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The Dodgers have been turned down for additional credit multiple times

Sep 2, 2010, 9:50 AM EDT

Frank McCourt famously leveraged the Dodgers after purchasing them. Indeed, he saddled an asset he bought for $430 million with something like $433 million in debt. We knew that. His defense has always been, however, that the Dodgers are a cash cow and that there are tons of untapped revenue sources available. And that all may be true. But that’s not impressing lenders very much, reports Bill Shaikin of the L.A. Times:

McCourt was turned down at least three times — by Citibank, by a Chinese
investment group and by a Southern California infomercial king — in
trying to secure additional financing last year, according to documents
filed in the divorce case between him and his estranged wife, Jamie.

In a deposition, Dodgers Chief Financial Officer Peter Wilhelm said Citibank declined even to engage in serious negotiations.

“They did not feel that the Dodger organization had the capacity to take on more debt,” Wilhelm said.

Shaikin reports that the debt load “has limited how the Dodgers can pay their players and could affect the team’s ability to sign talent.”  Doesn’t seem like there’s any “could” about it, given that another of the story’s quoted sources says that every free penny the team pulls in goes towards debt service.

McCourt has said all along that his divorce hasn’t had a negative impact on the Dodgers baseball operations. Maybe he’s right!  It’s been everything about his management style prior to the divorce that was the real culprit.

  1. Chris Fiorentino - Sep 2, 2010 at 9:59 AM

    Sounds to me like Frank’s been doing some shady crap behind the scenes and this divorce is going to bring out some stuff that he’d rather keep in private. And that he can’t even pay his way to keep the stuff out because the team is so leveraged.

  2. SparksALot - Sep 2, 2010 at 10:59 AM

    Ugh. This makes me sick. How can that moron Selig allow this to go on? This is one of the most storied franchises in the game, and he’s letting this guy run them into the ground. I never thought I would say it, but McCourt makes me yearn for Fox. Sure they mismanaged the hell out of the team, but at least you knew they were throwing money at the problem and MAYBE some of those over-paid players would stick and have a good year. This is just a travesty. Every night before I go to sleep I say a little prayer that the divorce court makes them sell the team, and I’m not religious. Screw Frank McCourt for turning my team into this mess.

  3. Jonny5 - Sep 2, 2010 at 11:17 AM

    He means it was a cash cow for him to live off of, not to pay his bills with. The amount of loot they blew was crimminal…

  4. Simon DelMonte - Sep 2, 2010 at 11:41 AM

    You would think that MLB would require potential owners to demonstrate not just that they can raise the cash, but that they can also pay it back if borrowed. The amount of debt McCourt took on to make this deal sounds like it’s beyond the usual sort of thing that businesses do to get started.
    Or am I fooling myself and this kind of creative financing is the norm?

  5. Schlom - Sep 2, 2010 at 12:40 PM

    Again, how could MLB let someone buy a team by putting the team they are buying up as collateral? I guess on some level that makes some sense as franchises generate income but wouldn’t an owner that could actually afford to buy a team with actual money make more sense? It makes me wonder how many other teams that have been sold recently (like Padres) are doing the same thing.

  6. John_Michael - Sep 2, 2010 at 1:01 PM

    First, how many people do you know what can just write a check for ~$500 Mil’ and not feel it? Secondly, simply stated, if your annual rate of return is greater than your cost of capital, it makes sense to finance the franchise acquisition.
    Lastly, simply stated again, the decision to leverage a team is the same as the decision to refinance your house for a lump sum of cash. This capital, if done prudently, can be used for investment which inceases the value of your asset.
    My guess is that the McCourts failed the ‘prudently’ part and used the funds for short term personal indulgences…

  7. Kevin S. - Sep 2, 2010 at 1:21 PM

    At the same time, even if you are getting a better rate of return on the capital investments than the cost of your financing, it’s still a really, really bad idea to leverage yourself as thoroughly as the McCourts do. It leaves you with no wiggle room in the event of asset depreciation, and having such a high debt-to-equity ratio can cause liquidity issues, as we see with McCourt being unable to get another loan.

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