SBJ/December 6 - 12, 2004/Finance

MLB considers Dodgers’ plan to increase club debt by 40%

The Los Angeles Dodgers are seeking to dramatically increase the amount of debt secured by the team after a successful first year of ownership under developer Frank McCourt, several financial sources said.

L.A.’s Frank McCourt (left), with broadcaster Vin Scully, had a strong first year.
Major League Baseball last week was considering a proposed financing submitted by the team’s banker that would place around $350 million of debt on the club and real estate like Dodger Stadium, the sources said.

That would mark a major increase from the $250 million of debt now pledged by those assets, the sources said, signaling McCourt and his banker believe the value of the team has risen and can support more borrowing.

The Dodgers’ financing is still fluid and the amounts and structure could very well change, as deals of this type often do at this stage. But the team is convinced that with an impressive financial turnaround from the previous News Corp. ownership, the Dodgers can secure more money at better terms. The Dodgers declined comment.

“Baseball has had a renaissance year, and McCourt’s first year was exceptional,” said Gordon St. Denis, founder of sports advisory boutique Triton Sports Associates. “The likelihood of getting this done is strong.”

Under McCourt, the Dodgers trimmed organizational fat built up under News Corp. and cut player payroll 12 percent to $93 million. Before the season, McCourt renegotiated the club’s local media package, increasing the annual rights fee the Dodgers were getting from FSN 2 to $25 million from the $15 million it was getting annually under News Corp.’s ownership. That led to a positive cash flow after years of negative results under News Corp. The Dodgers’ first playoff appearance since before the 1997 News Corp. purchase of the team also helped.

News Corp.’s Fox unit took a $19 million pretax loss on the sale. It had been reported the club was losing $40 million annually.

Still, given the controversy surrounding McCourt’s original purchase, the contemplated refinancing could prove thorny.

To buy the team, McCourt borrowed $196 million from News Corp., secured by his personal real estate in Boston, because he could not find local investors. He borrowed the remainder of the $421 million purchase price, using the team, the stadium and the land around it as collateral, not putting in a dime from his own bank account.

If he succeeds in borrowing more cash through the team holding company, he might then use the extra dollars to pay off some of the News Corp. loans, which have early buy-down incentives.

With cash flow up for the Dodgers, the thinking is the team can support more debt under MLB’s debt guidelines that go into effect next year. These stipulate that after the first $25 million of debt, a team cannot borrow more than 10 times earnings before interest, taxes, depreciation and amortization (EBITDA), a standard cash-flow measure. That would mean the Dodgers’ EBITDA would have to be around $32 million to shoulder $350 million of debt.

The proposed financing MLB is considering would be a private placement, a structure in which a handful of large pension or insurance companies lend the money at long-term rates.

The team’s bank handling the refinancing is Bank of America, which won the right to lead the deal after McCourt chose the company over a rival bid from Citigroup. Bank of America did not return calls seeking comment, nor did MLB.

Staff writer Russell Adams contributed to this story

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