2011–12 Los Angeles Dodgers ownership dispute explained

The 2011–12 Los Angeles Dodgers ownership dispute was a period of turmoil at the management level of the Los Angeles Dodgers organization, which began when Major League Baseball (MLB) seized control of the team from owner Frank McCourt on April 20, 2011. The following dispute over ownership of the franchise was not resolved until the team was sold to new owners one year later, on May 1, 2012.[1]

MLB Commissioner Bud Selig announced that the takeover was due to concerns over the Dodgers' finances and the ability of McCourt to run the team.[2] Selig announced his intention to appoint an overseer to supervise the day-to-day financial management of the Dodgers. In June, as the Dodgers struggled to meet payroll, Selig rejected a television contract that would have pumped money into the organization. This led to the Dodgers filing for bankruptcy and being forced to negotiate a loan with MLB to keep the club operating.

After a year of negotiations and court proceedings, the dispute ended with the sale of the team to Guggenheim Baseball Management LLC.[3]

Background

Frank McCourt and his wife Jamie purchased the Dodgers from the Fox Entertainment Group in 2004. In order to arrange the purchase, McCourt needed a $145 million loan from Fox, for which he used his Boston parking lots as collateral. Fox eventually foreclosed on the parking lot property and sold it.[4] Under McCourt's ownership, the Dodgers made the playoffs four times and advanced to the National League Championship Series twice.

On October 14, 2009, it was announced the McCourts would be separating after nearly thirty years of marriage.[5] While speculation was raised on the impact upon the family's ownership of the Dodgers, a spokesperson for Jamie said the following day that "the focus of the Dodgers is on the playoffs and the World Series". Jamie was fired from her position as Dodgers CEO on Thursday, October 22, 2009, the day after the Dodgers were eliminated from the playoffs, thus ending the reign of the self-proclaimed "First Female CEO of a Baseball Team."[5] She officially filed for divorce shortly thereafter. McCourt then accused Jamie of having an affair with her bodyguard and changed the locks on her office. He claimed at the time that the divorce would have "no bearing on the team whatsoever".[6]

On December 7, 2010, the judge in the divorce case invalidated the post-nuptial marital property agreement ("MPA") that McCourt had claimed provided him with sole ownership of the Dodgers. In the wake of this decision, McCourt's lawyers said that he would use other legal avenues to establish his sole ownership of the team, while Jamie's lawyers said that she would be confirmed as the co-owner of the team as community property of their marriage.[7]

On March 31, 2011, after the Opening Day game against the San Francisco Giants, a Giants fan was attacked by two men wearing Dodgers attire in the Dodger Stadium parking lot.[8] The fan suffered serious injuries and was diagnosed with brain damage. McCourt was criticized for his response to the incident.[9] [10] [11] The attack put a damper on attendance at Dodger games, and led to the Dodgers incurring increased expenses in security.

On April 5, 2011, McCourt presented MLB Commissioner Bud Selig with a contract giving Fox broadcasting rights to the team for the next twenty years. The deal was said to be valued at between US$2.5 to US$3 billion. Fox also provided McCourt with a personal loan of $30 million to cover the Dodgers payroll. To secure the loan, McCourt promised Fox he would pay them back with money from a settlement or judgment against the law firm that drafted the invalidated marital agreement. The firm responded by filing a lawsuit against McCourt, seeking a judicial declaration that the firm is not responsible for him losing control of the Dodgers.[12]

Just prior to MLB taking over the Dodgers, TMZ.com reported that the Internal Revenue Service (IRS) was investigating the McCourts in response to allegations that they had been taking money out of the Dodgers for years without paying taxes.[13]

Bud Selig's statement

In a statement to the press on April 20, 2011,[14] Selig announced that the commissioner's office was effectively seizing control of the Dodgers.

