Are The Dodgers Screwed?
Last night, the commissioner’s office released a statement noting that the league would “appoint a representative to oversee all aspects of the business and the day-to-day operations of the (Los Angeles Dodgers) Club.” Essentially, Bud Selig was seizing control of the Dodgers “because of my deep concerns regarding the finances and operations of the Dodgers and to protect the best interests of the Club.”
As Jonah wrote last night, the last time Major League Baseball owned a franchise, it was an utter disaster. The way the Expos were ran during the time that the league had stewardship over them was an embarrassment, and highlights the problems that can arise in this kind of natural conflict-of-interest situation. With the other owners incentivized to not lose games to a property they had an ownership stake in, the Expos were essentially turned into baseball’s version of the Washington Generals.
But I have to believe that Selig learned some lessons from just how poorly that situation was handled, and he knows that he can’t make those same mistakes again. Additionally, Los Angeles is not Montreal, and with all respect to Jonah’s memories, the Dodgers are not the Expos. This is a storied franchise in the largest media market on the west coast – the problem won’t be finding a new owner, but rather picking from among the horde of people who will be interested in purchasing the team.
There will certainly be legal hurdles to clear as the league attempts to essentially foreclose on Frank McCourt, but given the size of their respective war chests, I can’t see any way that McCourt can win a legal battle with the league and convince a judge to overturn Selig’s decision. McCourt needed a loan from Fox in order to pay his bills – how much of a serious legal challenge can he really mount?
I think the only safe assumption here is that the league will win any tug-of-war that ensues, and probably in short order. They’re not going to want to drag this out any longer than they have to, and McCourt doesn’t have the resources to sustain a long fight anyway. My amateur speculation suggests that the most likely outcome is some sort of deal where McCourt agrees to go along with Selig’s plan in exchange for some sort of payout when the team is sold to another owner.
During the interim, however, the Dodgers still have a franchise to run, and they’ll now essentially be owned by their competitors. I can’t imagine the Giants voting to extend funds to help the Dodgers add a bat at the trade deadline if it comes to that, but thankfully for the league, the Dodgers already have a fairly sizable payroll and a full baseball operations staff in place. The league doesn’t have to fight the owners on what the Dodgers 2011 budget should be – that’s already in place, and they simply have to honor the contracts that have already been agreed to.
If Selig does the right thing and gives his appointee legitimate independence to make decisions on baseball matters that don’t affect the team’s expenditures, then the Dodgers can still operate in a somewhat normal fashion. The team has been notorious for making deals in July that bring them talent while the other team continues to pick up the remaining salary – they did this with Manny Ramirez and (fatefully) Casey Blake, giving up a little bit more in exchange for not having to take on increased financial obligations.
These kinds of deals have become somewhat common around the league, and if the Dodgers steward had the autonomy to make deals of that sort without the commissioner’s approval, then we probably wouldn’t be able to discern much of a difference between how the Dodgers were run this year versus in previous years. It isn’t the ideal way to run a franchise, of course, but it would essentially maintain the status quo, and not require much of a change in plans for Ned Colletti and his staff.
Assuming the league wins a fairly quick legal battle and is able to place the team for sale at some point this summer, it should not take too long for a new owner to be found. As we saw last summer, MLB was able to help facilitate a rather rapid transfer of the Rangers even though they didn’t actually own that franchise. While I’m still speculating, I’d guess that it is not out of the question for the Dodgers to have a new ownership group in place by the end of the year.
If that timeline holds, MLB will be able to avoid the problem of having to set a budget or retain staff – the two major problems that plagued the league during the Expos debacle. If the entirety of their involvement in owning the Dodgers can be contained in the calendar year 2011, this actually has the chance to not have much of an impact on how the team is operated.
It could, of course, go badly. We’ve seen just how the league can screw this up. But I don’t know that we should see that as the inevitable conclusion of this move. If the league can win a quick legal battle and a qualified candidate steps forward to buy the team at a good price, the transfer of power could take place fairly quickly, and that’s the result that is in everyone’s best interests.
Dave is the Managing Editor of FanGraphs.
Woohoo!
Well, the problem apparently wasn’t that McCourt needed a loan from Fox but that he was forced to take their personal loan when MLB declined to allow him to execute a TV deal with Fox *now* – this a matter in dispute with regard to whether he holds 50% or so, or about 100% ownership – divorce related.
