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Frank McCourt has taken Dodgers deep in debt

The owner has struggled to obtain additional financing for the team, which was $433 million in debt as of last year. The red ink could hamper the Dodgers' ability to sign players.

September 01, 2010|By Bill Shaikin and E. Scott Reckard

McCourt and his estranged wife might have a tax bill to pay off as well. The state of Massachusetts is seeking $10.1 million from the couple in a dispute arising from their 2006 tax return, according to the deposition of McCourt accountant David Merfeld. An appeal is pending.

Hope for the future

The outcome of the trial — or a settlement, in which Frank McCourt would be expected to retain control of the team — should point the Dodgers to the future.

If McCourt retains control, the Dodgers could get an immediate cash infusion from Fox Sports. The Dodgers' television contract with Fox expires in 2013, and McCourt has considered launching a team-run cable channel, similar to the highly profitable channels run by the New York Yankees (YES) and Boston Red Sox ( NESN).

However, McCourt has discussed a long-term extension with Fox, in which he would abandon the plan for a Dodgers channel in exchange for a front-loaded deal that could significantly increase the Dodgers' annual revenue from television rights, according to three sources briefed on the discussions but not authorized to talk publicly about them.

The deal could be structured so McCourt could cash in without waiting until 2014.

Dodgers spokesman Josh Rawitch and Fox Sports spokesman Dan Bell each declined to comment.

Sain, the accountant, acknowledged a new and more lucrative TV deal could free up enough cash for McCourt to service the debt and improve the team.

"That would solve a lot of his problems," Sain said.

If Jamie McCourt wins the trial and the team is ruled community property, one of the McCourts could buy out the other by joining forces with deep-pocketed investors, or the McCourts could sell. In either case, a new ownership group could be in place.

In a June 2009 financial statement, Frank McCourt valued all of his assets at $965 million and valued the Dodgers — the team, the stadium and the surrounding parking lots — at $859 million. (In court papers, Jamie McCourt argued the Dodgers' value should be much higher, based on the possibility of increased future revenue from broadcast rights and development of the parking lots.)

According to that financial statement, if Frank McCourt liquidated his assets, he would be subject to $113 million in currently deferred taxes and would be left with about $163 million after paying off debt and taxes.

The tax liability would be greater if Congress allows tax cuts enacted under President George W. Bush to expire as scheduled at the end of this year, said Philip J. Holthouse, a name partner in the accounting firm.

Even without any additional tax liability, if Jamie McCourt were to persuade the court that the Dodgers are jointly owned and the team were to be sold based on the numbers on Frank McCourt's financial statement, each of the McCourts would get half the proceeds — or little more than $80 million.

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