Reactions to Selig's move were generally positive. For example, The New York Times baseball journalist Tyler Kepner editorialized that "Bud Selig has never looked better than he does right now."[15] However, ESPN correspondent Gene Wojciechowski criticized Selig and MLB, making the case that Selig and the twenty-nine other MLB owners at the time turned a blind eye to the financial problems that the McCourts were known to have when they purchased the Dodgers in 2004.[16]

Frank McCourt's statement

In a statement to the press on April 20, 2011,[17] owner Frank McCourt responded:

Steve Soboroff, hired by McCourt as the Dodgers' vice chairman April 19, 2011, described the takeover of the team's operations as "irresponsible".[18]

Tom Schieffer appointed

On April 25, 2011, Selig appointed Tom Schieffer, former United States Ambassador to Japan and former president of the Texas Rangers, to oversee the Dodgers' finances. Schieffer had veto power over any team expenditure over $5,000.[19]

Divorce settlement and rejection of TV deal

In June, the cash-strapped McCourt struggled to meet payroll, only meeting it with help from some of his friends. As the Dodgers' end-of-June payroll, which included over $8 million in deferred payments to former Dodger Manny Ramirez, neared, it was reported that McCourt would be unable to meet payroll without the approval of a seventeen-year, $3 billion television deal with Fox Sports Net. However, on June 20, Selig declined to approve the deal.[20] His action also voided a settlement reached on June 17 between Frank and Jamie that divided their assets apart from the Dodgers.

On August 4, a one-day trial was scheduled to decide whether the Dodgers was community property of both McCourts or the property of Frank McCourt alone. However, the trial was canceled when the Dodgers filed for bankruptcy.

Later, the court agreed to a 30- to 45-day trial to settle the divorce and decide who owned the Dodgers. The trial was expected to start in spring or summer of 2012. In the meantime, the McCourts agreed to sell some of their residential holdings.[21] On October 17, 2011, it was announced that the couple had reached a settlement in their divorce case, in which Jamie would give up her claims on the Dodgers and McCourt would pay her about $130 million. The divorce is believed to have been the costliest in California history.[22]

Bankruptcy Court

On June 27, the Dodgers filed for Chapter 11 bankruptcy protection.

In the filing, the Dodgers sought permission to use a $150 million loan from a hedge fund for daily operations, according to a team news release. If approved, this would allow the team to meet its payroll obligations to Ramirez, Andruw Jones, and others.[23] [24] After the filing, the Dodgers told Tom Schieffer that he no longer had any authority in relation to the Dodgers and refused to let him return to work.[25] MLB filed their own response to the bankruptcy filing, in which they said that the court should reject McCourt's bid to save his ownership by "threatening the immediate demise of one of baseball's great teams." They also asked the court to consider if McCourt should remain the owner during the proceedings and if Schieffer can remain in his position.[26]

In the court hearing on June 28, the Dodgers and MLB agreed that the Dodgers could use the hedge fund financing temporarily, pending a July 20 hearing on MLB's request to take over funding of the Dodgers. The language in McCourt's original filing asking for an auction of the television rights was deleted temporarily, though that could come up again in the next hearing.[27]

As part of the bankruptcy proceedings, McCourt's lawyer served Selig and other top MLB executives with subpoenas, in an attempt to prove that Selig had predetermined that he was going to seize the Dodgers. MLB attorneys responded that allowing McCourt access to MLB documents and executives would turn the hearing into "a multi-ringed side show of mini-trials on his personal disputes."[28] The Judge sided with MLB and ruled that McCourt could not compel the release of the documents or depose Selig because they weren't relevant to the issue of the bankruptcy.[29]

After a hearing on July 20, the judge rejected McCourt's further use of the Highbridge loan and ordered McCourt to negotiate a loan with MLB.[30]

On September 23, MLB made several requests of the court, to be decided at an October 12 hearing. It asked that the judge order the Dodgers seized and sold. It also threatened to block any attempt to sell TV rights (and perhaps even suspend the team from the league for the 2012 season), and alleged that McCourt's lawyers have no standing as he and they are in violation of MLB rules.[31] [32] The Dodgers in a statement said that MLB was trying to force "an unnecessary and value-destroying distressed sale" of the team.[33]

On September 30, Judge Gross ruled that McCourt's lawyers could not attempt discovery by looking into the records of other MLB clubs. However, he did say he expected Selig to testify in person. He set the hearing for MLB and McCourt's lawyers to provide case for and against the sale of the club in early November, where he would rule on various points involving McCourt, the Dodgers, MLB, and the TV contract.[34]

