Dodger Dog

Jamie McCourt is only the latest to get the raw end of a deal.

August 5, 2010

The Los Angeles Dodgers made a rare trip to Boston in June to play the Red Sox. For Dodgers owner Frank McCourt, burdened by a messy and public divorce, it was a chance for a homecoming. McCourt took the opportunity to host a party.

The guest list contained many of his hometown friends. But it pointedly did not include other people from McCourt's past: a handful of local real estate developers who had partnered with McCourt decades before and were most responsible for launching his career.

Among the uninvited was Jim Craig, who got to know McCourt when the latter was a 24-year-old condo developer with big dreams and an appetite for risk. Craig was 30 years older than McCourt, more experienced, and more cautious.

The two fought over a piece of land that would become the cornerstone of McCourt's real estate empire, and the collateral for his purchase of the Dodgers. Their parting was not amicable.

“It's one of those sad cases,” Craig told the Weekly recently. “You have people who are that ambitious and have the brains. It's just too bad they don't have the scruples to go along with it.”

Craig went on to earn a degree in education when he was 65 and finished his career as a teacher in the Boston public schools. He is now 85, and has been legally blind for the last 15 years.

One of the last times Craig saw McCourt was in a men's room, nearly 30 years ago. As they stood side by side at the urinals, Craig said, “Frank, I really would never contemplate doing any business with you ever again.”

But he wished him luck.

McCourt has been fortunate indeed. He and wife Jamie McCourt have carved out a life of private jets and lavish homes. But for a very successful real estate developer, he has actually developed very little.

McCourt's former business partners, who tell their story here for the first time, say that's because he can be impossible to work with. In fact, he can be implacable and even ruthless with his partners, whether they are fellow developers, the taxpayers, or — in the case of the divorce — his wife.

Like a marriage, a real estate partnership has to endure over the long term and against unforeseen adversities. Such relationships are committed to writing, but at some point they all run on trust.

Craig and other partners interviewed by the Weekly came to see McCourt as a guy who could not be fully trusted — someone who, when the moment came, would grab an opportunity even if it meant leaving his partner behind.

Jamie McCourt is only the latest to experience it. In the divorce trial, scheduled to open in Los Angeles County Superior Court on August 30, she is fighting an uphill battle for co-ownership of the team.

Both sides have dug in to the point of near-total warfare. Instead of signing top-tier free agents, they have been hiring star litigators.

If Jamie loses, she will wind up with something like 15 percent of the couple's assets. That may be unfair — or even immoral — but from a legal standpoint, McCourt has the stronger argument.

There's an irony in that, and it's one that Jamie seems to appreciate. After enjoying the fruits of her husband's give-no-quarter style for nearly 30 years, she is now bearing the brunt of it.

In one of her court declarations, she said she had firsthand experience of her husband's tactics: “I know that Frank is very litigious and that he employs a 'scorched earth' litigation philosophy,” she wrote.

Frank McCourt declined to be interviewed for this story.

The divorce has been bad for both of them, revealing their cavalier use of Dodger money and their loosening grip on reality. Given that, the sensible thing would have been to settle a long time ago. But the McCourts didn't get where they are by mastering the art of compromise.

The McCourt family has been involved in construction in Boston since the 19th century. When young McCourt returned from Georgetown University, though, he opted not to stay with the family business, preferring to set out on his own. He was not an instant success.

On one of his first condo projects, in a former olive oil factory, he ran out of money. Residents sued to force him to finish installing the floors in the hallways and the elevator.

“He was just a baby starting out,” says Marie Toppi, who was his bookkeeper. “He was very intelligent. You knew he was going to do well.”

On a Boston project in the late 1970s, McCourt partnered with two more experienced developers: Jim Craig and Austin Heath. McCourt has touted the development, known as Union Wharf, as one of his early successes. But Craig and another investor, Mahmoud Ketabi, have a different view. They tell the Weekly that McCourt failed to come up with a $245,000 equity investment, allegedly forcing Ketabi to provide the money at the last minute.

