Tuesday, June 14, 2011

Another payroll, another life raft. But is it the last one?

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For months now, speculation has run wild that embattled Dodgers owner--or co-owner, as Jamie McCourt would like you to know--Frank McCourt has flirted with insolvency. He has seemingly tapped just about every potential source of cash available to him. In the past, he's pledged revenue from future ticket sales to secure massive loans, a significant part of the proceeds of which was lopped off the top and given directly to the McCourts. Later, following last Fall's trial, news broke that Frank had taken advances from Fox, attempted to pledge the club's future television rights as collateral, attempted to outrightly sell those same rights, and (most recently) took advances from corporate sponsors in order to meet payroll.

That last step, which I have been told by several knowledgeable people to have been previously unheard-of in the baseball world, will allow Frank to meet tomorrow's payroll obligation. However, only yesterday, it was reported by two stalwarts of the saga's coverage that the next looming payroll date, June 30, posed even greater problems than such days have in the past. The reason: over $8 million is due former Dodger Manny Ramirez as part of his agreement to defer salary.

If, as Bill Shaikin's sources suggest, the Dodgers truly have "no chance" to meet their June 30 obligations, it would be somewhat fitting that the last straw is the coming-due of a deferred debt; indeed, the McCourt Era in Los Angeles may be best-remembered for an unsustainable pattern of debt-incursion and a cascading series of small crises seeming nearly certain to lead to an imminent failure of the club as a going concern.

Of course, Frank McCourt doesn't believe such doom to be as inevitable as most folks think. Frank is still insistent that, if Major League Baseball would simply approve a massive television deal he has ready to sign with Fox, then both the Dodgers' immediate and long-term liquidity issues would be rendered moot. And, assuming Jamie would approve of such a deal--all indications are she would not--Frank would not be wrong, per se.

But it's widely and reasonably believed that Major League Baseball has determined that McCourt ownership is no longer viable, and it will not hurry its investigation and face the prospect of actually having to rule on Frank's proposed TV deal. For months now, Frank has been playing chicken with MLB; he's doing his best to establish his position in future litigation that Major League Baseball caused the coming failure of the Dodgers, and that its refusal to (a) finish its investigation--which Frank will call a sham--and (b) approve the TV deal should render it liable to Frank.

You didn't think we'd get out of this without more law suits, did you? Still, it seems obvious that, should Frank be unable to make the end-of-the-month payroll, Baseball will immediately seize complete control of the Dodgers and McCourt ownership will be almost certainly at an end. Yes, Frank might extract some blood from Baseball further down the line, but it is nearly impossible to imagine a scenario in which he is restored to the owner's box.

After that, I see two scenarios as more likely than the others. First, Baseball might assume all the club's assets and liabilities, paying the club's marital estate the net worth of the franchise. Then, Baseball would run the club as a ward of the state, taking its time to find an appropriate long-term buyer for the team. Frank--and perhaps Jamie--would litigate every aspect of this: the seizure, the valuation, the amount and manner of compensation, and every other conceivable point.

The second possible scenario is one we've discussed in this space before: bankruptcy. In such a scenario, Baseball might itself or through an ally finance the Dodgers during the pendency of the bankruptcy proceedings; upon a showing that jumping ahead of the majority of the franchise's creditors is the only way the  Dodgers can obtain financing during the bankruptcy, Baseball could assume a super-priority status. In English:  Baseball would get paid back before nearly all of the club's other creditors. The club would eventually be sold at auction, and Frank (and Jamie) wouldn't see a significant dime until and unless all creditors were paid.

Other possibilities include a quick settlement between Frank and Jamie, followed by a quick sale to someone ready to put cash on the table. While the former proposition is possible, we should all know by now that Baseball doesn't move especially quickly. Perhaps if the McCourts were able to produce a buyer, Baseball would finance the club's operations during the league's vetting process, on the condition that it will seize the club if the sale falls through. And, of course, there is still the matter of actually producing a viable owner. Dennis Gilbert seems like a possibility, but these deals don't get put together overnight.

And we can't ignore the possibility that Frank McCourt finds some more change in the couch and makes the June 30 payroll after all. We've been to the brink before, and while this one sure seems like the direst situation Frank's faced yet, he's got a lifetime of unlikely successes under his belt.

After each of these flirtations with complete failure, however, the fan unrest grows louder and louder. If Dodgers diehards wake up the morning of July 1 with the club ten games out of first place and the saga that has chewed up the last two years no closer to resolution, I suspect the already-toxic relationship between the club's owner and its fans to reach new depths. I get the sense that, above all else, fans just want this to be over. Yes, the recovery process is going to be long, painful, and fraught with uncertainty. But the healing can't begin until the bleeding stops.
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21 comments:

  1. This comment has been removed by the author.

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  2. But the healing can't begin until the bleeding stops.