I am not a lawyer, nor do I play one on TV, so others will have other ideas.. and I may well be off base here. I DO have a problem with MLB telling him which deals he can or cannot make just because it is not clear what percentage of the ownership he clearly holds. One thing that is clear is that Fox thinks he has sufficient equity to give him a large chunk of money.. I will leave the ball here and allow others to carry it forward…
Not MLB’s problem… McCourt should’ve read the pre-nup or had a competent lawyer prepare it. MLB’s problem was allowing such a leveraged transaction in the first place.
Move them back to Brooklyn!!! NYC could easily support 3 teams.
On a more serious note…Frank McCourt engaged in some fairly serious financial malfeasance during his time as owner. He borrowed heavily against the Dodgers to finance an extravagent personal life with no hope of paying the money back. He’s been using one of the premier franchises in Major League Baseball as his personal ATM for the past decade. This move by Selig is long long overdue and it is by far the best move for the Dodgers, the fans and for MLB as an entity. McCourt is a piece of human scum and this is more than he deserves.
Good job by Selig to do the right thing. Now he just has to put his friendship with the Wilpons aside and do the same thing with the Mets.
McCourt may well be human scum, as you claim – but you leave unaddressed the question whether he’s any worse than the majority of other owners.
Moving the Dodgers back to Brooklyn is not nearly as far-fetched and comical as you would present.
Bud Selig and Fred Wilpon are more than friendly, they are brotherly. You will recall Bud mediated Wilpon’s co-opting of the Met franchise from under Nelson Doubleday’s nose 10-odd years ago.
You will also note that Bud has taken action with the Mets (Wilpon installed his “recommended” FO “dream team” picks), loaning money, etc, without outright seizure of the franchise – even though Wilpon dollars stood like hundreds of millions of cardboard bystanders in the great show that was the Madoff Ponzi scheme. How Wilpons investments with Madoff rub Bud as “good for baseball” while McCourt’s mortgages are “bad for baseball” is an unfathomable question.
Meanwhile, Joe Torre – Brooklyn native, former manager of the Dodgers, and one very disgruntled ex-employee of that other New York City franchise – has recently been installed in a special official post in Selig’s office. How long until he’s designated to run the Dodgers’ affairs?
Selig’s confiscation of the Dodgers would further serve to entice bailout investment for the Picard suit, to offset the Met losses to either creditors or plaintiffs, to entice investment, to entice settlement, you name it. Bud has a huge leveraging instrument in the Dodgers, and when it gets ripped from McCourt’s grasp via his LOVELY ex-wife (and his ex-counsel, who clearly botched the pre-nup and is now covering with a pre-emptive lawsuit against McCourt) the embattled owner will have no choice but be bought out of his own franchise. He won’t mind so much, he bought it with borrowed money to begin with.
The character assassination of Frank McCourt is tad premature, no? He seems to be the odd man out of this epic swindle. His character has nothing whatsoever to do with it.
The Mets can go belly up on paper, Mr Met can have a stroke and die on Roosevelt Ave but you still have the Jackie Robinson Rotunda in the Polo Grounds Redux, and oh yeah the SNY cash cow to offer up to suitors. SNY can cover the Dodgers, I don’t think Keith Hernandez would mind the different logo on his paystub. Put the two rosters together right now and you have a heck of a team. Paint all the orange with Dodger blue. Dodgers are coming home.
Can’t happen? OK. Neither could Madoff.
pardon, meant “back to New York City”
This is a serious question, not a criticism: What does it mean that someone is using something they own as their own personal ATM? It’s a phrase that’s often bandied about with regard to McCourt, but I just don’t understand what it means. He owns the entity; can’t he do with it and its money as he pleases? Isn’t that what owning something means? What am I missing?
bureaucratist — I’m not a lawyer or accountant, but there are a lot of ways in which you can’t just do anything you want with a corporation that you own. There are apparently tax issues; there are reports (from TMZ, so take it with lots of grains of salt) reports that McCourt is under investigation from the IRS for taking payments from Dodger revenues without properly paying taxes on it. And the Dodgers have obligations to MLB and the MLBPA and presumably their creditors that probably are violated by McCourt’s redirecting their revenues to his personal expenses.
@bureaucratist: He was taking money out of team accounts for personal use and borrowing off of team equity (used as collateral) to prop up his lifestyle. The Dodgers, as a business entity, weren’t losing any money…in fact, they were doing quite well. However, the McCourts (and it was both of them) sucked a ton of money out of the team because the rest of their ventures sucked and they still wanted to live the high-life. That’s a big no-no when it comes to running a business…particularly one such as this with huge obligations and one that is part of a greater collective such as MLB. It might not be illegal but it was and is certainly unethical.