Even if Union Wharf wasn't really a McCourt success story, Craig and Heath teamed up with him again to buy and develop an old waterfront Boston rail yard — the property that eventually became collateral to buy the Dodgers. McCourt provided the equity — $300,000 — while Craig and Heath provided the expertise in financing and development.

The rail yard belonged to the bankrupt Penn Central Railroad, which was looking to lessen its tax burden.

“I'm the one who found it,” Heath tells the Weekly. “The Penn Central plain didn't want it. … It was there for the taking.”

In 1978, the three men secured an option to buy 24 acres from Penn Central for $3.5 million. To understand what a bargain it was, consider that when the same land sold to another developer in 2006, it was worth $203.7 million. It had appreciated 5,800 percent.

But in 1978, McCourt and his partners did not have $3.5 million, and they couldn't get anyone to lend it to them. This was the source of tension and the eventual rupture in the partnership.

It was clear that it would take years to develop the property, and banks were reluctant to make such a long-term investment. After scratching around for a couple of years with no luck in securing financing, Craig and Heath decided the most prudent thing would be to sell the option to a major developer. They would make a profit, and they could wipe their hands of the situation.

If they didn't sell the option and no angel investor materialized, the option would expire on December 31, 1980, and become worthless. They would lose three years of work.

But selling the option did not fit with McCourt's vision. McCourt tends to think in 50-year increments, and in this instance he saw the future of South Boston spreading out at his feet.

He fired Craig and Heath. They sued, claiming McCourt had no right to fire them. Within a couple of months, they reached a tentative truce. McCourt would have until December 15 to find someone to finance the purchase of the land. If he couldn't meet that deadline, then Craig and Heath would be allowed to sell the option by December 31.

It seemed like a workable agreement, but on December 15 the two sides could not agree on whether McCourt had come up with the money. He claimed that he had, while Craig and Heath said he hadn't. Craig and Heath promptly agreed to sell the option to Cabot, Cabot & Forbes, a large New England real estate firm that jumped at the chance to acquire the waterfront land at below-market price.

McCourt continued to scramble for financing after December 15 — strange behavior for someone who said he had financing secured.

The dispute continued right down to the wire, on December 31. According to Craig, McCourt hid the title from CC&F. Just before the recorder's office closed on December 31, when the land would have reverted back to the Penn Central trustees, McCourt and CC&F reached a new agreement. CC&F would buy the option for $1.6 million, and buy the land from Penn Central. McCourt would get a new option to buy the land from CC&F by April 2, 1981, for the price CC&F had paid, plus $3 million.

With Heath and Craig now out of the picture, McCourt battled to buy the land from CC&F. On the night before the new option was to expire, McCourt found his angel. He was David Chase, a Connecticut developer, who saw a good deal and offered McCourt a loan of $9 million.

But real estate is a tough business in Boston, and CC&F showed that it could play hardball as well.

As per the agreement, McCourt's letter exercising the option was addressed to a CC&F subsidiary. The letter McCourt sent them was returned unopened, because CC&F had cleverly failed to inform the mail room of the subsidiary's existence.

On April 2, 1981, McCourt's lawyer had his secretary walk the notice over to CC&F's office. But on instructions from her boss, the secretary at CC&F refused to accept it and ended up throwing it on the floor in the hallway. In a dramatic moment, McCourt's lawyer went to the CC&F offices at 10:30 p.m., persuaded the security guard to unlock the door and deposited a letter on the secretary's desk, with 90 minutes to spare before the option expired.

CC&F refused to acknowledge receipt of the letter, forcing McCourt to sue. CC&F held on to the property for nearly six years before a judge ruled in McCourt's favor.

