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Frank McCourt laughs all the way to the bank

DODGERS SALE

After taking the Dodgers into bankruptcy and enduring a costly divorce, he figures to pocket $1 billion on the sale of the team.

March 29, 2012|By David Wharton
  • Frank McCourt stands to pocket about half of the $2.15 billion Magic Johnson's group is offering to buy the Dodgers.
Frank McCourt stands to pocket about half of the $2.15 billion Magic Johnson's… (Luis Sinco / Los Angeles…)

Six months ago, the smart money had Frank McCourt walking away from the Dodgers with little more than a battered reputation.

The beleaguered owner had sunk into a quagmire of debt — taking the team into bankruptcy — and had settled a contentious divorce with his ex-wife, Jamie, by agreeing to pay the seemingly massive sum of $131 million.

Most experts figured he'd be lucky to unload the franchise for just enough to break even.

But that was then. This week, McCourt stands to pocket, after all the bills are paid, about half of the $2.15 billion offered by a group led by Magic Johnson.

Which has left many bewildered onlookers asking: Was he smart or lucky?

"Both," said Marc Ganis, a Chicago-based sports business consultant. "It was as a combination of being lucky, clever, disingenuous, strategic and, ultimately, finding a group that was willing to overpay."

Toward the end of McCourt's eight years as owner, the Dodgers went from playoff contenders to also-rans. Shortly after he took the club into bankruptcy last year, Major League Baseball accused him of "looting" $189 million in team revenue for personal use.

"Basically, he took a $430-million asset and turned it into a $2.15-billion asset by despoiling it over a period of eight years," said Andrew Zimbalist, an economics professor at Smith College in Massachusetts who has written extensively on the business of baseball.

A look at the record suggests that McCourt, if nothing else, was in the right place at the right time.

In 2004, he found a motivated seller in Fox Entertainment Group. With no better offers around, baseball signed off on the deal even though it was financed mostly by debt.

Behind the scenes, the sports business landscape was shifting. Regional sports networks had discovered great profit in showing games to local fans and had begun competing more aggressively for broadcast rights in markets across the nation.

The increasing popularity of digital video recorders further boosted television revenue.

More and more viewers were recording their favorite programs and fast-forwarding through commercials, but they still wanted to watch sporting events live. These people — many in the coveted 18-49 male demographic — drove up advertising rates.

"TV is clearly the answer," said George Belch, co-founder of the sports business management MBA program at San Diego State. "If you're looking for an explanation, potential TV contracts have to be where it lies."

By the time McCourt agreed to sell the Dodgers last fall — after much battling with MLB — experts figured the team's value had doubled, to nearly $1 billion.

Still, when reports surfaced that a group indirectly financed by the Chinese government had offered $1.2 billion, most of those experts scoffed.

That's when McCourt and his cadre of advisors and high-priced attorneys — he spent more than $10 million on his divorce — made a series of adroit moves.

A key one was the divorce settlement. It seemed like a smart move for Jamie to agree on $131 million because McCourt didn't figure to make much, if anything, on the team's sale. In hindsight, the settlement looks like a bargain for him and a miscalculation by her.

"If she had known then what she knows now, I wonder if her approach would have been different," said David Carter, executive director of USC's Sports Business Institute.

Next came the team sale.

McCourt wanted as much control as possible. Going through the normal channels — a process overseen by MLB — might have left him with a buyer the other owners liked, but not necessarily the highest bidder.

So he took the franchise into bankruptcy and threatened a lawsuit that could have put Commissioner Bud Selig on the witness stand.

"That could have been embarrassing for the league," Carter said. "McCourt pulled the rabbit out of the hat because he had more leverage than people assumed."

Baseball owners agreed to a settlement by which they could vet and approve up to 10 finalists, but McCourt made the final choice.

The sale was supposed to occur during an auction this week. McCourt and the investment bank brokering the deal, Blackstone Advisory Partners, already had preliminary offers from each of the three finalists.

Within a matter of hours, the Johnson group raised its bid from $1.6 billion to more than $2 billion. And when it was clear no one could beat that amount, a court-appointed mediator abruptly approved the deal.

"McCourt did a masterful job of using the bankruptcy laws to bypass baseball's bylaws and the preferences of Bud Selig," Ganis said. "That maximized the amount of money he could walk out the door with."

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