Dodgers' Frank McCourt Pulls Bankruptcy Card

by John M. Curtis
(310) 204-8700

Copyright June 27, 2011
All Rights Reserved.                                         

        Rejected by Major League Baseball Commissioner Bud Selig June 20 and unable to generate cash for payroll from his proposed FOX TV deal, Dodgers’ owner Frank McCourt lashed out filing for Chapter 11 bankruptcy in Delaware.  Selig blocked Frank from obtaining a $185 million cash-advance on a $3 billion TV deal that would have permitted the controversial 58-year-old former parking lot owner and real estate mogul from meeting his June 30 payroll.  Selig decided to take over daily operations of the Dodgers April 20, citing gross franchise mismanagement.  McCourt’s latest move hope to take Dodgers’ control out of Selig’s hands and place it into a more friendly bankruptcy court judge.  Chapter 11 financing gives McCourt $150 million in daily operations to meet current payroll obligations before the bankruptcy court approves his multibillion dollar plan with FOX.

            McCourt’s crafty legal maneuver delays the inevitable sale of the Dodgers and slaps Selig in the face.  Selig made it plain that he though McCourt was unfit to run the Dodgers’ franchise, violating his franchise agreement with MLB to place the team’s finances before his personal extravagance.  “There will be no disruption to the Dodgers day-to-day business, the baseball team, or to the Dodger fans,” said a statement from Frank’s attorneys.  Day-to-day business operations have been severely handicapped by McCourt’s cash-flow problems.  Team players have been severely impacted, unable to separate on-the-field-play from the daily media frenzy recording Frank’s ongoing war with MLB.  Dodgers’ fans have been blindsided by inconsistent play, leaving the team next to the cellar in the National League West, 11-games under 500 and out of 2011 playoff contention.

            Frank’s damage to the Dodgers’ franchise, MLB, the City of Los Angeles and the fans is incalculable.  McCourt blames Selig for “turning his back on the franchise,” nixing the FOX deal.  Selig was only trying to prevent McCourt from gutting the franchise’s equity by sucking out all the cash.  “He turned his back on the Dodgers, treated us differently, and forced us to the point we find ourselves today,” said McCourt’s statement.  McCourt’s bitter public divorce with his wife, Jamie, battle over team ownership and reckless spending habits exposed the public to the real reasons behind his cash-flow problems.  Frank claimed in bankruptcy court that his team lost revenue in 2010, leading to its current cash-flow problems.  In reality, McCourt’s costly divorce, wildly extravagant spending and over-leveraged business operations left the franchise paralyzed and unprofitable.

            Frank’s Chapter 11 maneuver only temporarily staves off the day of reckoning.  Any bankruptcy judge will familiarize himself with Frank’s franchise agreement with MLB in which he agreed to forgo any and all litigation.  If he had any problems meeting payroll, the franchise returns to MLB, not a bankruptcy court for reorganization or liquidation.  In the Chapter 11 filing, McCourt claims he began having cash-flow problems in 2010 due to declining attendance.  What he doesn’t say is that his ugly divorce leaked into team play and fans willingness to subsidize the franchise.  Dodgers’ team vice chairman Jeffrey Ingram indicated the Dodgers are “on the verge of running out of cash, the result of a perfect storm of events,” asking for protection under the federal bankruptcy code.   Dodger executives and legal team know that the proper remedy is not bankruptcy court.

            McCourt’s decision for Chapter 11 buys him more time but can’t delay the inevitable:  The takeover by MLB and eventual sale to new owners.  “He’s running very low on options right now,” said David Carter, executive director of USC Sports Business Institute, referring to Frank’s attempt avoid MLB control of the franchise.  Chapter 11 attempts to buy Frank more time while he meets payroll and begs, borrows and steals the cash to cover mounting debts, especially unpaid former ballplayers and radio-TV announcers.  “What seems to be the case is a high-stakes chess game between Frank McCourt and MLB and he’s running out of pieces,” said Carter, believing Frank is running out of wiggle room.  Frank hopes he can salvage his right to continue borrowing against the franchise before MLB eventually takes it over.  Frank knows Selig is well within his legal rights.

            McCourt’s Chapter 11 “reorganization” bankruptcy filing tries to buy him more time to come up with the cash needed to make payroll and stave off creditors, especially former ballplayers currently owed millions.  When the Texas rangers filed for bankruptcy in May 2010, they were able to get Hall of Fame Texas Ranger pitcher Nolan Ryan to buy the franchise for $590 million.  Frank hopes the bankruptcy court judge approves the FOX deal, handing him $185 million.  Before MLB finds its next owner, they don’t want McCourt to siphon off the equity from future TV deals.  While Frank feels entitled to the cash, he can’t explain why the franchise has lost money.  He won’t admit that fans are so disgusted with his management style that they’re boycotting the games.  Frank’s biggest mistake was not player-personnel but allowing the public to see his sickening extravagance.

John M. Curtis writes politically neutral commentary analyzing spin in national and global news.  He's editor of OnlineColumnist.com.and author of Dodging the Bullet and Operation Charisma.

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