Frank McCourt Takes Another Bad Loan

When Frank McCourt filed for bankruptcy, he also acquired a $150 million loan to cover his immediate expenses, but since he’s broke and has bled the Dodgers dry, the only way he could come up with a big loan on short notice was to pay through the nose. Specifically, McCourt went to a subsidiary of J.P. Morgan who offered to give him the money in exchange for an interest rate of at least 10 percent along with a $4.5 million fee to secure the loan in the first place.

Because the loan is structured as being 7% above the current London interbank offered rate (usually referred to as the Libor), with a minimum Libor of 3%, the rate will always be at least 10% and could go higher depending on how the markets move. When you factor in the $4.5 million fee, the APR is closer to 13% — it’s not quite usury, but it’s a pretty terrible loan for a property that is worth “between $500 million to $1 billion” and has relatively minimal outstanding liabilities.

Meanwhile, Major League Baseball offered to loan the Dodgers an equivalent amount of money at a 7% interest rate with no fee attached, so the cost to the team would be just slightly more than half of the loan that McCourt managed to come up with on his own. Just the difference in interest rates on the principal amount borrowed is over $12,000 per day, and again, that’s not accounting for the sizable fee that McCourt agreed to pay to in order to secure a last minute emergency loan.

While having a franchise under control of Major League Baseball is clearly less than optimal, when the alternative is having it under the control of Frank McCourt, it looks like utopia. The sooner MLB can take the team away from Frank McCourt, the better off the Dodgers will be.