(USA TODAY) - Major League Baseball plans to evict Frank McCourt from its exclusive club in a week, but the celebration is shrouded with caution.
Financial questions first arose when McCourt, who failed in an earlier bid to buy the Boston Red Sox, purchased the Los Angeles Dodgers in 2004. And while his reign has left the proud franchise in financial ruins, there are fears that baseball's rush to get rid of him could change the way teams are bought and sold.
The Guggenheim Baseball Management group, led by owners Mark Walter and Magic Johnson and President Stan Kasten, agreed to pay McCourt a record $2.15 billion for the Dodgers. The group hopes to close the deal Monday, but unlike every other baseball franchise, the Dodgers' financial structure is not governed by Major League Baseball. A U.S. bankruptcy court judge has the sole right to make decisions on future disputes that could arise between the Dodgers and MLB, including revenue-sharing payments.
Once McCourt declared bankruptcy, baseball negotiated a deal with the owner and the court to allow him to sell the team to the highest bidder.
"Now every owner knows that the best way of maximizing your value is by going to bankruptcy court," says Marc Ganis, president of Sportscorp Ltd., which consults with MLB teams and other sports on stadium financing.
"Baseball just got taken to the cleaners in the agreement with McCourt. Baseball screwed up, and they know it.
"What they've done is create a league where rules apply for 29 teams, and rules apply for one team. Baseball knows it's a problem. They tried to stop it. The judge wouldn't let them. Now, they've got a recipe for disaster."
Five MLB officials, including three owners who spoke on the condition of anonymity, privately confirm their concerns but say that many of their fears were eased in the past week. While the Guggenheim group is paying nearly three times the previous record for a baseball franchise (the Chicago Cubs were sold for $845 million in 2009), persons with knowledge of the situation, who don't wish to be identified because of confidential issues regarding the sale, claim that only in the last few days did MLB receive detailed financial information about the purchase agreement. MLB attorneys and the Guggenheim group met several times last week with a court-appointed mediator to resolve lingering concerns.
Yet Tom Lauria, a lawyer representing MLB, said in court that baseball still was troubled that it did not know details of the revenue-sharing arrangement between the Guggenheim group and McCourt involving the Dodger Stadium parking lots, which they will share equally. There's also a fear among owners that there are confidential provisions in the agreement that could permit the Dodgers to circumvent aspects of MLB's revenue-sharing agreement with their regional sports network or new TV contract.
Bruce Bennett, an attorney for the Dodgers, said in court this month that the settlement included confidential provisions about how the league could treat revenue from a Dodgers-owned regional sports network. The agreement between Guggenheim and McCourt is confidential, and terms of the process were also confidential as ordered by the bankruptcy court. Bennett, through a spokesman, declined to comment Monday beyond his statements in court.
According to various news media reports, Lauria argued in court April 13 that baseball didn't have the opportunity to review financing of the agreement, including how much money would be available for operations and how the Dodgers' future TV revenue would be used or distributed. He also said baseball was opposed to giving power to a mediator to settle all disputes regarding the settlement terms of the deal.
U.S. Bankruptcy Court Judge Kevin Gross ruled that the sale agreement is in conformance with the bankruptcy court. He also made it clear that he will have the final authority in future disputes.
"We have very specific ownership procedures (regarding) the owners of a franchise, who they are, how much they are in for," Commissioner Bud Selig told a group of sports editors in New York last week. "There are a lot of questions that Tom Lauria raised. We're working to clear up those things."
Three high-ranking owners, wary of potential stipulations that might permit the Dodgers to retain a greater percentage of their TV rights than other clubs, question how it's possible for the Dodgers to stay financially viable with the staggering price tag. The purchase price was more than $700,000 higher than hedge fund investor Steve Cohen's bid of $1.4 billion. The Guggenheim group, which put in a pre-emptive bid before there was a final auction among the last three groups, says - according to a highly placed member of the group who did not wish to be identified - that it has followed every letter of the law, knowing all along that the bankruptcy court was in charge of the sale.
"Baseball screwed up; they wanted McCourt out so bad, they made a bad agreement to do so," Ganis said. "Careful what you wish for."
A smart man
In retrospect, baseball owners might wish they had intervened years ago, when McCourt's financial woes required him to seek loans, including one from MLB, and stepped in before McCourt filed for bankruptcy.
"The trouble was that Frank and his wife seduced us," former Dodgers CEO Bob Daly says. "He's slick, I'll tell you that. He's a very good salesman. He could con everybody, and he did, including me.
"He ended up buying a team for no money, and now he's making a fortune. He's just a nasty man, but whatever you say about him, you can't say he's not a smart man."
McCourt, who did not respond to several requests to be interviewed for this story, stands to clear at least $800 million after paying off his debt, taxes, divorce and legal bills.
