Frank McCourt Takes Another Bad Loan

When Frank McCourt filed for bankruptcy, he also acquired a $150 million loan to cover his immediate expenses, but since he’s broke and has bled the Dodgers dry, the only way he could come up with a big loan on short notice was to pay through the nose. Specifically, McCourt went to a subsidiary of J.P. Morgan who offered to give him the money in exchange for an interest rate of at least 10 percent along with a $4.5 million fee to secure the loan in the first place.

Because the loan is structured as being 7% above the current London interbank offered rate (usually referred to as the Libor), with a minimum Libor of 3%, the rate will always be at least 10% and could go higher depending on how the markets move. When you factor in the $4.5 million fee, the APR is closer to 13% — it’s not quite usury, but it’s a pretty terrible loan for a property that is worth “between $500 million to $1 billion” and has relatively minimal outstanding liabilities.

Meanwhile, Major League Baseball offered to loan the Dodgers an equivalent amount of money at a 7% interest rate with no fee attached, so the cost to the team would be just slightly more than half of the loan that McCourt managed to come up with on his own. Just the difference in interest rates on the principal amount borrowed is over $12,000 per day, and again, that’s not accounting for the sizable fee that McCourt agreed to pay to in order to secure a last minute emergency loan.

While having a franchise under control of Major League Baseball is clearly less than optimal, when the alternative is having it under the control of Frank McCourt, it looks like utopia. The sooner MLB can take the team away from Frank McCourt, the better off the Dodgers will be.



Print This Post



Dave is the Managing Editor of FanGraphs.


Sort by:   newest | oldest | most voted
Logan Burdine
Guest
5 years 26 days ago

It sounds like MLB didn’t take control soon enough. McCourt just put the team’s debt on a credit card.

mike savino
Guest
mike savino
5 years 26 days ago

I really hate the Dodgers and when the McCourt divorce news broke, I was excited because I assumed it would harm the team’s chances of winning in the next few seasons. Especially because the Padres just went through a divorce as well which caused payroll to be slashed.

I take it all back Dodger’s fans. I wouldn’t wish this absolute ridiculous travesty upon any fanbase. Frank McCourt is a legitimately evil man seemingly intent upon destroying the franchise which has given us Jackie Robinson, Kirk Gibson, Koufax, Vin Scully, Dodger Dogs, west coast baseball…I can hate the team, but this is cruel.

AK707
Member
AK707
5 years 25 days ago

It ruins the Dodgers-Giants rivalry to even have this guy around. I focus less on “fuck the dodgers” and more on “those poor bastards” – this should have never happened.

SchmidtXC
Guest
SchmidtXC
5 years 25 days ago

The Tigers gave us Kirk Gibson, not the Dodgers. Gibson had his signature moment in LA, but in reality he was only there for three years and less than two seasons worth of regular season games.

Telo
Guest
Telo
5 years 26 days ago

This sucks. What a great franchise. He doesn’t deserve it.

Garrett
Guest
Garrett
5 years 26 days ago

lol @ using the word usury in this.

More like “absurdly fair”.

baycommuter
Guest
baycommuter
5 years 26 days ago

Frank McCourt has accomplished the almost impossible task of turning Bud Selig into the good guy.

gwaring01
Member
gwaring01
5 years 26 days ago

Interest rate is completely fair. The bank offered liquidity to a desperate man, it had all the leverage, McCourt agreed. All parties knew what was going on.

AK707
Member
AK707
5 years 25 days ago

But the douche didn’t take the better offer. Wouldn’t the bankruptcy court force him to take the better loan? Shouldn’t they, if their goal really is to get all the creditors paid?

DD
Guest
DD
5 years 25 days ago

If he takes the MLB loan, as I understand it, they have more of a right to take the team as he proves he cannot functionally manage the franchise. Essentially, he has to prove that his loan is better, somehow, in order to keep the team. that’s why its inevitable that he gives it up, only it’ll be by force.

Franco
Guest
Franco
5 years 26 days ago

I guess his credit is still slightly better than Greece.

channelclemente
Guest
5 years 26 days ago

Nobody says the rate was unfair, just McCourt was stupid.

Garrett
Guest
Garrett
5 years 26 days ago

http://en.wikipedia.org/wiki/Usury#Excessive_rates

Umm… Unsure what definition of usury you’re using that implies “fair”, whatever that means.

DavidCEisen
Guest
DavidCEisen
5 years 26 days ago

I think it was more of a statement regarding the business acumen of McCourt rather than an issue of fairness.

Not that Dave Cameron doesn’t have a habit of making exaggerated claims to try to prove a point.

The Ancient Mariner
Guest
The Ancient Mariner
5 years 25 days ago

Hyperbole is a rhetorical device, not a moral failing.