For Heath and Craig, both now in their 80s, the episode left a bitter taste. Craig said he was rewarded for his three years of effort with a $356,000 property-tax bill, which wiped out most of his profit from the sale of the option. Heath said that when the relationship went sour, McCourt sued him for $100 million — a figure so preposterous that Heath called McCourt to say he was flattered.

“I would never count on Frank McCourt to back me up,” Heath says. “He'd always go for the quickest and biggest buck. If that meant someone else was left behind, that's okay.”

After McCourt won the land from CC&F, he engaged in a legal battle with his lender, Chase, who claimed his investment entitled him to a third of the land. Chase's partner, Olympia & York, claimed another third.

McCourt argued that his equity partners had forfeited their rights by abandoning the CC&F litigation during its six years in court. In the middle of trial in 1992, Olympia & York went bankrupt, forcing a settlement favorable to McCourt.

These battles made McCourt's reputation as a fearsome opponent. But being a successful developer requires, at some point, a spirit of cooperation. And that wasn't his strength.

“This is not the kind of permanent partner I wanted to be involved with,” says Chase, a Holocaust survivor and philanthropist. “I did not need that. I'd rather have no relationship than have a relationship that will be problematic in the future.”

Chase says he was bought out for pennies on the dollar.

“He forgot what we did for him,” Chase adds. “Without us, he could not have had the property.”

McCourt had been a nobody in the Boston real estate world. But when the ruling was issued in the CC&F case, on January 26, 1987, granting him title to what became known as the Seaport property, his days of hustling and begging were over.

Now, suitors came to him. Among the first to approach was the Commonwealth of Massachusetts.

The city of Boston had visions of a redeveloped South Boston waterfront, with retail, midrise condos, hotels, cultural institutions and a convention center. The city wanted McCourt and other private landowners in the area to work in concert to achieve the plan.

But McCourt's role would have to wait, because the state Department of Highways had an even bigger plan: the Big Dig — a $14 billion project to tunnel through the heart of Boston. The city also had to realign the streets to make way for development, while the local transit authority wanted to build an underground busway to Logan International Airport. All of that required borrowing or taking slices of McCourt's land.

CC&F had turned the rail yard into a parking lot, and when McCourt took over he found himself the proprietor of a profitable business. With about 3,000 spaces, the lot generated almost $4 million in annual profits by 2004.

Starting in 1991, the Department of Highways borrowed 12 acres for a period up to eight years, and took another seven acres in exchange for other parcels. For his troubles, the state also paid McCourt about $30 million.

But he sued, arguing that the true costs for lost parking revenues and delays to his plans to develop the property were much higher, perhaps as much as $140 million.

McCourt hired the top eminent-domain firm in the city, and the best lobbyists. In a settlement reached in 1997, the government agreed to pay an additional $57.5 million — bringing the total from the state to $87.5 million. In return, McCourt agreed to pay $25 million to help build an underground bus station. Even so, he made $62.5 million from the state.

It was the costliest eminent-domain settlement on the costliest highway project in U.S. history.

The figure is staggering considering that McCourt got most of his land back, along with some new parcels that were awarded in land swaps. With the streets newly laid out and ready for development, the land was more valuable than when it was taken from him.

Most of the land the state borrowed was never even used for its intended purpose, as a staging area for construction of the Ted Williams Tunnel. This drew sufficient attention to provoke an outcry from Sen. John McCain, who grilled Big Dig officials about it at a Senate hearing in 2000.

“It seems to me that somebody made a very nice windfall of about $50 million, got the property back, which is remarkable,” McCain said. “I know real estate prices are quite high in Massachusetts, but $50 million for a vacant lot, it seems to me, is a little bit extravagant.”

Even though McCourt was handsomely compensated for being denied the ability to develop the property, once he did have an opportunity, he was unable to build. He presented a series of designs over the years, but none materialized. He fought with neighboring landowners and city planners, and seemed never to find a plan that lived up to his vision.