I understand how using cash from your enterprise without paying taxes is a big no-no. I also understand how not meeting your financial obligations to players, MLB, the MLBPA, etc. is a big no-no, like any concern that doesn’t pay its suppliers. But NEPP says:
“He was taking money out of team accounts for personal use and borrowing off of team equity (used as collateral) to prop up his lifestyle. … That’s a big no-no when it comes to running a business.”
Certainly it doesn’t seem like a good business practice, but illegal, immoral, or even unethical? I don’t see how. If you own the enterprise, don’t you have every right to take money out of its accounts and/or use the enterprise you own as collateral for the purpose of living a better lifestyle? Assuming all tax and other legal obligations are met. Isn’t this *why* one starts/owns a business at all? I understand that as part of the MLB collective they are certain restrictions that another enterprise would not face, but the Dodgers say (and I don’t think it’s been expressly contradicted in any specific way) that they are in compliance with those restrictions. So I don’t understand how what the McCourts did was so wrong (not counting tax illegalities). Stupid, yes, it sounds like it, but if running a baseball franchise stupidly were grounds enough to be taken over by MLB …
The last thing Ned Colletti needs is autonomy.
So is this the way that Kim Ng gets control of an MLB team?
— “But I have to believe that Selig learned some lessons from just how poorly that situation was handled, and he knows that he can’t make those same mistakes again.”
— “If Selig does the right thing…”
— “if the Dodgers steward had the autonomy to make deals of that sort without the commissioner’s approval…”
— “Assuming the league wins a fairly quick legal battle and is able to place the team for sale at some point this summer…”
— “If that timeline holds…”
— “If the entirety of their involvement in owning the Dodgers can be contained in the calendar year 2011…”
Let us emphasize the things that need to go right here…
Frank McCourt’s primary legal concern right now is his divorce battle; I suspect he’ll do the best he can to use MLB’s action here to his advantage against his wife, and be content with that. (Indeed, depending on what his lawyer’s and Selig’s can come up with, he might end up just as happy Selig took this step.)
you didn’t mention the way MLB really screwed the Expos/Nationals.
Through the draft. Think the Dodgers will be allowed to go over slot? Not a chance in hell. Think they will pour resources into scouting? Not likely. Why would they?
Did MLB seize ownerhips of the Dodgers? Or just operational control?
I think the latter … McCourt I would imagine still retains (passive) equity ownership but cannot make decisions now.
MLB, via its control, essentially will sell off the club on behalf of McCourt.
The last time a franchise of this importance was in ownership turmoil (Cubs), the process of ownership transition took well over a year. As an impartial observer, I’m very interested to see how one of the storied franchises in baseball history will transition, and what long-term effects could result from a long, drawn out process.
McCourt was clearly the weak horse when he was awarded the Dodger franchise. Has anyone ever asked why? The dynamic of owners which caused this to be will now direct the immediate fate of the Dodgers and select another owner, one that does not so embarrass them to be sure, but perhaps one that is not capable of dominating them with the resources that might be available to that franchise.
“I am not a lawyer, nor do I play one on TV, so others will have other ideas.. and I may well be off base here.”
But did you stay at a Holiday Inn Express last night?
I wonder how this affects the Mets situation. It would be unprecidented for MLB to control TWO teams at the same time, but depending how the Wilpons lawsuits progress in this timeframe, couldn’t we see a situation where the best interest of the Mets/Baseball call for similar stewardship? If so, would controlling LAD cause Selig to hesitate to pull that trigger?
So Dave how long until Bud Selig does the same thing with the Mets? I mean really what’s the difference between what the Wilpons have going on and Frank McCourt other than the fact that Bud Selig is a BFF of the Wilpons???
Maybe MLB isn’t all that eager to take on a billion in debt? Or whatever the hell its up to now?
Even for MLB, that’s some serious scratch.
This business with the McCourts has been going on a lot longer than the Wilpon mess, that’s the difference.
Would a Matt Kemp & Casey Blake to the Brewers for Carlos Gomez and Casey McGehee have a foul odor at the trade deadline ?
f u
Better toss in Kershaw to even it out…otherwise the Brewers will be giving up too much. I mean, Gomez once netted Johan Santana…he’s pretty darn special.
When MLB took over the Expos it was the Expos owner selling the team to the other 20 owners first. How can MLB legally take over the Dodgers unilaterally like this?
I believe teams are required to keep up a certain revenue/debt flow as part of the ownership agreement with MLB…there’s also that “for the good of baseball” clause that Landis used so well.