Garrett
Guest
Garrett
5 years 25 days ago

Considering his prior knowledge of finance (epic fail), only the most earnest of apologists would consider this a rhetorical device.

Shane
Member
Member
Shane
5 years 25 days ago

Usury is the charging of excessive interest. He’s saying the rate McCourt got is not quite there, but it’s still not good.

Brad Johnson
Member
Member
5 years 25 days ago

To build off Shane, the rate McCourt secured is less than ideal all things considered. Had he not backed himself into this corner, he wouldn’t have the huge fee for last minute liquidity and he might have been able to shave a percentage point off the rate over Libor or at least fixed the rate at 10%.

So as Dave said, it’s not quite usury, but it sure as hell isn’t ideal.

Garrett
Guest
Garrett
5 years 23 days ago

His only money making asset is in bankruptcy. And he got a loan. I’m struggling to understand how virtually any interest rate would quality for usurious here.

Many people ITT don’t understand what banks are interested in doing. (Hint: Not hiring the repo man to take your stuff when you default. As if they’re even high enough on the list of creditors to do that. What, if anything is securing this debt?)

channelclemente
Guest
5 years 26 days ago

By the way, calling a hedge fund a bank is like calling a Ugo a car.

Dingbat
Guest
Dingbat
5 years 25 days ago

Ou are mostl correct.

Dan G.
Guest
Dan G.
5 years 26 days ago

This was the proposed loan from a hedge fund that was subject to court approval (I am a bankrupcy lawyer). Note that the loan that was approved today did not have the large exit fee, reduced to $250,000. The hearing on July 20 will determine the longer-term loan that the Dodgers seek, and there is signficant chance it will end up coming from MLB. Guys, this is bankruptcy court, and things like this are always subject to last-minute negotiation and, of course, court approval.

The Dude
Member
The Dude
5 years 26 days ago

Why didn’t MLB approve the TV deal rendering the loan unnecessary?

Randy
Guest
Randy
5 years 26 days ago

Because about $173 million of the TV deal would have gone directly to the McCourts, and Selig is trying to prevent Frank McCourt from continuing to devalue the franchise to shore up his personal finances.

http://hardballtalk.nbcsports.com/2011/06/20/why-did-selig-reject-the-dodgers-fox-deal-because-it-was-more-looting-of-the-team-by-frank-mccourt/

The Dude
Member
The Dude
5 years 26 days ago

Thanks – I don’t know enough about the deal to say if it was a good deal or a bad deal but I am assuming it was a good deal. Those funds would have resolved the ownership dispute related to the divorce and stabilized the franchise. I don’t understand the outcries that a tv revenue deal that benefits the owner of the team is an evil concept.

I am not saying I have an expertise of value here – but isn’t it possible that Selig intentionally denied the deal to drive McCourt out and this bankruptcy filing is an effort to surface that issue and put the creditors ahead of MLB? Could the right move have been to approve the deal, resolve the divorce and stabilize the ownership?

I guess I don’t see Selig as making astute move here but more likley a grave misclaculation. Time will tell.

Kevin S.
Guest
Kevin S.
5 years 26 days ago

Because it wouldn’t have stabilized the ownership at all. It would have paid off the divorce, but then vastly reduced the Dodgers’ earning potential in a pretty laden area, which would have again led to them being in the same situation they’re in now, but just a couple years down the road and with no white knight of a TV deal riding in to save them. Basically, what incentive would FOX have to give a man with no leverage and desperate for cash a good deal?

Shane
Member
Member
Shane
5 years 25 days ago

The deal was considered to be severely under valued. He was giving up the possibility of the organization making billions more over the life of the deal so he could finance his current misfortunes.

Nick
Guest
Nick
5 years 26 days ago

Great comments here – looks like some people should stick with writing about baseball instead of venturing into the adult world of finance and banking.

DavidCEisen
Guest
DavidCEisen
5 years 26 days ago

Frank McCourt?

juan pierre's mustache
Guest
juan pierre's mustache
5 years 25 days ago

Bud?

Phillie697
Guest
Phillie697
5 years 25 days ago

Just because Frank McCourt might be a brilliant man in the world of financing and banking (and really, he is… the guy will walk away from this losing very little personally) doesn’t mean he didn’t act “immorally.”

AK707
Member
AK707
5 years 25 days ago

I’d be totally willing to believe it if he walks away with cash in his pockets after this one, the system is totally F-ed up

Garrett
Guest
Garrett
5 years 22 days ago

What is immoral and why the scare quotes?

Buy a business and attempt to use it to make money to buy things you want/need? IMMORAL!!!