By 2006, Mayor Thomas Menino got so fed up with the lack of progress toward developing the land that his administration threatened not to renew the parking permits.

Shortly thereafter, McCourt transferred the property to Rupert Murdoch's News Corp. to pay off a loan that helped him buy the Dodgers. Murdoch sold the land in turn to a developer, who is still trying to build something there. For now, it's still a parking lot.

To date, probably the biggest project McCourt has built is Camelback Ranch — the new Dodgers spring-training facility in Arizona. But he didn't actually build it. The taxpayers of Glendale, Arizona, did, for $150 million.

Lately there are troubling signs that it was a very bad investment — though not for Frank McCourt.

A few months before they separated in July 2009, the McCourts were named “Power Couple of the Year” by the Los Angeles Business Journal. The accompanying profile was fairly glowing. They were hailed for their business acumen and their civic leadership.

But there were also hints of trouble.

“Within their marriage, the McCourts have a simple method for resolving conflicts,” wrote Business Journal reporter Joel Russell. “They keep arguing until one side gives up.”

This was perhaps the first public indication that the implacable McCourt business style also applied to the McCourt marriage.

But behind the scenes, Dodger executives had already been playing marriage counselor for years.

From e-mails and documents made public in the divorce proceedings, the central disagreement in the marriage apparently was between Jamie's desire for security and McCourt's appetite for risk. In that respect, it was not so different from McCourt's dispute with Craig and Heath.

Without leverage, the McCourts never would have owned the Dodgers. With it, they used a 3,000-space parking lot to buy a team, a stadium, a spring-training facility, a Dominican baseball academy and, don't forget, a 16,000-space parking lot surrounding the stadium.

Flying in the face of an MLB rule that limits owner debt to 40 percent, almost the entire purchase was financed with loans from News Corp. and Bank of America.

It was a big gamble, and it carried risks.

At this point in her life, Jamie was becoming risk-averse.

In April 2008, Jeff Ingram, a Boston real estate banker who had worked for the McCourts since 1999, wrote an e-mail to both McCourts titled “Getting on the Same Page.”

“The most important thing that has to be accomplished is for the two of you to get on the same page on both the family finances and aspirations and the strategic direction of the companies,” Ingram wrote, sounding more like a therapist than a banker. “If there are common goals, I believe the journey will be more fulfilling and enjoyable for you and for everybody else.”

For her own sense of comfort, Jamie wanted to have $250 million in the bank. Given that the McCourts owned mostly large, illiquid and leveraged assets, the only way to achieve Jamie's goal, Ingram wrote, would be to sell a minority stake in the Dodgers.

That was directly counter to McCourt's ambitions, which involved not only holding on to full ownership of the team but also building a football stadium and ultimately turning his company into a global sports enterprise.

“If you aren't on the same page,” Ingram wrote, “I sincerely hope you can have the conversation in the spirit of 'Look what we accomplished' and 'How do we want to spend our time going forward.' Please appreciate the moment and work together to determine what is best for you and your family. … From a personal perspective, I really hope you can find a common ground.”

It didn't happen. In November 2008, McCourt sent an e-mail to Ingram in which he contemplated raising an astounding $600 million in fresh equity to expand the business into a global sports enterprise. He seemed particularly excited because his two oldest sons, Drew and Travis, were onboard and eager to be seriously involved in the family business. This would prepare them for someday taking ownership of the team.

Of the $600 million, $47 million would go to the family, which McCourt thought would give Jamie more “peace of mind.”

In reality, McCourt's ambitions could not have been in greater conflict with Jamie's desire for security. Ingram understood this better than anybody. In a one-line e-mail to McCourt, he wrote, “I assume you realize all eyes will be on Mama Bear to see how she embraces new direction.”

In the midst of this conflict, the McCourts sat down for an estate-planning session. Jamie says it was then that she first learned what would happen to their assets in the event of a divorce.

