Friday, April 29, 2011

Jamie McCourt moves to block Frank's Fox financing.

Frank McCourt has been very vocal in recent days, blasting the Commissioner's office for failing to approve a massive extension of the club's TV deal with Fox that would also include an equity position in Prime Ticket. Saying the deal would provide both immediate cash in the neighborhood of $300 million and long-term stability, Frank has expressed frustration that Selig won't green-light a deal, saying yesterday, "I'm ready to sign it. Fox is ready to sign it."

Frank did not say next, "Jamie is ready to sign it." And therein may lie the rub. Shaikin:
One reason Commissioner Bud Selig has not approved a television contract with Fox that would serve as a financial lifeline for Dodgers owner Frank McCourt is that McCourt's ex-wife, Jamie, has not approved the deal, according to two people familiar with the matter.

In correspondence with the commissioner's office, Jamie McCourt asserted her right to a say in the Dodgers' television deals by virtue of her half-ownership of the team, according to a person familiar with the communication.

We've talked some about Jamie's potential involvement in Dodgers' decisions. In late January, we discussed the automatic restraining orders which take force upon filing for divorce and whether those might cover some or all of the interrelated entities that make up the McCourt Enterprise. At the beginning of March, we hit on the topic again after Jamie reacted strongly to Frank's attempt to pledge the club's future television rights as collateral for a loan from Fox.

So, long story short: there have been abundant signs that Jamie McCourt seemed likely to seek a more active role in protecting the value of the Dodger-related assets. After all, unless Frank can score a court victory, they're half hers. And here she is, apparently unwilling to approve Frank's life-preserver Fox extension. That makes some sense, as the Fox deal both (a) comes with Frank's promise not to use any of the up-front cash to settle the divorce and (b) forecloses on the potential for the Dodgers to start their own TV network.

I doubt that Jamie anticipates actually starting and profiting from such a network. But she's certainly right in thinking that prospective bidders will value the Dodgers very differently depending on the status of the TV rights. Like the acreage around Dodger Stadium, uncommitted TV rights are a very significant value add to the franchise, and encumbering them in any way--either pledging them as security for a loan or selling them long term--could have a negative impact on the value of the Dodgers.

Though this dispute comes in Frank's dealings with the Commissioner's office, the parties' attorneys are set to argue about Jamie's right to financial information in court on May 11. If Jamie is successful, Judge Gordon will order Frank to supply Jamie with enhanced information about the Dodgers' dealings. Should she find something untoward, she would likely seek further judicial intervention, although MLB's installation of Tom Schieffer might obviate the need for any further protection.

Where it gets interesting is the extent to which she may allege improprieties on Frank's part. Over a year ago, in the context of arguing for a higher spousal support award than Frank suggested, Jamie's lawyers told the court:
Frank, with the assistance of his top financial advisors, has engaged in creating an elaborate subterfuge, designed to attempt to deceive this Court into believing that his wealth and his actual and potential cash flow . . . have dramatically decreased.
The emphasis was in the document itself. If Jamie went down that rabbit hole in the support context, is there any doubt she'll have folks ready to take an eagle-eyed look at the flow of cash in, out, and among the various Dodgers entities when it comes time to divvy up assets? Not in this little corner of the internet, there's not.

Thursday, April 28, 2011

The heart of the matter.

The biggest news always seems to break on my busiest days. As you've doubtless seen, Frank McCourt made his most public move yesterday since the divorce trial, decrying Bud Selig's actions as "un-American." There's excellent coverage all over the place: Shaikin's doing his thing, and Craig is too. Gene Maddaus is on the case. You can't avoid Frank McCourt right now if you try.

To sum up, all in the course of the last couple weeks, Frank sought a $30 million personal loan from Fox to cover Dodgers payroll, among other expenses. Selig, apparently ticked off at McCourt's backdoor financing, announced that a trustee would be appointed to oversee Dodgers operations. That turned out to be Tom Schieffer, a former president of the Texas Rangers. Frank McCourt then went on the offensive, traveling to New York City to meet with MLB officials about a shovel-ready TV deal with Fox that would reportedly provide $300 million in cash up front. When baseball didn't accede to McCourt's requests, the embattled (half?) owner of the Dodgers took to the microphone, lashing out at baseball for coming between he and his business.