RP
Guest
RP
5 years 26 days ago

any pending deal (like the Fox deal) is subject to an automatic stay while in bankruptcy. The court is only in a position to approve a debt in possession financing to allow the business to keep operating.

many investors wanted to make this loan. McCourt is apparently friendly with Highbridge from his Boston days so there wasn’t really much of a push to get the best rate.

Manny, if you are reading this, I could a 50% bid for your unsecured claim!

juan pierre's mustache
Guest
juan pierre's mustache
5 years 25 days ago

can i buy out manny’s contract and have him just come chill at my house for the next couple years

Mike B.
Guest
Mike B.
5 years 26 days ago

Frank McCourt (and his kin) is one of the last persons on this earth for whom I could have sympathy. What an atrocious, maniacally self-indulgent, narcissistic miscreant. I hope he winds up flipping burgers for a living at some greasy slop joint in Bakersfield.

Brad Johnson
Member
Member
5 years 25 days ago

The sad thing is, at the end of the day he’ll come out of this a rich man. Maybe not by his standards, but by everyone else’s.

Garrett
Guest
Garrett
5 years 23 days ago

I don’t know why everyone in this thread is such a communist. As a baseball fan, this is terrible for baseball and the Dodgers. As someone who respects ingenuity and ambition, Frank managed to fund a lavish lifestyle for a decade and only the machinations of a monopoly are preventing him from extending that.

The issue should have arisen when he purchased the team. Sadly it has come to t his stage and I’m conflicted on my general views of freedom and my views to not watch shitty baseball.

kazinski
Guest
kazinski
5 years 25 days ago

A lot of this is Selig’s fault. The Fox contract may not have been anywhere near ideal, but it was better than this. Selig vetoed it not leaving McCourt much choice.

Add to that Selig may be able to take control of the Dodgers from McCourt, but a bankruptcy judge can overrule the commissioner. And the Bankruptcy judge is going to care a lot more about how the McCourts come out of this that Selig will, and McCourt knows it.

Nathan
Guest
Nathan
5 years 25 days ago

Uh, McCourt had plenty of choices. Like not using the Dodgers as his family’s personal credit card in the first place. That was one choice that would’ve prevented all of this…

Nobody likes making Selig look like the good guy, but c’mon…

Shane
Member
Member
Shane
5 years 25 days ago

It’s Selig’s job to make sure all the teams are sound. The McCourts ransacked the Dodgers org and if allowed to continue will leave the team with absolutely no profitability. McCourt has stripped the team for all of their major assets and short selling the TV rights just continues to do this.

Edward
Guest
Edward
5 years 25 days ago

I’m not a huge fan of McCourt, but I can understand that he wants to keep his team. MLB made it pretty clear a couple months ago that they would do everything they could to get him out, and he decided not to go quietly. It’s not good for the team or the fans, but it doesn’t seem like there was any effort on the part of the league to find a way to get the finances together while keeping McCourt as the owner.

Not trying to say that McCourt is a good guy, just that I see two villains here instead of one.

CJ
Guest
CJ
5 years 25 days ago

Edward, I sort of see the point, but.. there is no sign he will stop continuing what he has done, which is plundering Dodgers.

I think the biggest evil MLB has done is to allow him to buy Dodgers in the first place.

pft
Guest
pft
5 years 25 days ago

If MLB approved the 3 billion dollar TV deal, the loan would not be needed.

I think I read he is only taking out 60 million at this time. 150 million is the total credit line. Who would not want to make a loan to a company with assets worth more than double their debts and with a 3 billion dollar TV deal waiting to be signed.

I guess 4 playoffs in 7 years is not enough to satisfy fans who arrive late to games and leave early.

StolenMonkey86
Guest
StolenMonkey86
5 years 25 days ago

Frank, is that you?

My echo and bunnymen (Dodgers Fan)
Guest
My echo and bunnymen (Dodgers Fan)
5 years 25 days ago

I always dislike the whole “late to games, and leave early” point. If you go to a Stadium and do not see this occur, then you are lying or just blind. It happens everywhere to a degree. Not much more so than Dodger, but LA takes the rap.

Brad Johnson
Member
Member
5 years 25 days ago

The leaving early thing is exaggerated and happens everywhere. The getting there late thing is not. The most comparable stadium I frequent is CBP, 90-95% of fans are in the gates by the first at bat. They might be in a line for food somewhere, but they’re there. That is not the case in Dodgerland.

I also found that people had their seats by game time in the Metrodome and Target Field. Nationals Stadium is usually too empty to tell.

Phillie697
Guest
Phillie697
5 years 25 days ago

The Rangers signed a $3 billion, 20-year deal last year. That was in a smaller market. Anyone who thinks that the McCourt’s deal isn’t undervalued probably lost their ability to do math once the numbers get that high.

chronicmastertrader
Member
chronicmastertrader
5 years 25 days ago

McCourt’s adult life has been spent in and out of courtrooms. I can’t stand the guy, but I have a feeling that this song is far from over.