Jamie and McCourt had signed a marital-property agreement upon moving to California in 2004. The agreement was intended to protect the couple's houses from creditors. Under California's community-property laws, the houses could be at risk if the Dodgers went bankrupt.

The agreement appears to be in keeping with Jamie's aversion to risk, and there is a strong legal argument that she should be made to live by it. The houses — a stable, secure investment — were put in her name. The team was put in McCourt's name.

But as the estate planner explained, if they divorced, McCourt would keep the team and Jamie would get the houses. Forbes estimated the team was worth $700 million, almost double the $371 million purchase price, and seven times the value of the houses.

This, Jamie and McCourt agreed, was not what they intended. In the summer of 2008, the couple decided to draft a new agreement that would make the team community property. But McCourt quickly had second thoughts. If he signed it, he would have some peace in the marriage. But their fundamental conflicts would remain, and if they later divorced, they would probably have to sell the team.

For nearly a year, Jamie pursued him and pleaded with him to sign it. When at last he refused, the marriage was effectively over.

When Jamie filed for divorce, shortly after being fired by her husband in October 2009, it was only a matter of time before all the McCourt family secrets came tumbling out.

The details seem to invite comparisons to the court of Versailles, and indeed McCourt's lawyer did compare Jamie to Marie Antoinette at a spousal-support hearing in March. (That would make him Louis XVI, so it would be bad news for both of them.)

In a deposition, McCourt acknowledged that over time, their spending became excessive.

“I think that the lifestyle that we had here was a great lifestyle in the beginning,” he testified. “I think it became an out-of-control, unsustainable and very uncomfortable lifestyle.”

Dodger executives complained that the McCourts used the team like a credit card. From 2004 to 2009, they collected $108 million from the team for personal use. This was done haphazardly, as the need arose, and without any sort of up-front financial planning.

They paid $150,000 a year for haircuts.

They flew on private jets.

They ate at the finest restaurants and wore the finest clothes.

They stayed in luxury suites.

They had round-the-clock security. (Their head of security, Jeff Fuller, would become Jamie's boyfriend.)

They had seven homes and belonged to seven country clubs.

They bought two homes in Malibu for $46 million; two in Holmby Hills, across from the Playboy Mansion, for $26.5 million; and spent $14 million installing an Olympic-sized pool, so Jamie would have somewhere to swim.

Over the same period, the McCourts paid no income taxes, thanks to a quirk in the tax code affecting owners of sports franchises.

Much of this would be of no more than prurient interest, were Dodger fans not helping to fund the couple's spending through higher ticket prices.

Under the McCourts, the price of the average Dodger ticket has gone from $18 to $30. The parking fee has gone from $8 to $15, high enough that neighbors have complained about fans parking on local streets and walking into the stadium.

That revenue has paid for some stadium renovations, and been used to refinance the McCourts' leveraged purchase of the team. But it has also funded the McCourts' lifestyle, which they now acknowledge was out of control.

It isn't just that they spent too much money. They also seemed to go a bit nuts.

As Bill Shaikin reported in the L.A. Times, they consulted a Russian physicist, Vladimir Shpunt, who claimed he could heal people with the energy in his hands. He was consulted first on a medical issue, then on player moves. He was also paid a six-figure salary to watch Dodger games on TV at his house in suburban Boston and — the pun is tired but irresistible — “Think Blue.”

Jamie considered running for president, on a platform of education and “family improvement.”

They put Drew, 28, and Travis, 27, on the team payroll, though both had other full-time obligations. Drew was paid $400,000 a year to provide his opinions to Dodger management, a job many fans do for free on the Dodger Talkpostgame show. He was given no specific tasks, and was enrolled in the MBA program at Stanford.

So far, there's little evidence that Drew has inherited his father's precocity in business. An avid surfer, he took a $150,000 loan from his mother and invested it in Clout, a Malibu surf shop. According to Clout's Web site, Drew “has been crucial to Clout on keeping it's [sic] old-school roots and renegade kick-ass attitude.”