Last night, in an interview for a piece in the Minneapolis Star Tribune to be run Sunday, I told the paper's Joe Christensen something along these lines: the fans I hear from don't see the Dodgers the way Frank McCourt does, as a business, but as something more personally meaningful. Well, what do I discover this morning other than's Ramona Shelburne nailing it. Talking about Frank's public comments, Shelburne writes:

For 45 minutes, he spoke with the honesty and passion Dodgers fans have waited seven years to hear. From the heart, without talking points or crisis management consultants, and revealing, after all these years, how he truly sees the Dodgers.
As his business.
His asset.
His property.
He is both entirely right -- from a legal and business perspective -- and entirely wrong, in every way that matters to Dodgers fans and the game of baseball.

And that's the entire dilemma in a nutshell. But is that fair?


First of all, I will tell you that I know Frank McCourt just a very little bit, in the strange way you get to know someone who is fully aware that you have personally benefited from chronicling the most trying saga of his life. I think Frank McCourt loves baseball. Catch him in the right mood and he'll talk announcers and ballparks, relievers and utility players. He has a sense of history and also a sense of the moment; I think the charge to the playoffs in 2008 might have been the most viscerally enjoyable time of his professional life.

I think Frank McCourt is also a touch more savvy than he is often portrayed to be. He might not be a PR whiz--he, in fact, is not a PR whiz--but he does some little things right. I've seen him recall the names of and ask about the relatives of people he's met only briefly. That's a veteran move.

And I think Frank McCourt is more hurt by this whole drama than he's ever let on. He's got the look of someone who achieved his dreams for only the briefest moment, and then watched the story of his life's collapse on TMZ. It's E!'s True Hollywood Story in real-time. He probably shouldn't own the Dodgers very much longer--both for the team's sake and his own--and he has obviously made some very poor decisions along the way. But if you want Frank McCourt to suffer as he has...I respect your opinion. I just don't share it.


Ramona Shelburne is exactly right. There is a very real disconnect between Frank McCourt and Dodgers fans, and it's a gap that just can't be closed. Not now, after everything everyone's been through over the last 18 months. The fight of Frank McCourt's life is to keep his asset, his property, and nothing can be done to alter the perception that the Dodgers, to him, are a business first and an emotional investment second. It might be argued that Frank is emotionally invested in the Dodgers because they are his business, but that will fall on deaf ears. 

So is it fair to expect a businessman to see the Dodgers the way we do? Of course it's not. But it's also not fair for one person to own a baseball team and millions of others to struggle to put food on their families' tables. Nothing about this is fair. And nothing about this is simple. 

What do we want from the owner of the Los Angeles Dodgers? I think we want money first, and then enough sense to leave baseball to the baseball people. Then we want someone just bursting with giddiness about the remarkable fortune of owning the Los Angeles Dodgers.  Both ideally and realistically, that's probably someone from the community. And then I think we want someone who can pull off the impossible trick of coming off as one of us while living a truly different existence.

Frank, of course, couldn't pull off that trick. He couldn't conceal that his vision of the Dodgers is simply not our own. That his existence is nothing like ours. That he has interests and concerns we can't imagine, and also that we know joys and pains of fanhood--and life--that he's never encountered. Frank McCourt became a Dodger fan because he bought the team. We became Dodger fans because we bought tickets. You can't fix facts, and facts trump fairness. 

Frank McCourt is doing what the book says he should do: fight to preserve his legal rights in a dogged effort to keep his business. I won't crucify him for it. But I'll again ask: Is the effort worth it? 

Monday, April 25, 2011

Tom Schieffer, Dodgers Monitor.

