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DODGERS BANKRUPTCY: A TANGLED WEB WOVEN

DODGERS BANKRUPTCY: A TANGLED WEB WOVEN

By: Mark Harriman, Senior Editor

Note: This is the first installment in a multi-part series which delves into the inner workings of the bankruptcy of the Los Angeles Dodgers and its related entities [Case #11-12010 and Case #11-12011].

When Frank and Jamie McCourt bought the Los Angeles Dodgers from Fox Entertainment Group in 2004, the most notable aspect of the transaction wasn’t the $430 million purchase price, it was how they managed to pull it off in the first place.

Court papers in California and Delaware detail the McCourt’s lavish lifestyle which was masked by a series of complex financial transactions and massive amounts of corporate and personal debt.

(Source: Major League Baseball)

Now that pile of debt and the nasty divorce of two spendthrift college lovebirds has landed the Los Angeles Dodgers and four related entities in the sixth floor courtroom of The Honorable Kevin Gross, Chief Judge of US Bankruptcy Court in the District of Delaware, some 2,711 miles away from Chavez Ravine.

The Boston Sports Desk staff will attempt to untangle the complex web of entities and financial restructurings created by the McCourts as the storied Dodgers franchise attempts to emerge from bankruptcy protection and avoid a ‘death penalty’ seizure by an angry and embarrassed Major League Baseball.

 THE TANGLED WEB:
The old adage says that you can’t tell the players without a scorecard and the same is true in bankruptcy. So this first article will provide an overview of the five entities which filed for protection on June 27, 2011 in Delaware and their tangled chain of ownership. Also included are the related entities which continue to operate outside of bankruptcy, as well as a snapshot of the key players involved in this high stakes drama that is playing out in the worlds of sports, business and matrimonial discord.

Los Angeles Dodgers Holding Company, LLC. [Case #11-12011] Known as “LAD Holding” in the court filings, this entity is the manager and holder of 100% membership interest in Los Angeles Dodgers, LLC, which in turn operates the Dodger franchise. LAD Holding is a holding company in the traditional sense and does not maintain any operating assets.

Los Angeles Dodgers, LLC. “Dodgers” operates the baseball franchise, which began its membership in Major League Baseball by virtue of the assumption agreement dated February 13, 2004. The purchase price for the Dodgers was divided between the team ($330 million) and the stadium, as well as the surrounding 250 acres ($100 million).

LA Holdco, LLC.  Identified as “Holdco,” this company is another holding company without operating assets. It is the sole member of two entities: LAD Holding, the parent owner of the Dodgers, and LA Real Estate Holding Company, LLC, which ultimately owns Dodger Stadium and the land underneath.

Holdco is a wholly owned subsidiary of LA Partners, LLC, a company which is not under bankruptcy protection.

LA Real Estate Holding Company, LLC. “Realco Holding” is yet another holding company and it is the sole member of LA Real Estate, LLC.

LA Real Estate, LLC. “Realco” owns the edifice commonly known as Dodger Stadium, as well as the underlying land. Realco also owns Dodger Tickets, LLC, a company that was created in May 2005 as part of a financial restructuring of the team. This company is known as “Tickets” and it owns the rights to receive future ticket revenue from Dodger games and events at Dodger Stadium.

Partial Map of the parking lots surrounding Dodger Stadium, which is depicted in the large circle. (Source: LA County Assessor's Office)

Realco originally derived its revenue from its 38 year lease of Dodger Stadium and its land to the Dodgers franchise. That lease was amended into a sub-lease when Tickets was formed in order to securitize the cashflow in exchange for $390 million in loans.

 LA Partners, LLC. “LA Partners” owns “Holdco” and is itself a wholly owned subsidiary of The McCourt Broderick Limited Partnership (“TMBLP”), a limited partnership organized in Massachusetts, Frank McCourt’s old stomping grounds.

McCourt holds a 90% interest in TMBLP and is its sole limited partner. The remaining 10% ownership is held by the general partner, The McCourt Company, the family real estate development firm (a/k/a The McCourt Group). LA Partners, TMBLP and The McCourt Company are all entities which continue to operate outside of the bankruptcy court.

TMBLP is the sole member of Blue Landco, LLC (“Blue Land”), another entity which was formed after the  original purchase of the team. Like its owner, Blue Land is not in bankruptcy.

In 2006 Realco transferred the parking lots around Dodger Stadium and all excess land to Blue Land, who then borrowed $60 million. $10 million of that loan supported the operations of the Dodgers. The team was 88-74 that season under first year manager Grady Little.

Blue Land also borrowed another $10 million to finance a nearby parcel that is owned by McCourt College Street, LLC. According to the Dodgers bankruptcy schedules, as of the filing date Blue Land owed $67 million in debt which was scheduled to mature on June 30.

The McCourt Company was organized in June 1977 as a Delaware corporation. According to the Massachusetts Secretary of State’s website, the treasurer of the McCourt company is William F. Griffin, Jr, Esquire, known to be a partner in the law firm of Davis Malm & D’Agostine P.C. Frank McCourt holds the titles of Treasurer, Director and President.

