According to the Times' Bill Shaikin, the Dodgers have been paying tens of millions of dollars of rent on their own land. This year's tab to use the property the club already owns? $14 million. So what is this figure, and what does it really mean? Well, first a technical detail, then a breakdown of the money:
In 2006, two years after purchasing the team, Frank McCourt divided the stadium property into three parcels and established Blue Land Co. to own two of them. Those two parcels, parking lots immediately surrounding the ballpark, serve as collateral for a $60-million loan, court records show.
The Dodgers pay rent to Blue Land, which is not involved in stadium operations.
[Dodgers CFO Peter Wilhelm] said Blue Land expects to allocate $5 million of this year's rental fees to McCourt, about $4.5 million to debt service and about $4 million to construction managers.
The money for construction is to go primarily to another McCourt entity, the John McCourt Co., that has two employees — Geoff Wharton, the Dodgers' chief operating officer, and his assistant.
The key factor here is that much of the financing the team has arranged caps direct payments to ownership at $5 million per year. This figure became important in the early stages of the divorce, as Frank pointed to restrictions on his income when arguing for a lower support obligation to Jamie. Payments from Blue Land to ownership, however, are outside the scope of the financing-related cap on ownership's take from the team.
So why rent? First, it's beneficial for tax purposes. It is usually deductible as a business expense. From a tax perspective, it is often better for businesses to rent or lease than it is for them to own property. Rent and lease payments are expenses, whereas property ownership is treated as a long-term asset. This dynamic is what leads to the very common sale/lease-back mechanism, in which one sells an asset and then leases it back. You get the benefits of ownership and renting.
I'm not sure that's what's going on here, but you can be certain that the tax, finance, and accounting benefits of making rent payments led to this arrangement. The issue, of course, is the true nature of the payments. Given that the rent is well above market price, and only about a third of the rent payment goes to servicing the debt encumbering the property in question, it sure appears that this is a (now) transparent way of moving money within the Enterprise in a way to make soft payments appear proper.
Several times throughout this saga, we've had a glimpse into the way ownership used the complexities of the Enterprise to its advantage. Whether it's payments outside the finance caps, keeping McCourt sons on the payroll, or classifying soft distributions as rent, it is clear that McCourt and Dodger lawyers and accountants are taking every advantage of the complex structure of the Enterprise. Such arrangements, while not at all uncommon, have certainly left a bad taste in fans' mouths.
To those of you who have contacted me about a small get-together in Los Angeles during my trip this week, I'll have something for you shortly.