Today, Major League Baseball announced that it has appointed J. Thomas Schieffer to oversee Dodgers operations during this period of tense relations between baseball and Frank McCourt. Schieffer, a former President of the Texas Rangers, has a great deal of political experience as well, having served as an ambassador to both Australia and Japan under President George W. Bush. From the Commissioner:
We are very fortunate to have someone of Tom Schieffer's stature monitor the operations of the Los Angeles Dodgers on behalf of Major League Baseball. Tom is a distinguished public servant who has represented the nation with excellence and has demonstrated extraordinary leadership throughout his career. The many years that he spent managing the operations of a successful franchise will benefit the Dodgers and Major League Baseball as a whole. I am grateful for Tom's acceptance of this role.
Importantly, Schieffer's role will be one of oversight, not control. The whole "takeover" thing? So last week. Bill Shaikin notes that the Commissioner was careful to comment that Schieffer's powers extend to "all of the franchise's related entities," not just the operation of the team itself.

Why does that matter? Well, to say one owned the Dodgers used to mean one owned the franchise, the Stadium, the surrounding acreage, et cetera. Under McCourt ownership, however, ownership has been splintered into a small galaxy of interrelated companies. You might recall this chart:

As you can see, things are a touch complicated. The significance of this array is that it's going to be awfully difficult and time-consuming to trace the dealings of and relationships between all these entities. That Schieffer's role extends to monitoring all aspects of Dodgers-related operations suggests the Commissioner's Office wants to keep very close tabs on how cash flows through the McCourt Enterprise.

For weeks, the speculation was that Bud Selig possessed a willingness to allow McCourt ownership to die on the vine. His passive approach apparently discarded once Frank McCourt took a $30 million personal loan to cover payroll, however, the Commissioner now appears intent on having a much better seat for the potential unraveling of the McCourt era in Los Angeles.

Last season was mostly swallowed by the circus surrounding the divorce of Frank and Jamie McCourt. The 2011 season, not even a month old, is itself in grave danger of being eclipsed once again by drama in the owner's box. This time, however, it appears to be Frank McCourt and the Dodgers headed for a breakup. That is, if Commissioner Selig has anything to say about it.

Wednesday, April 20, 2011

Baseball takes over. So what now?

Busy day in our little world, huh? First, we hear that Bud Selig will be appointing a trustee to run Dodgers operations for the indeterminate future. Next, it comes out that the IRS is investigating the McCourts' tax strategies. Eventually, we got a statement from Jamie McCourt herself, who expressed her approval of MLB's actions. Conspicuously silent throughout this eventful afternoon was one Frank McCourt. Why? He's likely preoccupied with figuring out just what the heck comes next. Bill Shaikin offers some thoughts:
Although Commissioner Bud Selig wrested financial control of the Dodgers from Frank McCourton Wednesday, the end of the era of McCourt ownership is neither imminent nor guaranteed.
Selig ... has anticipated the possibility of a legal response by McCourt, which could delay any ownership change for some time, according to two parties briefed on Wednesday's announcement but not authorized to discuss it publicly. Neither McCourt nor any of his representatives had issued a statement within three hours of Selig's announcement.
In addition, the divorce of McCourt and his ex-wife, Jamie, has yet to be settled. Jamie McCourt has asserted her claim of 50% ownership, based on California community property law. Those claims could take some time to resolve as well.