When the McCourts purchased the Dodgers, The McCourt Company headquarters was moved from Boston to Los Angeles.

THE PLAYERS:
The obvious first choice for biographical snapshots are the two characters at the center of this financial maelstrom, Frank H. McCourt, Jr and his future ex-wife, Jamie (Luskin) McCourt, who was unceremoniously dumped as Dodgers CEO by her estranged husband during the 2009 playoffs.

Fox Entertainment Group purchased the team from O’Malley family ownership group in 1998 for $311 million. Fox then sunk another $40 million in upgrades to Dodger Stadium. After claiming heavy losses during its six years of ownership –with reports that estimate the annual losses to be in the low-eight figure range- Fox sold the team and its holdings to the McCourts for the previously mentioned sum of $430 million.

Jamie Luskin and Frank McCourt were married in November 1979 after meeting at Georgetown in 1971 during their freshman year. Jamie McCourt majored in French, while her future husband received his degree in economics.

Jamie McCourt later earned her law degree at the University of Maryland in 1979, though she jettisoned her legal practice in Boston in 1993 and enrolled at MIT in the Sloan School of Management MBA program. Master’s degree in hand,  she eventually became Vice President and General Counsel for The McCourt Company (now known as the McCourt Group), which Frank had started in 1977. She held the title of General Counsel for the 10 years prior to the purchase of the Dodgers.

Frank McCourt (Source: dodgers.com)

Frank McCourt purchased 24 acres on the Boston waterfront in the late 1970’s that was part of the Penn Central Railroad bankruptcy and with that move became the parking lot magnate of Boston. He attempted to purchase the Red Sox in 2002 and had plans to build new stadium for the team on his waterfront land. However, he lost out to John Henry’s ownership group. He also led failed bids to buy the Los Angeles Angels and Tampa Bay Buccaneers.

McCourt (’75) sits on the Board of Directors of his alma mater, along-side its Chairman and former NFL Commissioner, Paul Tagliabue (’62), as well as other notable directors, NBA and Hoya standout Alonzo Mourning (’92) and Theodore Leonsis (’77), high-tech godfather and current owner of the Washington Capitals.

Based on their stewardship of the Dodgers and their philanthropic involvement in their adopted home town of Los Angeles, the McCourts were named Power Couple of the Year in January 2009 by the LA Business Journal. But by early July of that year, LA’s Power Couple had secretly split and the power struggle over ownership of the team was just beginning.

Jamie McCourt filed for divorce in October 2009 and those proceedings have become fodder for the tabloids and Hollywood gossip shows, which have lustily reported the details of the McCourts’ lavish lifestyle.

In her divorce declaration, Jamie McCourt claimed that she and Frank together built the empire which allowed them to ultimately purchase the Dodgers franchise. “Indeed, I gave Frank the first $1,000 to start-up his first company,” her statement read.

She went on to say that her work as an attorney helped support the family of six during the lean years. “There were times in the early years of our marriage when the sheriffs would come knocking on our door because we could not timely pay our mortgage.”

Luckily, her parents whisked the wolves from the door and stepped up to the plate in the McCourts’ purchase of their Brookline home when they loaned them “substantial amounts of money.”

Jamie McCourt (Source: usc.edu)

Jamie later admitted in her statement that their Boston-based real estate empire was highly leveraged when they purchased the Dodgers and moved to California, a community property state. Her formal divorce declaration indicates the couple was afraid that the creditors would one day come a’ calling and liquidate their pledged holdings, leaving nothing “as a nest egg for us and our four children.”

Since 2004, that little “nest egg” would include the purchase of five homes and two pieces of land totaling $84.3 million in places like Holmby Hills (Los Angeles), Malibu, Vail, Montana and Cabo San Lucas, Mexico.

And the $84.3 million excludes the $14 million in upgrades the McCourts made to their primary residence in Holmby Hills when they knocked down the tennis courts and built and Olympic-size indoor swimming pool, complete with steam room, sauna, dressing room and massage room. They purchased the 15,000 sf , 4 bed, 10 bath mansion from Courteney Cox and David Arquette at a price of $20 million.

The real estate spending spree also excludes the two vacation homes on Cape Cod (MA) the McCourts purchased between 1998 and 2000 and retained after their wagon train headed west.

The accountancy report in Jamie McCourt divorce filing reveals $59.9 million in mortgages on their personal real estate which requires an estimated $1.7 million in annual debt service. Her declaration indicates that many of their personal expenses were paid by the Dodgers entities “……because our activities and lifestyle revolved around the Dodgers.”

This Dodgers-lead life included use of a Net Jets Gulfstream IV at a cost of $12,500 per hour. In 2008 and 2009 the high-flying couple racked up $6.8 million in flight expenses, much of it paid by the team and related entities. While she admitted in her divorce filing that when travel was strictly for personal use, the Dodgers organization was to be reimbursed, the amounts repaid to the team, if any, were not disclosed.

