McCourt Divorce Trial Reveals Dodgers' Massive Debts, Payroll Deductions

LOS ANGELES -- To put it mildly, Wednesday was a downer for the Los Angeles Dodgers.

In a packed courtroom, owner Frank McCourt testified that his vision for the franchise always included "significant" reductions to player payroll, higher ticket prices, and a dramatically smaller baseball operations department. On the field, the team's disappointing season continued with a 5-1 loss to the Philadelphia Phillies in a sparsely-attended game at Dodger Stadium.

And to cap things off, late Wednesday night it was revealed that McCourt's holding company -- which owns the Dodgers, the Stadium and real estate surrounding the ballpark -- has nearly $620 million in outstanding debt, a crushing financial burden that has crippled the team's ability to acquire players or raise capital, according to an investigation by the Los Angeles Times.

The Dodgers' financial woes were contained in documents filed for Frank and Jamie McCourt's high-profile divorce case, which begins its fourth day of trial on Thursday in Los Angeles County Superior Court. The key issue in the case is a marital property agreement signed by the couple in March 2004, just after they purchased the team from News Corp. for about $430 million. Frank believes the MPA makes him the sole owner of the Dodgers. Jamie contends that she never consented to giving up her stake in the franchise, and that Judge Scott Gordon should invalidate the agreement because the couple signed two conflicting versions of the document.

Among the debts cited in the Times report are two loans, first reported by FanHouse in May, that the McCourts obtained to finalize their purchase of the Dodgers. The loans, which never appeared on documents submitted by Frank McCourt to Major League Baseball, were made by Franklin Weigold, a long-time electronic-equipment executive, and Paul and Linda Carter, friends of the McCourts from Massachusetts. The investors are entitled to convert their loans into ownership stakes in the Dodgers if McCourt's holding company misses payments or defaults on the loans.

As of June 2009, Weigold and the Carters were owed a combined $9.6 million, according to the Times, which hired Southern California's largest accounting firm to analyze thousands of documents -- including team financial statements -- submitted in the divorce case.

A third investor, Los Angeles entrepreneur Jason Moskowitz, also put in millions to finalize the 2004 sale of the Dodgers, but was paid back -- with interest -- by the McCourts after they obtained new loans on the club in 2007.

In an interview with FanHouse, Moskowitz would not reveal the exact amount of his investment, only that it was a "substantial" amount.

"I had the most money in the original (2004) deal," said Moskowitz, who sold his marketing company to Omnicom, the advertising giant, in 2000, and now has stakes in a software firm and a private aviation company, among other entities. "It worked out well for me, (the McCourts) were great partners, I'm saddened by their dissolution."

Marshall Grossman, an attorney for the Dodgers, told the Times that the Weigold-Carter loans are not yet due, and a person familiar with the situation told FanHouse in May that Frank McCourt has not missed any payments on those loans over the past six years.

McCourt has been eagerly seeking a cash infusion over the last year, but has been turned down by at least three entities, including a Chinese investment group. Citibank also rejected McCourt's cash call, telling him it "did not feel that the Dodger organization had the capacity to take on more debt," according to a deposition from Peter Wilhelm, the club's chief financial officer.

The revelations about the team's financial troubles figure to add another layer of intrigue to the divorce trial, which is being contested by some of America's top litigators. Frank spent all of Wednesday's session on the witness stand, parrying questions from David Boies, one of Jamie's attorneys. Boies, who represented Al Gore in his Supreme Court case against George W. Bush over the 2000 presidential election, hammered away at the details surrounding the creation of the MPA in March 2004.

The document was prepared by Lawrence Silverstein, the McCourts' long-time attorney in Boston. According to Jamie's legal team, Silverstein -- or someone from his firm -- altered a critical section of the MPA just hours before
Jamie signed it on March 31, 2004. That section is the disputed "Exhibit A" of the MPA, which lists all the assets that were to be considered Frank's separate property.

In one version of the MPA, that section includes the Dodgers, but in another version, also signed by Jamie, it specifically excludes the franchise, making it the shared property of both spouses. Further complicating matters: Frank and Jamie did not sign all of the versions at the same time -- and Frank's lawyers have conceded that the version of the MPA excluding the team was altered after Jamie signed it. Stephen Susman, Frank's lead attorney, says the discrepancy between the versions was due to an innocuous "clerical" error made by Silverstein.

In court, Boies went through a detailed chronology of the MPA with Frank, citing three versions of the document sent by Silverstein to McCourt on the morning of March 30, 2004, a day before it was signed. All three versions contained slight corrections -- in one revision, the name of a hedge fund investment owned by Jamie was changed from "Pinella" to "Pinnacle" -- but all three also excluded the Dodgers from Frank's separate property. On the afternoon of March 30, McCourt met with Silverstein, and the following morning, the "Exhibit A" language in one of the MPAs had been changed to give Frank control of the Dodgers in the event of a divorce.

On the stand, Frank conceded that the language change was made, but couldn't recall if it was his idea or Silverstein's -- or whether Jamie was ever notified about the change. As he did countless times during the day, Frank said he "couldn't remember" or "couldn't recall" many details about the document, its signing or just about any topic raised by Boies.

It is Jamie's contention that the couple always considered themselves co-owners of the team, even though Major League Baseball rules require that there be one official "control" person per franchise. To buttress their argument, Boies showed the court several Comerica Bank loan documents, signed by both spouses, that list Jamie's profession as "owner" of the Dodgers.

It is Jamie's contention that the couple always considered themselves co-owners of the team. ... To buttress their argument, Boies showed the court several Comerica Bank loan documents, signed by both spouses, that list Jamie's profession as "owner" of the Dodgers. "Those are documents that are signed under penalty of perjury," said Boies after court. "It just doesn't add up."

Boies also referred to financial projections submitted by the McCourts to MLB in conjunction with their bid to buy the Dodgers. In one of the final versions, which was prepared in February 2004 after extensive feedback from MLB officials, the McCourts outlined a plan calling for significant cuts in payroll and the team's baseball operations. The McCourts' financial model included reductions of 11 percent and 21 percent, respectively, in the team's baseball operations budget for 2005 and 2006.

In many respects, that plan has been carried out. In 2008 and 2009, the club spent less money signing draft picks than any other team in Major League Baseball. While the Dodgers did sign several high-priced players during the first few years under the McCourts, the team has not courted any substantial free agents during the last three seasons.

This past offseason, despite the club's shortage of pitching, the Dodgers made no effort to re-sign starters Randy Wolf and Jon Garland. The team has been on the losing end when trying to acquire stars such as Roy Halladay, Cliff Lee and CC Sabathia, and in 2008, the Dodgers added Manny Ramirez and Casey Blake only after both players' former teams agreed to pay most of their salaries.