Sale of the Dodgers

On November 1, 2011 McCourt and MLB issued a joint statement that McCourt had agreed to sell the team, the Stadium and the parking lots. The league hoped to have a new owner in place by opening day, 2012.[35]

Opening bids on the team were due on January 24, 2012. Several groups of potential owners placed bids on the Dodgers, groups known to have placed bids include:

After the initial round of bidding, the groups backed by Hershiser & Garvey, Claire, Gilbert & King and Mark Cuban did not advance to the next round, where the remaining bidders were vetted by MLB.[48]

On March 27, 2012, it was announced that an agreement had been reached on the sale of the Dodgers between Frank McCourt and Guggenheim Baseball Management LLC, a group of investors fronted by Guggenheim CEO Mark Walter and including former Los Angeles Lakers player Magic Johnson, baseball executive Stan Kasten and film mogul Peter Guber.[49]

The total sale price for the Dodgers (which includes Dodger Stadium) exceeded $2 billion, making the sale the largest for a professional sports team in history, exceeding the approximately $1.5 billion purchase of Manchester United F.C. by Malcolm Glazer in 2005.[50] [51]

The sale price of the Dodgers was considered to be far higher than what the team was actually worth at the time of sale. Estimates made by Forbes placed the value of the Dodgers at approximately $1.4 billion, and the winning bid was more than 30% higher than the next highest bid.[52]

On April 13, the sale was approved by the bankruptcy court.[53] McCourt separately sold the land surrounding the stadium for $150 million to the same group, while maintaining some economic interest in the property. The new ownership pays $14 million to rent the parking lots surrounding Dodger Stadium from an entity half-owned by McCourt.[54] The sale officially closed on May 1, 2012.[55]