At the time of her dismissal from the Dodgers, Jamie McCourt listed her annual salary at $2 million. She estimated that Frank received $5 to $6 million in salary and distributions from the team in 2009.

The Judge
Honorable Kevin Gross, Chief Judge of the US Bankruptcy Court for the District of Delaware. Judge Gross was appointed to the bench in March 2006 and has administered a range of high-profile cases. He holds a BA from the University of Delaware (‘74)  and a Juris Doctor degree from the Washington College of Law at American University (‘77). Gross is a Delawarian by birth and will be 60 years old in 2012.  Prior to his appointment to the bench, he was a litigator at the firm of Morris & Rosenthal.

Gross’ caseload on the bench includes The Sharper Image, Nortel Networks, The Majestic Star Casino (Gary, Indiana) and the tail-end of the Montgomery Ward liquidation. He also oversaw the Whitehall Jewelers case and is currently presiding over the Perkins & Marie Callender’s Inc. reorganization. Gross has also been the court –appointed mediator in the Tribune Company’s contentious efforts to finalize a Chapter 11 plan.

In bankruptcy circles Gross is known as an incredibly fair and business-savvy jurist who will uncommonly hold court into the late evening hours should the situation dictate. One legal insider, who spoke on the condition of anonymity, offered that Gross would enjoy the publicity of a high-profile case like the Dodgers, though his affable demeanor would quickly change should the proceedings turn adversarial.

The Lawyers
Bruce Bennett, Esquire. Bennett was the lead debtor’s counsel in the Orange County, CA bankruptcy case and is widely regarded as one of the top restructuring attorneys in the US. He is the chief legal counsel for the Dodgers’ bankruptcy.

Bruce Bennett (Source: dl.com)

In February 2011 Bennett and nine other attorneys bolted from the firm he helped found, Hennigan, Bennett & Dorman, LLP, and hung out their shingles at Dewey & LeBoeuf in Los Angeles, a move that would provide a much larger representation platform beyond their traditional California borders. Their new firm is international in scope, with 1,100 lawyers spread across 24 offices in 15 countries. D&L’s website boasts that it is the 8th largest law firm in New York City, the site of its headquarters.

 BSD’s legal insider described Bennett as “ridiculously smart and ridiculously competent. A regular guy and totally mellow. Practical.”

Bennett is a 1979 Brown University graduate and he received his J.D. from Harvard (’82). He is admitted to practice in California.

Robert Brady (Source: youngconaway.com)

Robert S. Brady, Esquire. Brady is a partner at Young, Conaway, Stargatt & Taylor, LLP and the lead hired gun in Delaware for the Dodgers. Young, Conaway is well-known as one of the largest local counsel shops for other national firms in dozens of high-profile cases. Brady is a well-respected lawyer who holds a B.S. from Virginia Tech and received his J.D. from The Dickinson School of Law at Penn State.  He began his private practice in 1990.

MLB
Ambassador J. Thomas Schieffer. Appointed by MLB Commissioner Alan “Bud” Selig in April 2011 as the Monitor of the Los Angeles Dodgers franchise. From his appointment up until the time the Dodgers filed for bankruptcy protection on June 27th, Schieffer oversaw the finances and the day-to-day operations of the club as official watchdog of the Office of the Commissioner of Baseball.

While Schieffer is not directly involved in the bankruptcy, his presence on the scene –or lack thereof- bears watching. In his April press release announcing the future appointment of an as-yet named Monitor, Selig struck a foreboding tone of things yet to come from MLB. “I have taken this action because of my deep concerns regarding the finances and operations of the Dodgers and to protect the best interests of the Club, its great fans and all of Major League Baseball. My office will continue its thorough investigation into the operations and finances of the Dodgers and related entities during the period of Mr. McCourt’s ownership.”

Schieffer was US Ambassador to both Australia (2001-05) and Japan (2005-09) under the administration of his former Texas Rangers partner, President George W. Bush. He was the Rangers’ club president from 1991-99 and was the managing general partner from November 1994 to June 1998. Schieffer served on several significant MLB committees during his ownership years, including the 1999 Blue Ribbon Task Force on Baseball Economics.

Since the bankruptcy filing, Schieffer has been on the outside of the Dodgers’ organization looking in, much to Selig’s chagrin. Frank McCourt’s refusal to allow Schieffer to continue his duties is a direct assault on the power of the Commissioner’s office and the Major League Constitution.

As a result, baseball insiders have speculated that MLB will likely seek to strip McCourt of his ownership by way of its involvement in the bankruptcy proceedings. However, it remains to be whether or not the complicated ownership structure assembled by the McCourts may have shielded some or all of the franchise’s revenues from MLB’s potential seizure.

Next installment: Follow The Money

Sources:

allbusiness.com                Los Angeles Business Journal        MLB.com
georgetown.edu               dodgers.com                               pacer.gov
abiworld.org                      deb.uscourts.gov                      youngconaway.com
dl.com                                 wsj.com                                     latimes.com
sec.state.ma.us                  usc.edu

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