Spence
Guest
Spence
5 years 25 days ago

The TV deal would begin with the 2013 season, and Fox is still in an exclusive negotiating window. So McCourt may not be getting the best TV deal, and he’s already trying to cash in on it 18 months in advance.

LionoftheSenate
Guest
LionoftheSenate
5 years 25 days ago

MCourt is from Boston right? What a moron.

John F. Kennedy
Guest
John F. Kennedy
5 years 25 days ago

Shut up Ted.

CJ
Guest
CJ
5 years 25 days ago

Honestly, it looks like he deserves to be pursued as vigorously as Madoff or Ken Lay, to be sure EVERYTHING which can be taken away from him by any non-illegal means should be taken away.

We can talk about why he was allowed to own the team in the first place after that.

Phillie697
Guest
Phillie697
5 years 25 days ago

There was nothing wrong or illegal about what he did tho… I mean, there is no law against making a profit off a business like a baseball team. What he did was not only walking away with the profits, but also spent so irresponsibly as to detrimentally affect team operations (which he owns btw). Bad move? Yes. Irresponsible? Yes. Detrimental to baseball and the Dodgers? Yes. Illegal? Sadly, no. Madoff, on the other hand, just straight broke the law.

Jerome S.
Member
Jerome S.
5 years 25 days ago

So now that we’re getting through this, can we move on to whatever the hell the Wilpons are doing??

[crickets…crickets….]

michael
Guest
michael
5 years 25 days ago

McCourt has quietly purchased the dodgers 100% on credit from several different resources, with no cash reserves. His goal was to provide his family a lavish lifestyle and operate the Dodgers with revenue generated by the team. The only problem was that he took more money than the Dodgers generated!
This lavish lifestyle works out to just over 2 million dollars per month that Frank siphoned off from the Dodgers to fund his personal purchases! Currently Frank lives in a $30,000 dollar a month condo and is paying his ex $225,000 a month plus $412,000 a month for the mortgage payments on their 7 homes.

Great Article with specifics on this entire mess! McCourt needs to by thrown out!
http://itsaboutthemoney.net/archives/2011/06/21/commissioner-selig-frank-mccourt-must-go-a-petition/

Collateral Damage
Guest
Collateral Damage
5 years 25 days ago

LIBOR+700bps is a pretty high rate for a line that size. I used to work for a large commercial bank, if I remember correctly, even for clients with less credit quality we usually priced around L+250 or L+350 at the highest. Of course those were syndicated loans, so this might be a different deal. The interest rate seems high regardless. I’d be interested to find out how Highbridge views the collateral, the article says they’re taking a first lien on assets. In any case, I can’t see any reason why the Dodgers should be taking a higher rate than the Coyotes did in their bankruptcy, especially in this interest rate environment.

FWIW, McCourt made his money developing parking lots in Boston, he’s not a financial wizard by any means.

Phillie697
Guest
Phillie697
5 years 25 days ago

Most of McCourt’s stuff is already leveraged, so I’m thinking the creditors already on record might have something to say about a new creditor taking first-lien. I can’t imagine he secured those previous loans with the lenders not asking for first-lien either.

B.
Guest
B.
5 years 25 days ago

Collat Damage / Philly:

So what HB offered is a (debtor-in-possession) DIP loan , which allows a debtor (Dodgers in this case) to obtain liquidity in order to operate and go about their normal course of business, pay people, etc while in the Chap 11 reorg process…

DIP loans have priority even on existing first lien debt, so they (HB) would be first in line to be paid, above any existing secured debt.

the L + 700 is in-line pricing with a lot of last yr’s corporate BKs… a lot were L + 600 to L + 1000, with 3 – 5% LIBOR floors common, so

Full disclosure: Not a BK lawyer but understand distressed a bit.

Hope that was helpful, even though i’m not an expert!

Garrett
Guest
Garrett
5 years 23 days ago

That was illuminating. ty

affiliate network
Guest
4 years 8 months ago

My brother suggested I might like this web site. He was totally right. This submit truly made my day. You cann’t consider simply how so much time I had spent for this information! Thanks!

snizenja banja luka
Guest
4 years 8 months ago

Pretty part of content. I just stumbled upon your website and in accession capital to say that I acquire actually loved account your weblog posts. Anyway I will be subscribing for your feeds and even I achievement you get admission to consistently quickly.

asics gel nimbus 13
Guest
4 years 8 months ago

Wonderful work! This is the kind of information that are meant to be shared across the web. Disgrace on the seek engines for no longer positioning this submit upper! Come on over and discuss with my web site . Thanks =)

wpDiscuz