In addition to surfing, it seems, Drew is a big fan of soccer. So McCourt engineered a proposal to buy an English Premier League team. In the business proposal to CITIC, a Chinese state-owned enterprise, Drew was listed as “managing director — Europe,” with responsibility for buying the EPL team and for stadium development.

Travis, meanwhile, was paid $200,000, though he worked full-time at Goldman Sachs.

In addition, there appear to be plans to raise ticket prices further still. In the CITIC proposal, the Dodgers said that their tickets are still “relatively inexpensive and there is substantial room for prices to increase without resulting in a decline in attendance.”

The proposal contemplated an average ticket price of $53.50 by 2018. The parking fee would be $40, while player salaries would be held nearly flat.

Those figures might have been wildly unrealistic — an attempt, perhaps, to hoodwink Chinese investors — but they should alarm fans nonetheless.

The Chinese, meanwhile, didn't bite.

“They're awfully cautious on non commodities investments,” says Bart Fisher, an adviser to CITIC on U.S. investments. “The last thing the Chinese want is to be publicly flagellated when Manny [Ramirez] screws up.”

These revelations have been damaging to the McCourts' public image, but it's not clear that they've affected attendance. The Dodgers led the majors in attendance last year. So far this year they are third, and the per-game average has slipped by about 1,600 fans.

That could have as much to do with the economy or the team's inconsistent performance as with the revelations around McCourt and Jamie.

The recession accomplished what Jamie could not; it forced McCourt to trim his sails.

He had once hoped to raise $600 million in new capital. In August 2009, he cut back his goal to $125 million.

By most standards, even his scaled-down plans were ambitious. In an e-mail to the sports finance desk at Bank of America, Ingram explained what the money would be used for. Some would go toward securing rights to build a football stadium and large-scale commercial development in the parking lot at Dodger Stadium.

Some would go to “a campaign to get public investment for infrastructure at the [Dodger Stadium] property, including mass transit” — likely a light-rail line. Ingram noted that would entail “efforts at federal, state and local levels.”

Aside from that, McCourt has long wanted to launch a regional sports network, which could add $1 billion in value to the Dodger franchise. But Ingram said it would be best to hold off on raising money for that until closer to 2013, when the Fox TV contract expires.

Even those trimmed-down ambitions, however, were put on hold when Bank of America rejected McCourt's request for capital.

Also on hold is the “Next 50” project — a $500 million plan, announced in 2008, to revitalize Dodger Stadium in time for its 50th anniversary in 2012. For now, McCourt has ordered his employees not to spend money on it.

The recession also helped to scuttle the CITIC partnership. At least at the moment, there are no plans to buy any soccer teams or establish a global sports empire.

As fans are well aware, the Dodgers' player payroll is down this year, to $95 million. McCourt emphatically denies that this is due to the divorce, and it does appear from Dodger financial records that the intent to cut payroll predated the McCourts' split.

This year, McCourt tried to borrow $10 million to cover legal expenses and couldn't. More recently, he has had to borrow money from his brother and business partners to make his monthly spousal-support payments.

The divorce trial looms as a big unknown. Though McCourt has the upper hand, he and Jamie each have something to lose by taking the case to trial. Jamie's lawyers, led by superlawyer David Boies, are challenging the validity of the marital-property agreement. She claims she didn't know what she was signing, and Judge Scott Gordon could rule that it unfairly favors McCourt and decide to split their assets 50-50.

They may still settle before the case goes to trial. But to do that, they'll have to overcome their instinct to keep fighting until the other one gives in.

On the eve of trial, David Chase has some unsolicited advice for his former business partner: “I hope he comes to his senses one day and realizes that money is important, but family and people are more important. It's just a shame.

“So many young people when they get a lot of success, then the friends of yesterday are no longer important. Money is all that is important. That's the pity of it all.”