The Dodgers are closer than ever to a change in ownership after Major League Baseball rejected a proposed broadcast deal between the team and Fox Sports, denying the financially troubled ballclub a much needed infusion of cash.
The decision handed down by Commissioner Bud Selig on Monday also invalidated last week’s divorce settlement between owner Frank McCourt and his ex-wife Jamie, which had been predicated on both parties — and their lawyers — receiving an immediate piece of the television deal.
This “further diversion of Dodgers assets for the personal needs of Mr. McCourt” concerned Selig, according to a statement released by his office.
The commissioner said it “would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans.”
It now remains to be seen if McCourt can meet the team’s next payroll on June 30. The embattled owner has said that he can, but others familiar with the team’s finances say he cannot.
Selig does not plan to seize the team unless McCourt misses payroll, according to two people familiar with the matter. At that point, he could suspend McCourt and put the team up for sale.
The commissioner believes McCourt would respond by filing a lawsuit, according to three people familiar with his thinking. The Dodgers reinforced that expectation with a response from McCourt’s attorney, Steve Susman.
“Commissioner Selig’s letter of rejection is not only a disappointment, but worse, is potentially destructive to the Los Angeles Dodgers and Major League Baseball,” Susman said. “Accordingly, we plan to explore vigorously our options and remedies.”
The attorney noted that McCourt had furnished the league with all the data it had requested after taking control of the team’s day-to-day operations and launching an investigation in April. He said that more than $200 million of upfront money for the television deal would be devoted to the team.
“All the requirements for the commissioner to approve the Fox transaction were put in place,” he said.
Neither Fox nor representatives for Jamie McCourt had any comment.
The Fox deal could have paid the Dodgers “in excess of” $3 billion over 17 years — at or above market rate — according to McCourt. MLB executives valued the deal at closer to $1.7 billion.
McCourt had spent months campaigning for approval, saying the money was critical to his club’s financial health. As if to underscore that point, he needed a personal loan to meet the season’s first payroll in April.
The Fox contract called for $385 million in upfront payments. The league wanted all of that money funneled exclusively to the team, but last week’s divorce settlement earmarked up to $173.5 million for the McCourts and their attorneys.
In his 11-page letter to McCourt, Selig said MLB’s investigation into the Dodgers finances was nearly complete and listed alleged financial mismanagement as a reason for rejecting the contract, according to two people who read it.
The commissioner’s public statement focused on the diversion of money, and it wasn’t the first time the issue had been raised.
Court documents had previously revealed that the McCourts had used more than $100 million from team revenues for personal purposes. The couple owned numerous homes in such pricey locales as Holmby Hills and Malibu.
In this instance, Selig said, taking part of the upfront money from Fox “would not be in the best interests of the Los Angeles Dodgers franchise, the game of baseball and the millions of loyal fans of this historic club.”
The debate over whether McCourt should remain as owner has been inextricably tangled up with his divorce.
In the 20 months since the couple filed, they have yet to permanently resolve any issue, including whether the Dodgers belong exclusively to Frank or should be considered community property.
If their settlement had stood, the ownership issue would have been decided in a one-day trial on Aug. 4. As of now, if the Dodgers are sold, the court would have to decide whether to split the proceeds or give them all to Frank.
Even as McCourt campaigned to have the Fox deal approved, there were concerns that Jamie might challenge the contract in court. Not until last week did she give her consent as part of the settlement.
Now that settlement is “null and void” because Selig rejected the television deal, leaving various possible scenarios.
McCourt could restructure the Fox deal or challenge Selig’s rejection in court. Or he could take on a minority investor to ease the Dodgers’ cash crunch, a possibility he has raised with league officials in recent weeks, according to a person familiar with the discussions.
Any such deal would depend on McCourt’s winning full ownership of the team or getting Jamie’s approval. The league would have to approve the minority owner.
McCourt could also file for bankruptcy and try to persuade the bankruptcy judge to order implementation of the Fox deal. But that would require overcoming MLB bylaws that allow the commissioner to seize any team whose owner files for bankruptcy.
Frank McCourt is prepared to argue that, even if MLB were to seize the Dodgers, the stadium and surrounding land would belong to him because he has divided the assets into separate entities, according to a person familiar with McCourt’s thinking. That position, which could deprive a new owner of millions in annual revenue, is disputed by MLB.
Referring to the Dodgers’ television rights as “our asset,” McCourt has previously said that it would be “un-American” to deny him control of that asset and alleged that Selig was withholding approval as a means to force a sale.
“It is not appropriate for one party’s property to be seized by another party just because they got divorced or for some arbitrary reason,” McCourt said.
On Monday, Selig did not seem convinced by McCourt’s argument that the Fox deal had been structured in accordance with MLB guidelines.
“As I have said before, we owe it to the legion of loyal Dodger fans to ensure that this club is being operated properly now and will be guided appropriately in the future,” the commissioner said in his statement. “This transaction would not accomplish these goals.”
The Dodgers’ current contract with Fox expires in 2013. If the team is sold before then, a new owner could leverage a long-term Fox offer against a potential offer from the new Time Warner/Lakers channel and the possibility of starting a team-owned Dodgers cable channel.
McCourt had explored a “DTV: Dodger Television” channel, but more immediate money from Fox took priority.