Frank McCourt might be able to claim stadium and land even if he loses Dodgers
If Plan A for Frank McCourt is to own the Dodgers, Plan B might be for him to become their landlord.
When McCourt bought the Dodgers in 2004, the purchase included the team, Dodger Stadium and the surrounding parking lots. He has since divided those assets among separate companies, providing the embattled Dodgers owner with a possible claim to the stadium and the land even if he loses the team.
During his divorce trial in September, McCourt acknowledged under cross-examination that he had split the baseball team and the land into separate businesses when he purchased the Dodgers.
“And the purpose of that was to be sure that you had the land separate in case the team did not work out, correct?” asked David Boies, the attorney for Jamie McCourt, Frank’s ex-wife.
“Amongst other reasons, yes,” Frank McCourt testified.
McCourt does not now have the funds to meet the Dodgers’ May 31 payroll, according to two people familiar with the team’s finances. If McCourt fails to meet payroll obligations, MLB could seize the Dodgers from him, pay the salaries and put the team up for sale.
That would trigger the question of whether the purchase of the Dodgers would include the stadium and the parking lots.
In theory, McCourt could sell the Dodgers, then make more money from renting the stadium to the new owner, taking a cut of parking revenue and reaping the benefits of future development within the parking lots. However, McCourt would not be able to implement any such plan without overcoming opposition from Major League Baseball and from Jamie.
The league constitution authorizes Commissioner Bud Selig to take over a team and its stadium. The constitution also empowers Selig to take over “any other property” but makes no specific mention of parking areas or undeveloped land.
McCourt has not ruled out a legal challenge to the commissioner’s powers.
“If we get to the point where he’s selling the club, he’s selling the whole boat,” said a person familiar with baseball’s position on McCourt.
In an interview with The Times, McCourt would not comment on what he called the “theoretical” possibility that he could keep the land even if the team is sold, with MLB having no say. However, he did say that MLB approved the separation of assets in conjunction with his purchase of the Dodgers.
“When we bought what I call this basket of assets, a fundamental item in the transaction was the fact that we were buying two separate assets, the team and the stadium in one basket and the real estate in a separate basket,” McCourt said.
“That is how the transaction was structured, for a number of reasons, between buyer and seller. That was the transaction that MLB approved. It was something that was done with total transparence. It was discussed at great length between us as buyer, Fox as seller and baseball as the approving entity.”
McCourt later separated the stadium from the team as business entities.
Under California community property law, Jamie McCourt is half-owner of what were described in the divorce trial as “the Dodger assets,” although Frank McCourt has pledged to show the court why those assets are his and his alone.
Unless the court agrees with Frank McCourt, Jamie McCourt would have to agree to sell the team but keep the land. The sale price would be significantly lower if the land were not included in the purchase.
Jamie McCourt would be highly unlikely to approve any deal in which she would yield guaranteed money from the sale of property for a promise that Frank McCourt eventually could turn the property into more money for both of them, according to a person familiar with her thinking.
If Frank McCourt were to keep the real estate basket, he would be betting he could make more from developing the land than by including it in a sale of the team.
In the short term, McCourt could generate cash flow by owning and operating the Dodgers’ parking lots, an approach that has become problematic for the Texas Rangers.
The Rangers were sold to new owners last year, but the old owner remains in control of the parking lots surrounding the ballpark. The new ownership group sued last month, asking a Texas court to prevent the company controlled by former owner Tom Hicks from engaging in alleged “price gouging.” The two sides since have reached a temporary agreement covering this season.
The Dodgers generate about $11 million per season in parking revenues, according to court documents.
Those documents also showed that McCourt has considered developing up to a million square feet of the Dodger Stadium parking lot, with an NFL stadium, homes, offices and shops among the options.
In 2008, McCourt announced a $500-million stadium renovation plan, including a grand entrance plaza beyond center field, restaurants, shops, a Dodgers museum, office space and two parking structures. In a news release, McCourt said the project would be “completed in 2012,” in celebration of the 50th anniversary of Dodger Stadium.
However, McCourt has put the project on hold, and financing and city approval would be needed before the estimated two to three years of construction could begin.
Dodgers vice chairman Steve Soboroff, who shepherded a major retail and residential development at Playa Vista, said the Dodger Stadium property might best be used for residences around the perimeter.
Soboroff emphasized he has not talked with McCourt about land development since joining the Dodgers last month -- “I wasn’t hired to do that,” he said -- but added that the most feasible development would be limited and community-oriented, with cash flow years down the road.
“You’re not talking about a large-scale project,” Soboroff said. “It would take five, six, seven years to do it right. You want the community and the neighbors to say things are better because of it.”
McCourt also could sell the Dodgers but continue to generate cash from them by keeping the stadium and renting it to a new owner.
The Times reported last year that the Dodgers paid $14 million in annual rent to another McCourt company in 2009, even though McCourt owns the stadium.
That amount is “way out of line” with the rest of the sports industry, according to Smith College sports economist Andrew Zimbalist, and it is unlikely that any new owner would agree to any such amount. The Times last year surveyed four teams that play in a community-owned stadium, and none paid more than $2 million per year to their landlord.
In 2007, McCourt promised to renovate the Dodger Stadium concourses one year at a time, starting with the field level. However, the renovations did not proceed beyond the field level, and Zimbalist said an incoming owner might wonder why McCourt would deliver on stadium upgrades once he has sold the team.
“Why would you put yourself in a situation when the venue you play in is controlled by somebody you might not trust?” Zimbalist said.
If MLB seizes the Dodgers from McCourt and puts them up for sale, the league would be obligated to try to get the best price possible, lest McCourt sue MLB for failing to obtain maximum value for his property.
Yet maximum value would be difficult to obtain if McCourt did not include the stadium and/or the land in the sale, according to a sports investment banker who declined to be identified because he might represent potential bidders.
“It’s going to be a problem for baseball,” the banker said.
Get our high school sports newsletter
Prep Rally is devoted to the SoCal high school sports experience, bringing you scores, stories and a behind-the-scenes look at what makes prep sports so popular.
You may occasionally receive promotional content from the Los Angeles Times.