I’m sure Selig had his lawyers look into it before arbitrarily doing it.
Another owner broke….none of these guys have a dollar. Just living off of the MLB cash flow….wow.
“There will certainly be legal hurdles to clear as the league attempts to essentially foreclose on Frank McCourt, but given the size of their respective war chests, I can’t see any way that McCourt can win a legal battle with the league and convince a judge to overturn Selig’s decision.”
Isn’t it nice that the “legal” battle will hinge not on the law, but on who has more money.
I think the author is dramatically over simplifying things. The legal battle between Frank and MLB is less important than that between the McCourts. How can MLB compel the sale of an asset that is still subject to litigation in CA divorce court.
Because McCourt waived a bunch of his rights when he bought an MLB franchise. They have very stringent financial requirements that you have to maintain to stay in the club. He hasn’t done that. Think of MLB as an HOA. McCourt might own the house but he hasn’t exactly kept the grass cut and he put that garish lawn ornament out in the yard. He’s also refused to remove it so Selig is enforcing the HOA bylaws.
I get that… but Frank McCourt isnt the owner. He is 50% owner. When an asset is the subject of litigation in a divorce preceding I doubt if MLB or any other third party can compel its sale.
“With the other owners incentivized to not lose games to a property they had an ownership stake in, the Expos were essentially turned into baseball’s version of the Washington Generals.”
Nationals, Dave, they are called the Nationals.
the reference is to the Harlem Globetrotters’ perpetually losing opponent
“The league doesn’t have to fight the owners on what the Dodgers 2011 budget should be – that’s already in place, and they simply have to honor the contracts that have already been agreed to.”
Problem is that the budget that was in place was more than ownership could afford. 29 other teams navigated the last offseason making decisions within their budgets, and are now being asked to subsidize (or place into recievership) the excessive salary commitments of their competitor.
Supposedly, and this is an IF, the Dodgers DO have the cash to pay their players as they signed a big TV deal with Fox that is pending approval with the league. Its supposedly 20 years, $3 Billion so that works out to $150 million a year in revenue.
Seems ridiculous but that’s what the ESPN article states.
http://sports.espn.go.com/los-angeles/mlb/news/story?id=6404728
Assuming this ordeal stretches out over the entire off season, what is the process used to decide:
1) what free agents the Dodgers can sign?
2) what trades can be made involving the team?
3) the team’s payroll?
4) will transactions within the organization be affected, such as minor league callups, demotions, etc?
Do all the other owners vote on these issues (and how would they vote on something like payroll that is not just multiple choice or yes/no but has an open answer)
Does Selig and his office just make a decision?
This situation could become really interesting if ownership is not transferred to a new entity in the next 6-8 months
Interesting article in Boston Globe – Shaunessey is pushing the idea that Bud may try to get the franchise into Larry Luccino’s hands. He would be an improvement over McCourt.
I don’t see the Dodgers moving back to NYC.
aren’t Fox and Time Warner in a bidding war approaching $3 billion dollars over 20 years to the TV rights for the Dodgers that is controled by McCourt? Isn’t McCourt simply awaiting Bud signing off on the deal before he nets that windfall?
Seems to me that is where the situation is sticky. When the deal is consumated, McCourt is flush and in the clear. Bud is dragging his feet. Bud is assuming control. Bud is going to award the franchise to his hand picked favorite.
Giving Frank McCourt $3 billion is the equivalent of giving a crack addict more crack. Its not going to help anyone but Frank. He’ll just blow it like he’s blown all the other money he’s pulled out of the team.
No, he isn’t flush — Jamie McCourt will make very, very sure of that.
Don’t worry about ownership. It’s irrelevant to MLB who the courts decide is the actual owner of the Dodgers, but since the contractual agreements are between MLB and Frank McCourt they move forward as if he is 100% owner. This is based on the post-nuptial signed by the McCourts. That the post-nuptial has been invalidated by a judge is also irrelevant to MLB. Either way, actual ownership hasn’t been decided yet. In the scenario that the Dodgers are sold, the profits will simply be put in a trust in escrow until the divorce settlement is completed. Rather than splitting the Dodgers, they will split the money left over.
The Dodgers are going nowhere. They are a stalwart in Los Angeles and regularly draw over 3.5M fans. I don’t disagree with the idea of a third NYC team, although the Yanks won’t allow it), but it’s blind stupidity to suggest the Dodgers should move from LA.
I speak for many Dodgers fans when I say bring in Mark Cuban.