Monday, March 29, 2010

And we're entering the absurd.

Sorrell Trope, Frank's lead counsel, has stayed mostly quiet, letting his foils Dennis Wasser and Bert Fields grab most of the lawyerly spotlight. That might have been for the best. Today:

"If we look at this case, realistically, you can't order Mr. McCourt to borrow money to pay support," Trope told Superior Court Commissioner Scott Gordon.


"These people have lived their lives with borrowed money," Trope said. "They have to stop spending. This isn't the federal government."


"Where are we?" Trope asked. "This is like Alice in Wonderland, but you can't keep Alice in Wonderland going by borrowing on every single asset you have."

Oh my. So, if you're following along, Frank's side admits that the couple spent wildly. In fact, in his filings, Frank called their lifestyle "out of control [and] unsustainable." To make things clear, let's remember that "these people"--who lived their lives on borrowed money and have to stop spending--are the owners of the Los Angeles Dodgers.

I've been slow to jump to conclusions, but it's hard to ignore what's staring us right in the face. The owners of the Los Angeles Dodgers lived on money they borrowed from the team, and, according to one of them, did so at an "out-of-control, unsustainable" rate. In the corporate world, this would be outrageous. This would be Enron, or something like it. The owners of the Los Angeles Dodgers, according to one of them, blatantly abused their power and jeopardized the team's well-being to support their own "out-of-control, unsustainable" lifestyle.

And that's not even the strangest part of all this. Frank's argument here is that the lifestyle he and Jamie led...well, this seems to be the right time to rein things in a little bit. Now is the right time to begin living a life of restraint and responsibility. Having realized the foolishness of his ways, it's imperative that Frank and Jamie begin to act like proper stewards of a treasured civic asset. Now that Frank's being asked to pick up Jamie's tab.

Is Frank wrong about having to rein in spending? I don't think anyone who's followed this saga would say so. I don't think anyone has a problem with the owners of the Los Angeles Dodgers living a glamorous, enviable lifestyle. Most of us are completely comfortable with the reality that some people have it better than others, and the owners of a professional baseball team are some people.

But such a lifestyle cannot be funded by the club in such a way as to damage the health of the organization. It's bad enough that major league payroll is obscenely low for a team playing in such a huge market. And it's bad enough that this frugality at the major league level isn't balanced by spending on amateur free agents or premium draft picks. And it's bad enough that plans are in place to double ticket prices without increasing player spending.

No, where it really starts to sting is here:

From 2004 through 2009, the McCourts received in excess of $108,000,000 in what was characterized as "ownership distributions" from the McCourt Enterprise. . . . Further, those funds were not reduced by any income tax liabilties because the parties have not paid any federal or California income taxes since they moved to California in 2004.
On a recurring and systematic basis, large loans have been obtained, several of which were secured and/or paid by such future income streams. Substantial portions of the proceeds of those "monetizations" and other capital events then were used in whatever manner directed by the McCourts. When needed by the parties, millions of dollars of those funds were distributed to them.
All for what Frank's attorney now characterizes as an "out-of-control, unsustainable" lifestyle fueled by money borrowed on every asset the McCourts had.

They have to stop spending. This isn't the federal government.

And this is where they're at. Jamie's job is to flaunt the extravagance of their marital lifestyle--she believes, and perhaps rightly so--that Frank's dramatically overstating the direness of the situation. And it's Frank's job to say the couple so grossly mismanaged the Dodgers that, starting right this second, he can no longer afford to support one life in the fast lane, let alone two.

What a mess.

I'll be on The Filter with Fred Roggin tonight at 7:40ish Pacific to discuss the divorce. If you have something called KNBC Digital Channel 4.2, you can find it there. Otherwise, it should be available online here.


  1. Josh, just a minor point of quibble.. Corporations such as Enron fell because the corporation was not serving its fiduciary duty to its shareholders (not to mention actual crimes, but that aside), the only people that a corporation has to answer to are its shareholders, and in a private corporation, such as the Dodgers, the shareholders are ultimately the McCourts, yes, they were playing with house/our money but there's nothing on the level of Enron here... While we may regard the Dodgers as something we 'own', in actuality, the true owners are the McCourts and they're monetising it how they saw fit.

    Again, I'm not saying I don't agree with the larger sentiments here that the McCourts are scum, I was begging for Eli Broad to step up at the last minute when Fox sold to the McCourts and have nothing but contempt for the McCourts, but just as extracting money from future revenue and then terming it a loan in order to not pay income tax wasn't illegal, neither is everything that Trope has described here.

  2. Greg--

    You're very much correct, and I tried to at least allude to the distinction above. Should have made my point stronger. There's no suggestion of any illegal activity, and corporate liability doesn't come into play here.

  3. Let's not forget that the McCourts had to borrow money (from the seller, no less) to buy the team in the first place (a sign of how desperate FOX was to get out of ownership: "Here, buy the team. And here's the money to do it. Just pay us back sometime).

    They had one asset (a parking lot) and have leveraged that into ownership of a team and several expensive properties. And it's all on borrowed money.

  4. The problem with Mr. Trope's rant is that he is making a mockery of the post nup, if he is describing the couple's spending as out of control.

    The couple's monthly overhead is beyond out of control, especially funding their lifestyle with debt. The McCourt's wheeling and dealing real estate purchases has a little more method to the madness, because they are securing assets, that can be utilized for more cash, or look at for a long term plan to flip the assets.

    The McCourts' business plan for buying and running the Dodgers was always risky. A major league baseball team has high overhead and low profit margins. The McCourts, it appears have leveraged pretty everything they could possibly done with the Dodgers, including future ticket sales.

    Most Real Estate Developers do the same highly leveraged business strategy as the McCourts, they just don't take the loans to feed an extravagant lifestyle, but use the loans to pour into their project until completed. They then hope/prayed the income comes in after the project is done, and the tenants pay their rents, which pretty much go straight to the bank to pay off the loans.

    The McCourts may not be paying income tax on the leveraged debt, but they have to be paying back the debt one of these days.

  5. “His Dodger organization is a cash cow. You’ve all been to Dodger games. You know what’s sold there. You know how much money is coming in. There’s plenty of money to go around for both parties to live very comfortably for the rest of their lives,” said Jamie McCourt’s attorney, Dennis Wasser.

    Joshua, the points you made above, along with this Dodgers as cash cow comment cannot possibly play well with the fans. How about milking the cow a little less hard and offering Randy Wolf arbitration folks and not trading prospects for cash?

    Comment (and video - see 1:40 mark) - from here:

  6. Or how about having the most basic understanding that no one will care how hard you milk the cow as long as the organization is healthy? Seriously. Take $108 million out of the team. Fine. But put the organization in a position in which its major league payroll is appropriate for the market and actively invest in acquiring and improving young talent.

    Win, and no one cares.

  7. Let's not forget Selig's role in this, approving the sale when all lights were flashing red. He's the best MLB commissioner that the NFL ever had.

  8. As an Angels fan, I have to thank the Disney Co. for telling the McCourts to take a hike when the team was up for sale, and waiting for a qualified cash buyer in Arte Moreno.