By Edwin A. Machuca, Esq.
Professional sports franchises are hardly immune from the economic downturn. To date, attendance is down in MLB, which admittedly could also be related to many factors, including bad weather. The NBA and NHL are also seeing a slight dip at some of its post-season games, although some of that may be related to the interminable length of the post-season for both sports. More surprisingly, the most popular of all professional sports leagues, the NFL, has had to “black-out” certain regular season games due to poor attendance.
Growth in professional sports is generally prompted by a number of economic, political and social factors. More importantly though, the sustainability of a franchise is more likely than not determined by the individual owner or the ownership group running the operations for the particular franchise.
In today’s post-economic meltdown era, mighty titans of industry have been brought to their knees and forced to reevaluate their financial strategies for survival going forward. The sports industry in general and team owners in particular have not escaped the harsh realities that have befallen the U.S. economy since late 2008. However, struggling to survive the greatest economic crisis to hit the U.S. since the Great Depression is only one aspect of the story. The U.S. economy was flying high prior to the “great recession of 2008” and unless you could predict the future, no one could anticipate the domino effect triggered by the collapse of Lehman Brothers and others of that ilk. Nevertheless, many of the ills that continue to plague several teams today can be traced back to a time well before 2008.
Mismanagement, organizational instability, and poor personnel decisions are not a byproduct of the 2008 economic collapse, but instead are indicative of the culture of some professional sports franchises. One need look no further for evidence of the foregoing than the situation the owners of the New York Mets and Los Angeles Dodgers, respectively, currently find themselves in. The former fell victim, along with countless others, to disgraced financier Bernard Madoff and his infamous ponzi scheme, and the latter has become undone due to his spend-thrift ways and costly divorce from his wife of 30 years. The situation has become so dire for the New York Mets that this past November, its owners, Fred and Jeff Wilpon, received a $25 million loan directly from MLB to meet operating costs. Unfortunately for the New York Mets, their colossal investment error with Madoff, along with their real-estate business taking a pounding as a result of the 2008 economic collapse has been compounded by the lawsuit brought by Madoff trustee Irving Picard in which he seeks a whopping $1 billion in damages from the team. The maelstrom faced by the New York Mets has precipitated their decision, albeit reluctantly, to sell a considerable minority stake in the team (some figures estimate as much as 25 percent).
In the case of Frank McCourt of the Los Angeles Dodgers, his association with baseball has not been as long or as fruitful as that of the Wilpons. The Wilpons, by most accounts, have been worthy stewards of the New York Mets for the past 30 years, although, you may find more than a few of the Mets faithful who will vehemently disagree with that assessment. McCourt, on the other hand, purchased the Dodgers in 2004 and has essentially bled the franchise dry in an effort to bankroll his own lavish lifestyle. McCourt’s free spending ways resulted in his taking two personal loans, one for $25 million last September and a second for $30 million from his TV partner Fox. The second loan was needed to make payroll. The Dodgers situation has become so ugly that Bud Selig intervened by exercising his “in the best interests of baseball” power and having MLB take over the operation of the franchise from McCourt. MLB has taken such drastic action in the past when it ran the then Montreal Expos franchise for a number of years before selling it to an ownership group that moved it to its current home in the nation’s capital and giving birth to the Washington Nationals in the process. However, the Los Angeles Dodgers are not the Montreal Expos; instead, the Dodgers are a beloved franchise with a rich and storied tradition, and more importantly the Dodgers are one of MLB’s flagship franchises located in the second largest media market in the country. The actions of McCourt are an embarrassment to the sport and its fans.
The unfortunate part of this story is that there are other owners who are also worthy of the disdain being shown to McCourt and the Wilpons. Moreover, these owners exist across the spectrum of professional sports and not just MLB. Donald Sterling and James Dolan in the NBA and Al Davis in the NFL are just a few of the owners who have proven time and again that running a professional sports franchise is a challenging and complex undertaking that requires more than just money to be done effectively. Our society’s love of sports and the culture created by it is time-tested and will survive the likes of Frank McCourt and Donald Sterling. However, it is disturbing that the escapism offered by sports is being permeated by the greed and hubris of some owners who, for all of the wrong reasons, are becoming as well known as the athletes they employ.
Edwin A. Machuca is in-house counsel for CB Richard Ellis in New York City. He can be reached at edwin.machuca@cbre.com
