Major League Baseball said the television contract that Dodgers owner Frank McCourt presented as the team’s financial salvation would instead have crippled the club’s ability to compete and saddled McCourt and his affiliated companies with close to $1 billion in debt.
That was the view expressed by Commissioner Bud Selig in an 11-page letter he wrote to McCourt in rejecting a proposed deal between the Dodgers and Fox.
The previously unpublished letter was obtained by The Times from court papers in the Dodgers’ bankruptcy case, which McCourt has said was forced by Selig’s rejection of the proposed Fox deal. U.S. Bankruptcy Judge Kevin Gross did not rule Thursday on whether the Dodgers would be financed through the bankruptcy proceedings by a loan arranged by McCourt or one offered by MLB.
“Despite your pledge to make the Dodgers the ‘best franchise in baseball,’ you are not selling the club’s media rights … to improve the club’s on-field performance, renovate Dodger Stadium or enhance the fan experience,” Selig wrote.
“Rather, you would be continuing an eight-year pattern of exploiting the Dodgers franchise to finance your own personal needs, which would undoubtedly risk further erosion of public confidence in the Dodgers.”
Selig also said he had learned that the Internal Revenue Service is investigating McCourt’s tax returns from 2006, 2007 and 2008. In a divorce court filing, McCourt’s ex-wife, Jamie, said the couple paid no federal or state income tax from 2004 to 2009.
“What is more worrisome to me, however,” Selig wrote, “is the thought of one of our owners engaging in a prolonged public dispute with the IRS.”
McCourt already is engaged in litigation with Major League Baseball, his ex-wife, his former law firm and the family of Bryan Stow, the fan critically beaten in the Dodger Stadium parking lot on opening day.
Steve Sugerman, a spokesman for McCourt, declined to comment beyond a statement issued by attorney Stephen Susman on June 20, the day Selig announced his decision.
“As Commissioner Selig well knows, this transaction would make the Dodgers financially secure for the long term and one of the best capitalized teams in Major League Baseball,” Susman said. He added: “Commissioner Selig’s letter of rejection is not only a disappointment, but worse, is potentially destructive to the Dodgers, and Major League Baseball.”
Selig strongly disagreed, claiming that McCourt and his related entities have “over $550 million of debt” and that analysis of the effects of the proposed Fox deal indicated that figure would have risen to “over $900 million in total indebtedness, all of which could be serviced from only one source — club revenues.”
Selig added: “This incredible amount of enterprise and personal debt threatens the stability of the franchise and is, simply put, unacceptable.”
The proposed deal would have covered 17 years, with McCourt valuing it at close to $3 billion and MLB valuing it at closer to $1.7 billion. The contract included an immediate payment of $385 million. Selig conceded he had approved upfront payments in the contracts of other clubs, but never one so large.
“No other owner has sacrificed so much of his team’s future for an immediate payoff,” Selig wrote.
He said that money would have helped McCourt settle his divorce and pay down some debts but could have put the Dodgers in another financial crisis as soon as 2013. That would not have troubled Selig so deeply, he said, if he had not been “shocked” to review a financial statement in which McCourt reported only $264,000 in liquid assets as of Dec. 31, 2010.
The Dodgers’ current contract with Fox expires in 2013 and forbids the team from talking with other potential broadcast partners until Nov. 30, 2012. According to Selig, McCourt forfeited bargaining leverage because of a “desperate need for immediate cash.”
Selig cited the divorce trial testimony of Jeff Ingram, the Dodgers’ assistant treasurer, who quoted McCourt as saying in 2009 that an early deal with Fox would “hamstring the business in the future.” Ingram testified in Bankruptcy Court on Wednesday that “negative publicity” from the divorce trial last year had “chilled the market” and forced the Dodgers to abandon plans to launch a team-owned cable channel in favor of a new deal with Fox.
“You had no choice but to accept a deal with the only party with which you could negotiate,” Selig wrote to McCourt.
If McCourt were to retain the Dodgers, the letter said, the large up-front payment would have minimized the amount available to improve the team in future years. If the team were sold, the letter continued, the new owner would be locked into a deal without that upfront revenue or the chance to put the long-term rights up for bid.
“This transaction would not — as you have publicly asserted — enhance the value of the club,” Selig wrote.
Selig also noted that McCourt proposed to establish a separate entity — LA Media LLC — to which the Dodgers’ television rights would belong and to which television revenue would flow. In 2005 — with Selig’s approval — McCourt established Dodger Tickets LLC, which uses the first $32 million or so of Dodgers ticket revenue each year for non-baseball purposes, according to the letter.
The team gets the rest. From 2006-09, the Dodgers’ total ticket revenue ranged from $88 million to $111 million, according to divorce court filings.
“Having already altered its rights with respect to ticket revenues,” Selig wrote, “the club cannot afford to lose yet another valuable asset.”