Notes and References

  1. News: Major League Baseball seizes control of Dodgers . . David . Wharton . Bill . Shaikin . April 21, 2011 . April 21, 2011.
  2. News: MLB Takes Over Dodgers Operations . Matthew . Futterman . . April 21, 2011 . April 21, 2011 . https://web.archive.org/web/20110513010105/http://online.wsj.com/article/SB10001424052748704658704576275391124887176.html . 13 May 2011 . live.
  3. Web site: Dodgers sold to Magic Johnson group . 2012-03-27.
  4. News: MLB statement regarding the Dodgers . David . Wharton . Los Angeles Times . April 21, 2011 . April 21, 2011.
  5. Web site: Brown . Tim . Dodgers owner separating from wife/team CEO . . . October 14, 2011 . April 21, 2011.
  6. News: Ken . Gurnick . . McCourt: Divorce won't affect Dodgers . January 14, 2010 . February 26, 2011 . June 15, 2011 . https://web.archive.org/web/20110615092615/http://losangeles.dodgers.mlb.com/news/article.jsp?ymd=20100114&content_id=7918308&vkey=news_la&fext=.jsp&c_id=la . dead .
  7. News: Dodgers in limbo after judge throws out McCourt property agreement . https://web.archive.org/web/20110128085259/http://www.latimes.com/sports/la-sp-1208-dodgers-mccourt-jamie-20101208,0,5619981.story?page=1 . dead . January 28, 2011 . Los Angeles Times . December 7, 2010 . Bill . Shaikin . Carla . Hall . April 21, 2011.
  8. News: Men sought in beating of Giants fan after Dodgers' opener . Los Angeles Times . Richard . Winton . April 2, 2011 . April 21, 2011.
  9. News: Dodgers can't ignore safety issue . Los Angeles Times . T.J. . Simers . April 2, 2011 . April 21, 2011.
  10. News: Four days later, where is the Dodgers' response to Giants fan being attacked? . Dodgers Blog . Los Angeles Times . Steve . Dilbeck . April 4, 2011 . April 21, 2011.
  11. Web site: Waiting for More Than Words from Dodgers . . Paul . Oberjuerge . April 3, 2011 . April 21, 2011.
  12. News: Stevea . Dilbeck . Los Angeles Times . Was the last straw for MLB a Dodgers loan against nothing? . April 20, 2011 . April 21, 2011 . https://web.archive.org/web/20110422184756/http://latimesblogs.latimes.com/dodgers/2011/04/dodgers-frank-.html . 22 April 2011 . live.
  13. News: Evan . Brunell . . IRS looking at Frank McCourt . April 20, 2011 . April 21, 2011 . October 16, 2012 . https://web.archive.org/web/20121016051403/http://www.cbssports.com/mcc/blogs/entry/22297882/28687742?asid=f25a8a68 . dead .
  14. Major League Baseball seizes control of Dodgers. April 20, 2011. April 21, 2011. https://web.archive.org/web/20110427025616/http://mlb.mlb.com/news/press_releases/press_release.jsp?ymd=20110420&content_id=18038724&vkey=pr_mlb&fext=.jsp&c_id=mlb. 27 April 2011 . live.
  15. News: Bud Selig Stands Tall . . Tyler . Kepner . April 21, 2011 . April 21, 2011 . https://web.archive.org/web/20110422100311/http://bats.blogs.nytimes.com/2011/04/21/bud-selig-stands-tall/?partner=rss&emc=rss . 22 April 2011 . live.
  16. Web site: Blame MLB, too, for the Dodgers mess . . Gene . Wojciechowski . April 21, 2011 . April 21, 2011.
  17. News: McCourt: "Hard to understand the commissioner's action" . Dodger Blog . Los Angeles Times . Bill . Shaikin . April 20, 2011 . April 21, 2011 . https://web.archive.org/web/20110501053034/http://latimesblogs.latimes.com/dodgers/2011/04/mccourt-hard-to-understand-the-commissioners-action.html . 1 May 2011 . live.
  18. News: Steve Soboroff defends Dodgers owner: "We need more people like Frank McCourt" . Bill . Shaikin . Los Angeles Times . April 21, 2011 . April 21, 2011.
  19. Web site: ESPN . J. Thomas Schieffer to run Dodgers . 25 April 2011 .
  20. Web site: MLB rejects Dodgers' television deal with Fox.
  21. http://www.latimes.com/sports/la-sp-0915-dodgers-mccourt-20110915,0,5104898.story Final Frank and Jamie McCourt divorce trial? Wait till next year
  22. http://www.latimes.com/sports/la-sp-1017-mccourt-divorce-settlement-20111017,0,2826184.story Frank and Jamie McCourt reach settlement involving Dodgers
  23. Web site: Dodgers file for bankruptcy protection. 27 June 2011 .
  24. http://mlb.mlb.com/news/article.jsp?ymd=20110627&content_id=21068838&vkey=news_mlb&c_id=mlb Dodgers file for bankruptcy protection
  25. https://sports.yahoo.com/mlb/news?slug=ti-brown_dodgers_bankruptcy_mlb_monitors062711 Bankruptcy forces monitors out of Dodger Stadium