"There were so many things that baseball did wrong in this, but the biggest monumental mistake was letting the Rangers be sold (in 2010) in bankruptcy court," Ganis said. "Once baseball approved that, Pandora's box was wide open. It took less than a year for someone to open Pandora's box again."
The bankruptcy court's involvement eliminates any perception that Selig hand-picks the owners of clubs. That perception tended to depress franchise values, according to investment bankers with knowledge of the situation who are not authorized to comment.
Selig and baseball's lawyers insist that McCourt was not given any special dispensation to buy the Dodgers for $431 million from Rupert Murdoch and Fox - which included a $50 million checking account to jump-start the payroll. But instead of cash, McCourt bought the team simply using his piece of waterfront property in Boston for leverage. Fox, desperate to sell, even agreed to buy McCourt's land if he couldn't find any buyers and seized the property when he defaulted on a loan.
"Somebody in baseball should have said to Bud, 'This could be disastrous,' " Ganis said.
The trouble was that there simply were no other qualified buyers at the time. MLB was suspicious of McCourt's finances, but Fox, a business partner with MLB, pleaded to approve the sale.
"We tried to sell the team for a year, and we just had no bidders," Daly said. "Fox had influence on this and maybe shouldn't have sold the team.
"For Frank, the timing turned out to be a miracle. When he got the team, there were no bidders. He got 11 bidders for it now, and even down to the last day, he had three. Frank got very, very lucky.
"He's a rich man. The fans are upset. I'm upset. But, hey, at least he's gone."
A high price tag
In November, during the quarterly ownership meetings in Milwaukee, McCourt returned from dinner and retreated to the bar at the Pfister Hotel. He talked with a few writers whom he knew. McCourt discussed his team, his divorce and his love for Los Angeles.
McCourt, who had hired an investment firm but not yet taken bids, was asked whether he thought he'd possibly get $1 billion for his franchise.
He said in a matter-of-fact tone: "It will blow you away what I get for this team. It will be higher than any team ever sold. You watch. You'll see."
McCourt was right. Yet he has acknowledged in the past that if the Dodgers' TV contract with Fox's Prime Ticket was not expiring after 2013, he never would have come near the $2 billion sale price.
Fox, which required McCourt to accept a 10-year, $320 million contract extension when he purchased the team, probably should have required McCourt to take a 20- or 30-year deal. If there were five or 10 more years left on the TV deal, the Dodgers likely would have been worth about $1 billion, said New York-based sports banker Sal Galatioto, who helped broker the Cubs' sale to Tom Ricketts and his family.
The same TV deal this time around, with Fox and Time-Warner ready to engage in a bidding war, could be worth $5 billion over 20 years. The Rangers, who also went through bankruptcy, negotiated a 20-year, $3 billion deal with Fox Sports Southwest two years ago, and the San Diego Padres' new deal with Fox is valued at $1.5 billion.
"That just so happened to be a time when they decided to sell the team; the marketplace wasn't what it is today," said Chris Bevilacqua, an adviser on the Rangers' and Padres' TV deals. "They got a TV deal that at the time was pretty favorable to Fox.
"The fact that the TV deal is almost up is what drove the franchise price so high."
This might be McCourt's final week as Dodgers owner, but while he might soon be gone, he may never be forgotten.
There are lessons learned, and two members of MLB's ownership committee say the league will continue to tighten its regulations for prospective owners to prevent another McCourt catastrophe.
Yet there's certainly no guarantee it won't happen again. McCourt has conceded that he and ex-wife Jamie's spending spiraled out of control when they got to Los Angeles, using money from the Dodgers to fund their lifestyle. Former Rangers owner Tom Hicks used his holding companies to receive loans to fund the club, a loophole that no longer exists, according to MLB officials. The Wilpon family, owners of the New York Mets, invested with Bernard Madoff, resulting in a $162 million settlement to pay trustees in the Ponzi scheme.
"I think what has changed - and it's been an evolution - (is) that they are taking a harder look at how much resources the principal owner has," Milwaukee Brewers owner Mark Attanasio said. "We look at how much money they have vested in the transaction and what are their outside resources. We've always looked at that, but in the last 10 years, it's a much harder look.
"It's one thing to have money, but you have to make sure you're putting money into the team and not just borrowing money. It's hard to go into bankruptcy if you have no debt."
This renewed focus on the finances of potential ownerships, in part, was the reason three of the final six ownership groups submitted by McCourt were eliminated by MLB. It also proved to be the final hurdle that stopped former agent Jeff Moorad from purchasing the Padres in February.
"We learned lessons from both the Rangers and Dodgers situations," Attanasio says.
Who knows, maybe there'll even be a day when baseball owners can thank McCourt, knowing the role he played in all future sales.
"I don't think MLB is so unhappy," Daly says. "They may not like Frank McCourt personally as an owner, but on the other hand, he just made teams a whole lot of money."
Bob Nightengale, USA TODAY