Bill's points are well-taken. Change isn't going to come immediately, and if we know anything, it's that Frank will rage at the dying of the light.  But let's be realistic here: Selig would not have taken the actions he has--with the likely legal and business challenges to follow--unless he was dead set against the survival of McCourt ownership in Los Angeles. He wasn't about to take over Dodgers operations, and essentially provide Baseball's guarantee that the club will meet its payroll, if he anticipated handing the keys back to Frank McCourt. 
I think it overwhelmingly likely that the team will be sold. Just not soon. And, in the immediate wake of Baseball's intervention and without much in the way of additional information, I can see a sale happening one of three ways. First, McCourt might agree to sell to a ready-to-go bidder or bidding group. We've all heard the names before. This would be, perhaps, the most painless resolution to the matter. 
Next, of course, the Dodgers could be the new Montreal Expos--a ward of the state. After being forced to bring Expos ownership and operations in-house for a variety of wacky factors--Minneapolis' successful defense to contraction of the Twins included--Baseball held the club for several years. Famously, and ominously for worried Dodger fans, the Expos did not make any September call-ups despite being tied for first place in the Wild Card lead as late as August 28, 2003. The reason? MLB decided it wasn't worth the $50,000.
Total MLB takeover is a real possibility, but I want to spend a moment talking about one not quite as publicly discussed: a sale in bankruptcy. A factor leading to bankruptcy, of course, is insolvency. I have no idea if the McCourt Enterprise's debts exceed its assets. But we have strong evidence that the Dodgers were very near the point of being unable to pay bills as they came due. MLB's intervention might keep the McCourt regime from having to declare bankruptcy, but there may come a point at which availing himself of bankruptcy protections and the opportunity to reorganize his finances might be attractive to Frank from a business standpoint.
All this, of course, doesn't really contemplate Jamie. While she's outwardly positive about Baseball's actions, she might be seeing a 9-figure payday vanish into thin air. You can count on her aggressively investigating how Frank has been handling Dodgers finances over the last several years, because there just might not be very much equity in the club once all that is to happen comes to pass.
Today was one of the most meaningful, important days in the McCourt divorce saga and for the future of the Los Angeles Dodgers. But, like so many other meaningful, important days in this mess, we're left with as many questions as answers. And, unfortunately, what has been practically our motto around these parts still holds: we're a long way from done.

MLB seizes Dodgers operations; McCourts face IRS scrutiny.

Much more as things develop (keep track of the sidebar to the left), but here's what we know: Major League Baseball has taken over Dodgers financial operations. According to the Times' Bill Shaikin, Fox providing a $30MM personal loan to Frank McCourt last week may have been the final straw for the commissioner's office. Presumably, baseball's annexation of Dodgers operations provides an implicit guarantee of financial backing; MLB won't let the players and staff go unpaid. If baseball does have to finance the Dodgers as a going concern, however, it is nearly impossible to think the Dodgers will stay in McCourt hands.

Jamie, for her part, released a statement expressing approval of baseball's actions (link above). However, the necessity of MLB intervention in the first place is likely terrible news for her. Her biggest payday was going to come from either a sale of the team at market value or a massive check coming from the infusion of new capital in Frank's ownership of the Dodgers, through a sale of a minority share, the creation of a new cable network, or a lucrative extension of the club's current TV deal. Now, everything is in limbo.

As for the McCourts, TMZ is reporting that the IRS is investigation the family's financial dealings over the years. The McCourts have not paid income taxes, as the direct source of their cash was loans taken out against various parts of Dodgers operations. Also reportedly of some concern is the club's practice of employing McCourt children in no-show jobs (and then presumably writing off their salaries as business expenses).

Much more on this story as it develops.

Tuesday, April 12, 2011

Bingham v. McCourt: Why now?

Yesterday, Bingham McCutchen filed suit against Frank McCourt seeking a declaratory judgment that the law firm cannot be held liable for Frank's loss on the Marital Property Agreement. Essentially, Bingham anticipates eventual litigation for its role in the creation and modification of the MPA, and would rather get this all going now. From Bingham's Complaint:
There is a bona fide dispute and actual controversy among the parties concerning whether Bingham's legal services to Mr. McCourt were in accordance with the standards of care ordinarily provided by professionals providing legal representation, consistent with any fiduciary duty owed to Mr. McCourt, and the cause of any loss with respect to Mr. McCourt's ownership of the Dodgers.
In English: Bingham has been accused of malpractice, though not yet sued for it, and is choosing to bring the fight to Frank rather than respond to his own eventual lawsuit. Why? Craig Calcaterra already gave us a good starting point:
It’s always better to be the plaintiff than a defendant, of course, especially because you get to pick the court and get the first crack at framing the issues. Bingham has done that, picking Massachusetts as the forum and casting this as a case in which McCourt’s damages are all of his own doing.
This is all true, but I think there's something else at work. We all know Frank's got a heck of a lot on his plate right now. He's engaged in some form of settlement discussions with Jamie. He's  trying to convince Major League Baseball to approve his financing efforts. He's dealing with a tragedy that occurred on Dodgers property. And, of course, it's baseball season. 

*Note: I am not suggesting Bingham viewed Bryan Stow's awful beating as an opportunity. I'm just noting it as an issue obviously demanding Frank's attention.