  26. http://latimesblogs.latimes.com/dodgers/2011/06/mlb-slams-mccourt-in-bankruptcy-court-filing.html MLB slams McCourt in bankruptcy court filing
  27. http://latimesblogs.latimes.com/dodgers/2011/06/mccourt-gets-his-money-for-now.html Frank McCourt gets his money, for now
  28. http://www.latimes.com/sports/la-sp-0707-dodgers-mccourt-bankruptcy20110707,0,4151901.story MLB says Frank McCourt isn't entitled to documents
  29. http://mlb.mlb.com/news/article.jsp?ymd=20110707&content_id=21537402&vkey=news_mlb&c_id=mlb McCourt loses bid to force documents from MLB
  30. News: Dodgers Bankruptcy Judge Orders McCourt to Negiotiate with MLB for Loan . 2011-07-22 . 2011-07-22 . Los Angeles Times.
  31. News: MLB asks judge to order sale of Dodgers . 2011-09-23 . Los Angeles Times . Bill . Shaikin . September 23, 2011.
  32. News: MLB move 'gutsy' but not sure winner, bankruptcy attorney says . Los Angeles Times . September 23, 2011.
  33. http://latimesblogs.latimes.com/dodgers/2011/09/dodgers-statement-mlb-trying-to-force-distressed-sale.html Dodgers statement: MLB trying to force distressed sale
  34. News: Judge Could Decide Winner in November . 2011-10-02 . Los Angeles Times . September 30, 2011.
  35. http://latimesblogs.latimes.com/dodgers/2011/11/mccourt-agrees-to-sell-dodgers.html Frank McCourt agrees to sell Dodgers
  36. https://www.latimes.com/archives/la-xpm-2011-dec-02-la-sp-1203-plaschke-magic-dodgers-20111203-story.html Magic Johnson leads dream team bidding for Dodgers
  37. https://www.latimes.com/sports/la-xpm-2011-dec-27-la-sp-1228-dodgers-steve-cohen-20111228-story.html Hedge-fund executive Steven Cohen is bidding for the Dodgers
  38. http://latimesblogs.latimes.com/dodgers/2012/01/rick-caruso-joe-torre-announce-dodgers-bid.html Joe Torre joining Rick Caruso in bid to buy Dodgers
  39. https://www.latimes.com/sports/la-xpm-2012-jan-06-la-sp-0107-dodgers-bidder-20120107-story.html Tony Ressler, Stanley Gold join list of prospective Dodgers owners
  40. http://latimesblogs.latimes.com/dodgers/2011/11/larry-king-aligns-with-dennis-gilbert-in-dodger-bidding.html Larry King aligns with Dennis Gilbert in Dodgers bidding
  41. https://www.latimes.com/sports/la-xpm-2011-dec-01-la-sp-1202-dodgers-mark-cuban-20111202-story.html Mark Cuban plans to take part in Dodgers bidding process
  42. http://www.dailynews.com/sports/ci_18210079 Orel Hershiser joining Steve Garvey-led team exploring possibility of purchasing Dodgers should franchise go up for sale
  43. https://www.latimes.com/sports/la-xpm-2012-jan-30-la-sp-0131-dodgers-korea-20120131-story.html Peter O'Malley teams with South Korea investor in bid for Dodgers
  44. https://www.espn.com/los-angeles/mlb/story/_/id/7186149/ex-los-angeles-dodgers-gm-fred-claire-trying-assemble-bid Fred Claire trying to bid for Dodgers
  45. http://www.latimes.com/sports/baseball/mlb/dodgers/la-sp-0207-dodgers-jared-kushner-20120207,0,2225578.story Jared Kushner a prospective Dodgers owner
  46. http://www.latimes.com/sports/baseball/mlb/la-sp-0209-dodgers-bidders-heisley-20120209,0,2323519.story?track=rss&dlvrit=53322 Memphis Grizzlies owner Michael Heisley is a bidder for Dodgers
  47. http://studiocity.patch.com/articles/he-wants-to-buy-the-dodgers-why-isn-t-he-being-taken-more-seriously He Wants to Buy the Dodgers! Why Isn’t He Being Taken More Seriously?
  48. Jackson, Tony(2012-1-28)Source: Dodgers begin narrowing bids. LAtimes.com Retrieved on 2012-02-03.
  49. http://www.latimes.com/sports/basketball/nba/lakers/la-sp-0329-dodgers-magic-20120329,0,5012740.story
  50. News: TV Riches Fuel $2 Billion Dodgers Deal . March 28, 2012 . The Wall Street Journal . Matthew . Futterman.
  51. News: Magic Johnson group to buy Los Angeles Dodgers . CNN . March 29, 2012.
  52. Web site: La La Land Math: Are the Dodgers Really Worth $2.15 Billion? . March 28, 2012 . Fox Business . March 29, 2012 . https://web.archive.org/web/20120329060758/http://www.foxbusiness.com/industries/2012/03/28/are-dodgers-really-worth-215-billion/ . March 29, 2012 . dead . mdy-all .
  53. News: Bankruptcy court approves sale of Los Angeles Dodgers . April 13, 2012 . CNN.
  54. News: Dodgers' owners to pay $14 million a year to rent parking lots from McCourt entity . Los Angeles Times . Bill . Shaikin . May 4, 2012.
  55. News: Dodgers sale closes; McCourt era ends. May 1, 2012. Los Angeles Times.