The Dodger Death Spiral
TRUE BLUES - As long as the universally despised Frank McCourt owns the bankrupt Dodgers, the team is destined to be one of the worse teams in Major League Baseball.
- 19 Jul 2011
- Written by Jack Humphreville
Ask yourself, what self respecting free agent would sign with the cash strapped and organizationally challenged Dodgers, a losing team that is controlled by the worst owner in Major League Baseball?
So what happens when Andre Ethier, 29, and Matt Kemp, 26, become free agents and want to play on a contender that has a shot of making the playoffs and winning the World Series?
And what will become of strikeout leader Clayton Kershaw when he becomes eligible for arbitration and a $4 million increase in salary?
Unfortunately, the Dodgers do not have the financial wherewithal to compete for top talent because of the cash squeeze caused by the mountain of debt that financed the billionaire lifestyle of the blood sucking McCourts.
That is why the Dodgers, who play in the second largest media market and rank fourth in team revenues, have a disproportionately smaller payroll, ranking eleventh in the majors.
Unfortunately, the Dodgers image is only going to get worse as the press will have a field day as the high living McCourts continue their bar room brawl in Superior Court.
On August 10, Frank and Princess Jamie will square off in Superior Court to hear Frank’s claim that he is no longer able to finance her Marie Antoinette life style ($2.7 million a year) and her seven estates (approximately $5 million). Rather, he is asking for a significant reduction in his payments and/or the sale or lease of these estates. As Frank says, nobody needs seven residences.
On the other hand, poor Frank is destitute, having to make due on only $600,000 over the past year.
Underlying Frank’s personal cash flow is the $14 million he receives from the Dodgers parking revenues, skimmed right off the top rather than being invested in the team’s payroll. This same special purpose parking lot subsidiary also borrowed $60 million, secured by the Chavez Ravine acreage, most of which was funneled into their personal real estate holdings.
So after Frank spends $4 million to service the associated debt and $5 million to fund non Dodger related activities, he is left with only $5 million to fund their lives of luxury, pay legal expenses that reached $9 million last year, and service outstanding debts, including the $30 million advance from Fox Sports to meet payroll.
While Frank may claim to be down and out in a $30,000 a month Beverly Hills hotel suite, Princess Jamie will once again request that the Superior Court order the supervised sale of the Dodgers and related assets in a controlled manner.
For the True Blue fans and Major League Baseball, their prayers would have been answered.
On July 20, the circus will continue in Delaware as the Bankruptcy Court considers the Dodgers application for $150 million of Debtor in Possession financing from a fast buck, New York City hedge fund, Highbridge Capital.
But this very expensive financing alternative has run into opposition from the U.S. Trustee who urged rejection because the Dodgers failed to disclose material fees to this lender of last resort.
In addition, the Committee of Unsecured Creditors and Major League Baseball have also objected to this financing arrangement because of its excessive cost and fees.
While the bankruptcy filing gave Frank some temporary breathing room, especially from Major League Baseball who was considering seizing the team, it is not without significant expense. Lawyers, accountants, investment bankers, and other bankruptcy experts are probably costing about $2 million a month.
Furthermore, debtor in possession financing will probably reach $1 million a month as the Dodgers need about $150 million to fund their operations over the next year since Frank has squandered the advances from sponsors, season ticket holders, suite rentals, and Fox Sports.
The Dodgers are also losing money as a result of the 20% decline in attendance and even greater decline in revenue because of the higher level of no shows, the blatant discounting of tickets, and significant incentives offered to advertisers and sponsors for prepayments.
And next year, as the team’s prospects fade even further, it will only get worse as very profitable season ticket holders continue to bail and even more profitable suite rentals are not renewed.
To add to Frank’s financial woes, the Internal Revenue Service has taken an interest in the overly aggressive tax strategies that were used by the McCourts to loot the Dodgers. The IRS will also be interested in the $600,000 no-show jobs for two of the McCourt sons and the illegal funneling of funds from the Dodgers charitable arm for non permitted uses.
The result of the continuing media frenzy surrounding Princess Jamie’s royal lifestyle, Frank’s continued looting of the Dodgers, the operating losses of the Dodgers, the efforts of Major League Baseball to seize the franchise, the inability to refinance maturing loans, the IRS audit, and the very real possibility of Frank declaring personal bankruptcy will all contribute to the Dodgers inability to retain and sign quality players that are needed to attract the fans back to Frank McCourt’s Ghost House.
So if you were Andre Ethier, Matt Kemp, or Clayton Kershaw, what would you do?
The obvious solution is new, well capitalized ownership. Until then, the Dodgers are toast.
Note: While some diehard fans still hold out hope that the 42-53 Dodgers will qualify for the playoffs, the team will be lucky to win 81 games. The Bums need to win 39 of their remaining 67 games (58.3%) for a breakeven season. And to make the playoffs, the Dodgers will need to win over two-thirds of their remaining games. Only in Lasorda’s wildest dreams!
Tags: Dodgers, Frank McCourt, Jamie McCourt, Andre Ethier, Matt Kemp, Clayton Kershaw, Tommy LaSorda, bankruptcy, MLB , Major League Baseball, Los Angeles, season ticket holders
Vol 9 Issue 57
Pub: July 19, 2011