Dodgers’ finances include an unusual revenue-generating plan: ‘Own to rent’
The Dodgers have talked about creative ways their Chavez Ravine property could generate revenue for ownership. One such deal, a head-scratcher, is already in place: The team has been charging itself rent — $14 million this year — on Dodger Stadium property it owns.
The arrangement is documented in public court filings connected to the divorce between Dodgers owner Frank McCourt and his estranged wife, Jamie, the team’s former president and chief executive.
The amount of rent is unusual in that it is far greater than what has been paid by teams with an independent landlord.
By comparison, the Boston Red Sox own their stadium, just as the Dodgers do. The Red Sox pay no rent on Fenway Park.
Among teams that play in community stadiums, the Chicago White Sox will pay $1.4 million in ballpark rent this year and the Milwaukee Brewers and Seattle Mariners will each pay $900,000.
The Angels negotiated their rent with the city of Anaheim as part of a 1997 stadium renovation in which the team paid all but $20 million of the $117-million project. The Angels nonetheless share ticket and parking revenue with the city — about $2 million per year in each of the last three years, city spokeswoman Ruth Ruiz said.
The Dodgers assessed themselves rent amounts far greater than any claimed expenses, court documents show. By deducting those amounts from team revenue, the team has amassed a surplus pool of about $24 million, court records show.
That pool has remained untapped even as the Dodgers have slashed their opening-day player payroll by about $23 million since 2008.
David Boies, an attorney for Jamie McCourt, said at least some of that money “absolutely” could have been used to improve the team.
Frank McCourt referred questions to team attorney Marshall Grossman.
Grossman declined to respond to a series of questions about why the Dodgers pay rent to use property they own. Instead, he issued a statement that read in part: “Our focus is on winning on the field, providing a superior fan experience, and making a significant impact on the community.
“Tidbits reported in the media from divorce court filings do not tell a full story. And while members of the news media continue to find interest in the divorce proceedings, fans care about winning and having a great experience at the ballpark. That’s where their focus is. That’s where our focus is.”
In 2006, two years after purchasing the team, Frank McCourt divided the stadium property into three parcels and established Blue Land Co. to own two of them. Those two parcels, parking lots immediately surrounding the ballpark, serve as collateral for a $60-million loan, court records show.
The Dodgers pay rent to Blue Land, which is not involved in stadium operations. Boies said the rental payments offered the McCourts the option of working around restrictions on receiving cash directly from team coffers.
“It’s a way of taking money out of the Dodgers and putting it into a place they can access it,” Boies said.
In court papers, lawyers for Jamie McCourt have suggested the $24-million surplus could be funneled to Frank McCourt through Blue Land.
The McCourts took $108 million out of the Dodgers from 2004-09 to fund what her lawyers called “an extraordinarily lavish lifestyle,” according to court filings.
Frank McCourt has said in court papers that a bank had placed restrictions on his annual income. Those restrictions are not enforced against revenue distributed by Blue Land, according to the deposition of the Dodgers’ chief financial officer, Peter Wilhelm.
Wilhelm said Blue Land expects to allocate $5 million of this year’s rental fees to McCourt, about $4.5 million to debt service and about $4 million to construction managers.
The money for construction is to go primarily to another McCourt entity, the John McCourt Co., that has two employees — Geoff Wharton, the Dodgers’ chief operating officer, and his assistant.
The Dodgers halted major stadium construction two years ago. In April 2008, the Dodgers announced plans to build a grand entrance plaza beyond center field, which would include restaurants, shops and a team museum, but the team has said it has been unable to secure construction funding amid the recession.
Andrew Zimbalist, a sports economist at Smith College, said the Dodgers could have legitimate reasons for paying rent, including a loan requirement that certain revenue streams be used to pay off debt.
But Zimbalist, speaking generally because he has not reviewed the court filings, said the amount of rent the Dodgers paid was “way out of line” with the rest of the sports industry.
“There’s nothing anywhere that’s anything like that in professional sports,” Zimbalist said. “I don’t know of any team that pays anything like that to use its facility.”
None of the teams with a public landlord pay property tax. The Dodgers do, but their payments for the last three years — $2.02 million in 2007, $2.29 million in 2008 and $2.37 million in 2009, according to the office of the county treasurer and tax collector — represent a small fraction of the rent.
Also, the property taxes are paid not by Blue Land but by another McCourt entity, Realco Intermediary LLC, according to county records.
The Dodgers first assessed themselves rent in July 2006. The rental rate rose annually, from $14.2 million in 2007 — the first full year they charged themselves rent — to $15.2 million last year, according to court records. Wilhelm said the lower rent this year reflected an accounting change.
Before this year, the Dodgers did not pay much of their rent. The Dodgers actually transferred to Blue Land only the money necessary to pay the debt on the loan, according to court filings.
For instance, Wilhelm indicated the Dodgers paid about $5.5 million of the $14.9-million rent in 2008 and about $6 million of the $15.2-million rent in 2009.
That’s what left about $24 million in rental payments the Dodgers deducted from team revenue but did not make to Blue Land through 2009, court records show.
Wilhelm called that debt “just an . . . accounting entry” but said he did not know whether he would pay that money to Frank McCourt upon his request.
Under questioning from attorneys from Jamie McCourt, Wilhelm said the Dodgers had “no plans” to pay the money to Blue Land but also said the Dodgers had “no plans for . . . forgiveness” of that debt.