LA Dodgers – The Issue of Bankruptcy and Divorce. A double whammy!

Baseball is said to be “America’s favorite pastime.” Crowds from Sacramento, Modesto, Oakland, Stockton, San Francisco, and the rest of California for that matter often flock to Los Angeles just to watch one of the league’s favorite teams, the LA Dodgers.

Unfortunately, for this team, the recession bug has bitten them hard and had forced the team management to file for bankruptcy. And along with the bankruptcy issue also comes the divorce settlement issue for the team owners.

It all started with Divorce …

The LA Dodgers was bought by Frank McCourt from Rupert Murdochs’s company NewsCorp for a cool $430 million and most of the money that was used to buy the Dodgers was funded through debt. If there is debt, there of course would be interest that is why ticket prices and other concessions always increased every year to earn revenue.

Meanwhile, McCourt’s wife, Jamie, was the CEO of the team until October 22, 2009. A day after losing their bid for the playoffs. Jamie was fired from her position and soon after filed for divorce. This is where things started to get ugly between the two which resulted in a contested divorce. A contested divorce is when the 2 parties involved are unable to reach a settlement.

With a team that is estimated to be worth $727 million, this indeed was going to be one messy split. Frank McCourt claims he made a post-nuptial agreement “MPA”, which makes him the only owner of the Dodgers while Jamie insists on her rights to the team by virtue of “community property.”

In California, the money and property acquired by a married couple is considered “community property.” Therefore, everything will be split 50/50 in the event of separation or dissolution of marriage. And in the case of the McCourts, they’ve been married for 30 years. Unfortunately for Frank, his post-nuptial agreement was invalidated by the court.
Finally, the couple came to an agreement about their divorce settlement. Both agreed to wait until August for the judge to decide on who gets rightful ownership of the Dodgers. Will it be a 50/50 ownership or Frank McCourt will get full ownership? But while that decision is brewing, Jamie McCourt had the upper hand by getting $650,000 a month in spousal support.

When bankruptcy comes a knockin’ at your door …

As discussed before, the Dodgers were procured by means of loans and debts and if you borrow, you obviously have to pay interests on top of the principal amount borrowed. And imagine a $430 million loan …

Frank McCourt seems to be a scandal magnet, in terms of finances. In 2010, his Dodger’s Dream Foundation got into hot water prompting the Governor of California, Jerry Brown, to open an investigation on the foundation’s shady financial mishandlings. Apparently, the charity’s chief executive, who also is a close buddy of McCourt, Howard Sunkin, was receiving $400,000 a year in wages and that is already ¼ of the entire foundation’s budget. The court ordered that the money be returned and McCourt even paid $100,000 out of his own pocket for this.

And as that popular Ad tagline goes, “but wait … there’s more” – – McCourt’s financial issues does not end there. April of 2011, MLB Commissioner Bud Selig has stepped in due to the MLB’s concern on how the management people of the Dodgers handled the team’s finances and operations after payroll checks started bouncing.

The MLB then starts an investigation and appoints a trustee to look after the Dodgers. Of course, this is not looking good for McCourt, who has been accused of milking the team’s finances for what it’s worth.

And everything seems to take a turn for the worse, because Frank McCourt was expecting a big deal between him and Fox Sports for that much needed cash flow, which most unfortunately, was blocked by the MLB. Thus, creating a complication for the marriage settlement because it invalidates the agreement that both Frank and Jamie McCourt , along with their lawyers will benefit from the TV deal.

And it just gets worse for Frank McCourt, because his team had no choice but to file for Chapter 11 bankruptcy. McCourt and his wife had been keen on keeping the ownership of the team ,which could be a struggle with the terms of Chapter 11 bankruptcy, because a trustee shall be appointed to look after the company. This will mean that they will lose control over the Dodgers.

In an effort to keep his stake and control over the team, McCourt had obtained a private loan to fix the Dodgers’ financial health, but luck was really not on his side, because the MLB rejected that proposal and had offered bail money instead (the MLB appears to be bent on ousting McCourt from the Dodgers).

In the event that these debts are unsettled, by decree of Chapter 11 bankruptcy, McCourt will be faced with the fact that the Dodgers have to be sold to be able to pay its debtors. This will also not look good on the divorce settlement side because if the team gets sold, most of the amount will be going to the creditors. The McCourts do feel screwed at this moment because of the MLB decision, because they might end up with just loose change instead of getting a nice big slice of that money pie.

Only time will tell and also for the MLB to decide (in case they want to pressure the McCourts a little more) on what the outcome will be for this baseball soap opera. But the only thing certain is the irony that the team is named the LA Dodgers, but this is one bullet that the McCourts cannot dodge.

Learn more about bankruptcy, divorce, divorce settlement, spousal support and Chapter 11. Contact the Thomas Hogan Law Office.

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