Is Bankruptcy Frank’s Silver Bullet?
- 17 May 2011
- Written by Jack Humphreville
LA’S BROKEN DODGERS-The Dodgers’ 17 year, $3 billion media rights deal with Fox Sports and the $285 million upfront advance is Frank McCourt’s silver bullet. The Boston Parking Lot Attendant will be able to meet payroll at the end of month, pay off Jamie, his charming ex wife who owns 50% of the Dodgers and the related entities, refinance his defaulted debt, get the Commissioner off his back, and resume his Big Dog lifestyle.
All he needs is the approvals of Jamie (a requirement of the Fox Sports deal) and Major League Baseball.
But receiving these approvals is going to be very difficult because the financial interests of Frank, Jamie, and Major League Baseball are not aligned.
And that is compounded by the fact that nobody trusts Frank or his word, especially when it involves money.
According to the popular press, Jamie’s asking price is between $150 million and $200 million, cash. And the only source of that kind of loot is the Dodgers.
On the other hand, the Commissioner of Baseball is very concerned about the financial condition of the Dodgers given that high level of debt owed by the Dodgers and related entities. The Dodgers and related entities have debt in the range of $425 million to $500 million, a staggering 12 to 14 times the Dodgers’ operating profits of an estimated $35 million. And this operating profit does not reflect the impact of attendance being lower by 16.3% this year, resulting in an estimated revenue loss of $23 million.
As a result, the Commissioner has recommended that Frank find a well capitalized equity investor, just like he did for the New York Mets. But Frank has not heeded that advice. Instead, he violated that Commissioner’s trust by not consulting with Major League Baseball before he borrowed $30 million personally to meet the April and May payrolls.
If the Commissioner were to approve the Fox Sports media rights deal, it would be after he completed a thorough analysis of the operations and finances of the Dodgers and the related entities. And that approval would be accompanied by stringent conditions that would prohibit Frank from once again looting the Dodgers to pay off Jamie, bail him out of his personal financial problems, and support his Big Dog lifestyle of private planes and multiple estates.
Frank would also be required to reduce debt, primarily by raising equity based on a reasonable predetermined valuation for the Dodgers and the related entities.
Frank would also need to demonstrate that the Dodgers had the financial wherewithal to field a competitive team and remain a viable franchise which would essentially prohibit Frank from pledging the cash flow from the Fox Sports deal as collateral for any new loans.
According to Bill Shaikin of The Los Angeles Times, Frank is evaluating the possibility of having the Dodgers file for bankruptcy to protect the Dodgers’ assets from Major League Baseball and its creditors. (Link)
But a bankruptcy filing will not solve Frank’s problems. It is a long, multiyear process where the lawyers and accountants will truly prosper at Frank’s expense. More than likely, Frank will be also forced to file for personal bankruptcy because of his personal guarantees and cross default provisions of his many loan agreements. This would result in bankruptcy filings by the Dodgers’ related entities (the Stadium and the land).
It will also involve a thorough examination of the operations and finances of not only the Dodgers and related entities, but of Frank’s personal affairs, including how his billionaire life style was financed.
In a bankruptcy, Frank will be cash constrained, with little access to the cash flow of the Dodgers and related entities, making it very difficult to pay his army of high priced lawyers and to maintain his Big Dog lifestyle.
Frank would be would be well advised to play ball with the Commissioner and Major League Baseball. Despite his recent charm offense, he is outgunned by Major League Baseball and the banks which have more experience and far greater financial resources than a bankrupt Frank.
The old Wall Street expression, “Bulls make money in up markets, Bears make money in down markets, and Pigs always get slaughtered,” applies to the greedy Frank, both in his relationship with Major League Baseball and Jamie.
As for the Dodgers, they are three games under .500 and are in third place in the National League West, four games behind the Giants and five games behind the Florida Marlins in the Wild Card standings. Attendance is off 16.3% from last year as True Blue fans are reluctant to support a losing team owned by the whiney, self serving bum.
Vol 9 Issue 39
Pub: May 17, 2011