State of the Dodgers: Crime Does Pay

A group headed by financial services mogul Mark Walter, former MLB and NBA executive Stan Kasten, and Magic Johnson struck a deal to buy the Los Angeles Dodgers from Frank McCourt for $2 billion, handing a monumental payoff to one of the most-crooked owners in sports history.

Walter, chief executive office of financial services firm Guggenheim Partners, takes over as the team’s new controlling owner. The group, which also includes minority partners Peter Guber, Bobby Patton and Todd Boehly, shattered the mark for most expensive franchise sale in the history of baseball or any other sport. The previous record for an MLB team was when the Ricketts family bought the Chicago Cubs in August 2009 for $845 million.

The beneficiary of this deal is McCourt, who bought the Dodgers, Dodger Stadium, and 250 acres of Los Angeles real estate for $430 million in 2004. Virtually all of that purchase price was financed through debt, trampling on Major League Baseball’s supposedly sacrosanct debt-to-equity limits for owners. McCourt and his now ex-wife Jamie McCourt then spent the better part of eight years raiding the team’s coffers to finance their own over-the-top lifestyles and to pay off personal debts, pulling out either $109 million (Frank’s estimate) or $141 million (Jamie’s) in the process. The McCourts bought four homes in the L.A. area for a total of $89 million.

Their malfeasance runs much deeper than a bit of personal slush fundery, though. Check out this amazing account of the entire debacle by Larry Behrendt of It’s About The Money, Stupid. The Dodgers continually borrowed cash on the McCourts’ behalf, with Frank McCourt slicing the team into more than 20 different subsidiaries, then looting each one when needed. It got so ugly that the Dodgers couldn’t even get the proceeds from their own ticket sales; or at least they couldn’t until Dodgers Tickets, LLC, one of those many spinoff companies set up to facilitate and shield money transfers, paid off the $390 million in debt it had accrued.

Want more details on McCourt turning one of sports’ most storied franchises into his own credit card? Read Molly Knight’s work at ESPN The Magazine and ESPN.com. Comb through the archives at DodgerDivorce.com. Or check out the 57 sins of the Frank and Jamie McCourt Era, compiled by the excellent blog Mike Scioscia’s Tragic Illness.

With Frank McCourt on the hook for more than a billion dollars to pay off his creditors, the IRS, and his ex-wife, he began striking deals. After a long divorce battle, Jamie McCourt finally agreed last October to relinquish what she believed to be a 50 percent stake in the Dodgers, for $131 million. It was the costliest divorce in California history … and now looks like a spectacular victory for Frank McCourt. When rumors swirled two weeks later that McCourt might finally sell, the number bandied about was $1 billion. Just a few hours before news broke that Magic Johnson’s group submitting the winning bid for the team, reports pegged the expected sale price at $1.3 billion to $1.6 billion.

Instead, McCourt will walk away with about $1 billion, even after paying off all his debts. He’s not even completely out of the Dodgers picture. Per the sale’s press release: “Mr. McCourt and certain affiliates of the purchasers will also be forming a joint venture, which will acquire the Chavez Ravine property for an additional $150 million.” Meaning McCourt and the new owners will jointly own the parking lots around Dodger Stadium — though McCourt will merely be a minority owner, able to pursue development deals on the lots with the new ownership group holding final veto power.

The good news for Dodgers fans is that the team will soon be free to operate as a normal, functioning major league organization. The tail end of the McCourt era saw the club scrimp on spending at all levels of the organization. Despite playing in baseball’s second-largest market, the Dodgers’ payroll ranked just 12th last year at $104.2 million. At least there’s an argument to be made that winning begets spending, and that the Dodgers’ lack of recent on-field success made middle-of-the-pack spending somewhat logical at the major league level. The far bigger shame was the evisceration of the Dodgers’ international budget. The team that signed and developed standout prospects like Fernando Valenzuela, Pedro and Ramon Martinez, and Adrian Beltre fell to dead-last in baseball in 2010, spending a paltry $314,000 on international signings. It got even uglier last year, with the Dodgers spending a mere $177,000 (the next-stingiest team, the White Sox, doled out more than four times that much).

With Hot Stove season over, the first regular-season game now in the books, and the matter of who will make personnel decisions under the new regime an open question, it’s unlikely the Dodgers will make any big player moves in the immediate future. But we can safely expect the team to eventually get aggressive in pursuing big-ticket talent. If you’re looking for possible angles, the two best pitchers on next year’s free-agent market could be Southern California native Cole Hamels and current Giant Matt Cain.

Beyond their own wealth, the new ownership group should have the means to remake the Dodgers into a revenue-generating giant, thanks to pending talks for a new television contract. In 2010, the Texas Rangers agreed to terms with Fox Sports Southwest for an estimated $1.6 billion (with some outlets speculating the deal could be worth considerably more, possibly up to $3 billion). Last December, the Angels shook on a deal with Fox Sports reportedly worth $3 billion, a pact cited as facilitating the Angels twin megasignings of Albert Pujols and C.J. Wilson this off-season. The New York Times’ Richard Sandomir estimated a potential new Dodgers TV deal at around $300 millionper year.

So everyone, it seems, comes out a winner. The new ownership group wins the massive prestige and potential earning power of one of professional sports’ marquee properties, even if it comes at an astronomical price. And 29 other MLB owners just popped champagne corks too. Most teams won’t have the cachet to fetch anywhere near the $2 billion that the Dodgers did, but they’re all likely more valuable properties today than they were yesterday.

For that, MLB can thank Frank McCourt: The man who ransacked one of baseball’s crown jewels, alienated a fan base, triggered the mother of all divorce cases, ran up more than a billion dollars in debt … and walked away one of the richest men in America.

Filed Under: Los Angeles Dodgers, MLB

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Jonah Keri is a staff writer for Grantland. His book The Extra 2%: How Wall Street Strategies Took a Major League Baseball Team From Worst to First is a national best seller. His new book Up, Up, and Away, on the history of the Montreal Expos, is now available.

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