On the money trail.

---
Over at Fanhouse, John Weinbach offers some troubling news:

Over the past 18 months, the Los Angeles Dodgers paid nearly $4 million in "consulting services" to [the John McCourt Company], an entity that has done virtually nothing for the club, even as the team has made a concerted effort to raise ticket prices, trim payroll and acquire players on the cheap. Moreover, the club paid two of Frank and Jamie McCourt's adult sons large salaries -- $400,000 and $200,000 per year, respectively -- for services that are undefined and could not be described by either Frank or Jamie McCourt, according to court documents filed in the couple's divorce case. 

FanHouse has also learned that the Dodgers' ownership includes two limited partners who provided loans to help the McCourts finalize their purchase of the club in 2004, according to people familiar with the matter. One of the limited partners is Franklin Weigold, a long-time executive with Analog Devices, Inc., a Norwood, Mass.-based maker of electronic equipment. Weigold lives part of the year in Los Angeles and was also part of the McCourts' failed bid to purchase the Boston Red Sox in 2001. 

It is not clear who the other limited partner is, but that entity and Weigold both own convertible bonds in the Dodgers that would transfer into "sizable" equity in the team in the event of a default on the loans, according to the source. (The McCourts have not missed any of the payments since they became owners six years ago.) 

Weinbach also goes on to note that the consulting fees were nominally for services related to exploring development of the acreage surrounding Dodger Stadium. This land, of course, has had several suggested purposes over the years, from high-end condos and retail to a potential NFL venue. Much of the land is currently being used as a state-of-the-art 405 Freeway simulator, around 80 times per year.


The crux of the problem seems to be that artificial cap on Frank's income. You know, the one he hid behind when he claimed poverty and which Jamie complained was a complete sham. In fact, the entity which has paid the John McCourt Company has been Blue Landco, LLC, the very entity Jamie suggested Frank would use to get around the $5 million cap on his income. Jamie's attorneys are describing the John McCourt Company as a "slush fund," implying it is nothing more than a holding tank for soft cash to be used at Frank's discretion. 


Perhaps the more surprising allegations concern the limited partners whose interests in the club were previously unknown. As recently as 2009, documents submitted to Major League Baseball described the Dodgers as 100% owned by Los Angeles Dodgers, LLC. The rest of the chain of ownership is below:

If you're following along at home, the Dodgers run through:

• Los Angeles Dodgers, LLC 
• Los Angeles Dodgers Holding Company, LLC
• LA Holdco LLC
• LA Partners LLC
• The McCourt-Broderick Limited Partnership
• The McCourt Company, Inc.
• Frank H. McCourt, Jr.

Simple it ain't, and no mention of Weigold. The Dodgers are standing behind the above maneuverings, asserting that Frank McCourt owns 100% of the team. "Ownership" is not a concrete term; what is, after all, when lawyers get involved? It's important to remember here that the limited partners' convertible bonds have not turned to equity, as Frank (and/or the club) has not defaulted on the terms of the offering. It wouldn't surprise me one bit, though, that somehow losing half the club in a divorce could be a default event, triggering the conversion of debt to equity.

Basically, things just look a bunch messier today than they did yesterday. One has to wonder what the Commissioner's office knows of this arrangement. The Major League Constitution provides, "A sale or transfer of a non-control interest in any Club shall require only the approval of the Commissioner." Here, the argument would likely be whether offering debt in the form of convertible bonds constitutes a transfer of control. It's entirely possible the club wouldn't have to seek Baseball's approval unless the bonds converted to equity and a transfer of a non-control interest occurs.

The questions I usually get every time this gets more and more complicated concern the potential for disaster. Well, in this case, I'd have you look a thousand-and-some miles to the southeast, to Arlington, Texas. There, a bitter battle has erupted between owner Tom Hicks, his and the team's creditors, and Major League Baseball. MLB has essentially threatened to invoke a little-known power to seize the team "in the best interests of baseball," leaving the creditors with a bunch of claims against Hicks and his non-Rangers assets. Which: best of luck, guys.

As Craig Calcaterra has noted, this would be a sort of nuclear option, with baseball-wide ramifications. After all, what does the market for lending money to teams look like after Baseball shows a willingness to forcefully strip remove a team from creditors' reach "in the best interests of baseball?"

I'd urge you not to take this doomsday scenario too seriously at this point; we're a ways off from talking about Baseball seizing the Dodgers--for better or worse, I suppose. The takeaway here is two-fold: first, financing of baseball teams and ownership groups is more complicated than most thought. Second, if this sleeper debt turns into sizable equity, the entire process gets that much more twisted and we're left much further from organizational stability than we expected.

And, really, I think our expectations have been pretty damn low the last several months. 

I've heard for months now that there were shoes left to drop, and I guess today's news makes those claims prophetic. There are other fingers in the club's ownership, despite repeated assertions to the contrary. And it looks like Jamie's contention that Frank was skirting the lender-imposed caps on his income might have had a little bit of truth. Hard to say where this will lead, and how the club's other creditors might react to these revelations. Isn't it just bitter...right when the team looks like it'll never lose again, we're hit my more McCourt chicanery. 

---