Simply put, this just isn't an easy time for Frank to respond to this lawsuit. Massachusetts Rules of Civil Procedure call for him to serve an Answer and Counter-/Cross-Claims within twenty days or risk losing altogether. Now, don't get me wrong: Frank is not going to lose to Bingham because of this deadline. Just saying that it puts more work to an already-busy legal support system.

Which is probably one reason why neither Susman Godfrey, which represented Frank at the MPA trial, nor Sullivan & Cromwell, which replaced Bingham as Frank's business counsel, are representing Frank in his defense to Bingham's claims. Instead, an as-yet-unpublicized firm will handle this matter.

As to the viability of Bingham's claims--I'll wait to get too deep into this until it's clear the suit will indeed go forward reasonably soon in a Masschusetts courtroom, but Bingham's argument comes down to this: So what? So what if the documents were switched? Bingham claims, relying on an ABA Informal Opinion, that "where a lawyer recognizes a clerical or scrivener's error in a document, he may correct it without notice or consultation with the clients."

Further, Bingham claims that Frank's "repeated, public assertions of damage due to Bingham's purported conduct" are premature, as he has not yet availed himself of other methods by which he might keep the Dodgers despite the failure of the MPA. Bingham's theory here is solid: where a client can't prove that a lawyer's error caused the damage complained of--technically speaking, where a client can't say that he would have won but for the lawyer's actions--there is generally not malpractice.

Of course, the problem is obvious: Frank hasn't filed a malpractice suit and hasn't alleged damages. At least in the legal sense, anyway. Frank's will likely contend that he shouldn't be faulted for not yet pursuing other avenues against Jamie because he hasn't yet tried to hold Bingham legally accountable for his loss. Bingham would probably respond that Larry Silverstein's evisceration on the stand constituted all the public notice in the world that someone would be coming after Bingham, so it wants to go ahead and settle this now.

Ah, yes, settling. I feel foolish even discussing why everyone should want to settle this--because everyone should have wanted to settle this twenty months ago--but I'll persist: Bingham should want to settle because Frank's eventual loss could be in the hundreds of millions. Frank should want to settle because it's one source of cash Bud Selig can't fiddle with. And Jamie might be interested in a Frank/Bingham settlement because, in the desert, you don't turn down a bottle of water for its stubborn failure to be a jug.

Monday, April 11, 2011

Bingham sues Frank McCourt.

Anticipating a possible lawsuit against it for its role in the creation and modification of the Marital Property Agreement at issue in the McCourt divorce, the law firm Bingham McCutchen filed its own lawsuit Monday in Massachusetts. The action, which seeks a court declaration that Bingham McCutchen did not cause Frank's December loss in Los Angeles County Superior Court, signals the possible breakdown of communication between the firm and its former client. The contention at the core of the lawsuit reads:
Despite Mr. McCourt's repeated, public assertions of damage due to Bingham's purported conduct, any injury, loss, or expense he has sustained or will sustain were caused not by Bingham's conduct, but by his own widely-publicized financial problems, huge withdrawals of cash from the Dodgers, and strained relations with Major League Baseball. None of this is attributable to Bingham's work. . . . The inexorable conclusion . . . is that is that Bingham's MPA-related actions caused Mr. McCourt no loss with respect to his ownership of the Dodgers.
Bingham's Complaint also notes that Frank has refused to pay the full amounts due Bingham in a form of protest of Bingham's allegedly-insufficient service.

Bingham McCutchen offered a statement, excerpted in part:
Bingham McCutchen LLP, a Boston-based international law firm, today filed a lawsuit in Massachusetts seeking a declaration that the services Bingham provided to Frank McCourt, the owner of the Los Angeles Dodgers baseball team, relating to a 2004 marital property agreement between him and Jamie McCourt fully met Bingham's obligations to its clients and that Bingham's work caused Mr. McCourt no loss.

The marital property agreement has been a subject of attention in the couple's long-running divorce proceeding in Los Angeles, and Bingham has been the target of allegations by the McCourts and their counsel critical of Bingham’s work on the MPA.  Bingham commenced its court action today seeking a declaration that those allegations are without merit.

