News Corp. lent nearly half of the $421 million that real estate developer Frank McCourt borrowed to buy the media giant's baseball team, the Los Angeles Dodgers (see chart). The purchase of the storied franchise was set to close late last week, along with the loans.
News Corp.'s robust role in financing the sale of its own team was disclosed by company officials last week on a conference call with investors. In fact, contrary to previously published reports, News Corp. will not initially, if at all, retain equity in the Dodgers.
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Instead, the media colossus lent McCourt $31 million, which could convert, at the company's choosing, into equity in three years. That loan is one of a trio totaling $196 million from News Corp. to the Boston-based developer. He also borrowed $225 million from Bank of America to fund the remainder of the $421 million purchase price.
Critics have assailed baseball's approval of such a debt-heavy deal.
"You have to assume MLB wanted this deal done for a reason," said one source, referring to News Corp.'s role as a national and regional baseball broadcaster.
Others said, however, that all the questioning is off the mark because McCourt is putting in $225 million of his own money. The fact that he is borrowing those dollars, these sources said, is inconsequential because he can afford to pay off the debt.
What few dispute is that seller financing is rare in sports, with the Montreal Canadiens' sale three years ago believed to be the only other team exchanged in this fashion.
After two years of trying to sell its money-losing club, News Corp. apparently was ready to make a deal happen for the Dodgers, once a prized part of the firm's sports empire.
Indeed, the media company agreed at the last moment to drop the purchase price by $9 million, to $421 million, after MLB informed McCourt that the team's revenue-sharing fee would be higher than expected, sources said. That fee rose after MLB classified as team revenue the $50 million that News Corp. will pay McCourt over the next two years to cover team losses, sources said.
MLB confirmed that the purchase price dropped because of "adjustments" but declined further comment. Corey Busch, a McCourt adviser who will remain at least a year with the Dodgers as a consultant, declined to comment.
John Moag, a sports investment banker, argued it was not the losses that drove News Corp.'s sale, but success.
"You have a company that got everything it needed out of the purchase," mainly the creation of Fox Sports West, a regional sports network, he said.
Still, it's not difficult to see why News Corp. would want the Dodgers off its books. The company's Fox Entertainment unit disclosed last week in a quarterly report filed with regulators that it would take a $16 million loss on the sale of the Dodgers.
A News Corp. spokesman said that figure reflected the value News Corp. had assigned the Dodgers on its books compared with the sale price.
Staff writer Liz Mullen contributed to this story.