    Dodger Divorce: the place where scabs begin!

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  3. Josh, good to have you back covering this issue and congrats on all the things going on in your life right now. My question is if today the 2 sides reach a settlement does this affect the events you described in your article? Is it more about MLB at this point than what happens with the courts (in regards to new ownership and not assets and things like that)?

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  4. The fact that Frank has two more weeks makes me nervous. This guy is cockroach and not only for his dirty business tactics but because of his survival skills. I think I will quit baseball all together if Frank ends up keeping the team after all this.

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  5. Yay! He's back! I'm posting this comment before I've even read the post. I might wait to read the post until this evening, with some small batch bourbon, maybe in the back yard by the setting sunlight ...

    We missed you, Josh.

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  6. Good to have you back Josh! Missed reading this. Question for ya... How viable is the Hershiser-Garvey group?

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  7. Yes we missed you Josh. . . .

    Before ordering the sale of the team, Judge Gordon should appoint his own 'referee' to conduct a thorough examination of the team (the expenses for which are paid out of the combined marital estate). . . . The information should be public (open and transparent). . . this would give the public the opportunity to educate itself on the economics. . . . A Court-Ordered Sale (unless Frank and/or the team does go Bankrupt. . . so Selig is denied arbitrary authority over the situation).

    This would enable the people of LA to organize a public-benefit corporation to buy the team (the analogy being to the people of Green Bay owning the Packers).

    100,000 people at $10K per person is $1 Billion. . . .

    LA has 4 million residents; LA County has 10 million residents. . . There are enough people to make this work. The Dodgers now have around 20K season ticket-holders; and had, around the peak, 32K season ticket-holders (so there's 20%-30% of the goal right there).

    This once-in-a-multi-generational opportunity would help unite Los Angeles, jump start the economy, excite and ignite, and empower the people politically and economically. . . to say nothing of the fact that we're talking 100% equity and no debt. . . giving the club a significant economic advantage.

    If MLB objects, they will risk their (Judicially-created) anti-trust exemption . . . because assuming she is elected, Janice Hahn (now a councilwoman and candidate to succeed Jane Harman for CD (Cong. Dist) 36 has promised to introduce a bill in Congress (that would be bi-partisan) to overturn the Supreme Court's decision in 1922 exempting baseball from the anti-trust laws (the theory being baseball was not subject to the anti-trust laws because it was a 'sport' not a 'business' (clearly not the case today, if it ever was.

    This kind of new 'citizen-empowerment capitalism' (true capitalism really) will provide a new, exciting business model and lead to the 'democratization' of sports in this Country (and maybe other business monopolies as well).

    Both Jamie and Frank now appears 'scared'. . . . Hopefully Judge Gordon will do the right thing and educate himself and the people about the true value of the enterprise and the extent to which both of them have abused their ownership privileges by what they 'stole', 'raped' or 'pillaged' from the team.

    Noel Weiss

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  8. Why am I so bitter at this owner. This has gone on far too long, but I am glued to this case like it's the O.J. Trial. I am boycotting the stadium, will not buy merchandise. Watch on TV and only think where are the crowds. This guy, the owner just rubs me the wrong way. Case in point. I bought a Toyota, but I wanted a Range Rover.
    McBroke buys the Dodgers when he could only afford the Alb Dukes.

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  9. I hope to celebrate by my b-day on the 31st.....

    Anyone else get a smirk on this one? "taking its time to find an appropriate long-term buyer for the team." We already know how Bozo Bud pushed for Frank to get the team in the first place.
    Not to mention our team was his 3rd option *smh*

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  10. Great write-up and read as usual Josh.

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  11. I think I may host a drink-a-thon at a bar when McCourt loses the team to MLB. Two weeks from now we should all have a toast! I hope.....

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  12. I've been a life long Dodger fan, but not anymore. This character has killed my love of the Dodgers single-handedly (well, him and his so-called wife...). I will not go to any game they are playing (home or away), I won't buy a single piece of Dodger merchandise, or even watch a Dodger game on TV (just in case ratings effect ad revenue for this joker). I don't want one single extra nickel making its way into this guys hands.

    If and when this loser ever goes away, maybe I'll re-visit becoming engaged as a fan again. But until that day comes, he's lost one die hard fan that will never pay for his product while he still owns that team.

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  13. I would like to see more details about this topic.

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  14. Really good content. I am admired on your blog which you have taught me in a different way. Good work.

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  15. very good post! need to say you did a great job and i really appreciate it!

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  16. Nice! This post is really great.

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  17. But the healing can't begin until the bleeding stops.

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