“We are confident that when the evidence has been fully developed, it will become clear to everyone that Bingham has fulfilled its professional obligations,” said John Villa of Williams & Connolly LLP, representing Bingham. “The lawsuit filed today is the first step in Bingham's efforts to do so.”
Representatives for Frank McCourt did not immediately respond to a request for comment.

EDIT: A spokesman for Frank McCourt has released the statement below:
Bingham McCutchen drafted an agreement the Court found did not comply with applicable California law and was invalid because of the conduct of the Bingham firm’s lawyers.  Mr. McCourt is disappointed that the Bingham firm is unwilling to accept responsibility for its actions and is instead now trying to defend conduct that is indefensible.
It has been openly speculated that the law firm was once a party to settlement discussions between Frank and Jamie McCourt. Indeed, as baseball tightens its grip on Frank McCourt's possible financing options, a cash payment from Bingham in exchange for Frank and Jamie's promise not to sue could have represented a lifeline Commissioner Selig could not block.

More as this develops.

Tuesday, April 5, 2011

From one court to another?

As settlement talks between Frank and Jamie McCourt progress, attention has shifted to the commissioner's office. In a potential settlement, Frank would keep the Dodgers and Jamie would get a truckload of money, presumably from the extension of the club's television rights deal with Fox. To flesh things out, here's our friend Bill:
The protracted divorce proceedings could be over soon, with an asterisk. As lawyers for Frank and Jamie McCourt work to craft a settlement, the Dodgers have revived negotiations with Fox on a television rights deal that could get each of the McCourts to shake hands and move on with their lives.

The asterisk is this: The television deal would be subject to Selig's approval.


McCourt would ask Selig for his blessing, arguing that the deal would provide plenty of money to settle the divorce, manage the Dodgers' debt and improve the team and the stadium.

And then we would find out just how badly Selig wants McCourt out.
Now, there's a lot going on here. Shaikin suggests in his article that Selig might refuse to allow Frank to extend the TV deal. In the past weeks and months, the commissioner's office has rejected at least two funding proposals from the Dodgers; it's been speculated here and elsewhere that Selig is ready to let McCourt ownership die on the vine.

Craig Calcaterra offers another possible motivation behind Selig's actions here:
It seems to me that it could be more than wanting to squeeze McCourt out that would animate Selig to reject the deal. Rather, it could be that baseball would really, really like a marquee team in a major market to do what the Yankees, Sox and Mets have done and form its own cable network someday.
It's already quite obvious that the Dodgers--despite their significant built-in advantages like market size and a paid-for stadium--do not operate as a mega-market team can. Arguably, the Dodgers do not operate like a mega-market team should. Craig sees the McCourts' strife as an opportunity for Baseball to interpose its wishes on the future of the Los Angeles Dodgers.

Of course, if Selig does block a TV deal vital to helping the McCourts settle their divorce and keep the team in the family, you can expect Frank to sue. It is, after all, what he does. And he's been quite successful at it; he withstood a decade of legal challenges related to the Boston property he ended up flipping for the Dodgers. As we've seen in this divorce, he's not one to back down.

Which brings us back to the most interesting angle of Shaikin's artice (to me, at least):
When Frank McCourt bought the Dodgers, he signed an agreement not to sue the commissioner, an agreement required of every incoming owner.

Michael McCann, a professor of sports law at the University of Vermont Law School, said the danger for baseball might be less that McCourt would succeed in a lawsuit than that confidential financial data from all clubs might be revealed along the way.
This is well-trod ground, I know, but: Baseball never seems to benefit from its teams' information going public. It's always more complex than people want to think, there's always money going places people don't want it to go, and it's all much more a business than people want to believe. Even where accounting practices and the like are on the up-and-up, folks still have negative reactions to seeing how the sausage is made.

So maybe Selig does fight Frank's plans. Maybe he does squeeze the McCourts out of baseball. Maybe he is willing to deal with the consequences. Or maybe he's under pressure from the 29 other members of the fraternity to keep the books closed at all costs. Maybe, like others before him, Selig decides that fighting Frank just isn't worth it.