers' payroll - at a combined annual salary of $600,000 - despite the fact that one is a graduate student at Stanford and the other works full-time for Goldman Sachs".

    So she's now opposing her sons' interests? Will this require that she sue them too to get her money?

  3. $390 million in debt in lieu of ticket sales, sounds like they are hocking everything not bolted down, or in many ways already bolted down. It sounds like Frank is doing the debt/death spiral of taking out higher interest rate loans to pay off lower interest rate loans....

    The $390 million in debt sounds like a different financial deal compare to the other loans.

    If I were either McCourts financial adviser, I would say that they have to do something seriously about their spending, No matter if they are moving money around, and they think they know better, their monthly overhead can't continue as long as their business is at the whim of the banks...

    Baseball is a business of low profit margins. Large revenue but a labor intensive sport with large overhead. To get some of these loans, they have to keep a good credit rating, and they have some pretty high annual payments.

    I am more coming to the conclusion that if the McCourts sell the Dodgers, they will come out with a small profit, or no profit at all.

    There should be a clear picture of their total debt, and their annual payments to finance and manage it. I am thinking their debt is much higher than the Forbes's 58% debt ratio to the Dodger Organization's total value.

  4. "Shaikin provides a description of "how Frank McCourt hopes to transform the Dodgers from a baseball team into the anchor of a sports business empire." Emshwiller has a 7% share in that business empire costing $150 million. That puts the value of the whole venture at about $2.1 billion. This strikes me as pie-in-the-sky talk, for now. But interesting, nonetheless."

    It is pie in the sky talk, because they are basically trying to make their tin cup more prettier with some fancy graphic designs as they are looking for investors. It is not that the 7% is valued at $150 million, (I don't know how they are getting that valuation) but what is going to be the investor(s) expected performance of that 7% investment?!?! The McCourts have just borrowed more money just to run the Dodgers. The $150 miilion or 7% of this imaginary global partnership just looks like it is going to be used to pay off debt or use to get more loans.

    The McCourts always have big ideas, but very little in action, but most people with large amount of cash lying around, aren't going to give it to them without strings attach, or ignore looking at the McCourt's books. The McCourts never seemed to attract partners, or seemed really quixotic to work with.. much like their whole Baltimore Fishmarket deal.

    This Global Sport Enterprise is just more fantasy. If Frank McCourt wants to act like the Yankees, he need to get the revenue of the Yankees besides hiring their Investment Banking firm: Goldman Sachs. He doesn't do it by just leveraging everything he owns, and expect people are willing to give huge amount of money with a very large likely hood Frank McCourt is going to lose it.