Tuesday, July 5, 2011

3 Personal Finance Lessons from the Dodgers' Bankruptcy Debacle

The Dodgers are among the most historic and beloved teams in Major League Baseball.* From team executive Branch Rickey hiring Jackie Robinson, the first African-American player in the majors, to Sandy Koufax's perfect game in 1965 (27 batters up, 27 batters out!), to Kurt Gibson hobbling up to the plate in the 1988 World Series with the game on the line and smacking a home run over the right field fence, the Dodgers have had more than their share of exciting moments.

However, in more recent days, the team's prospects have looked bleaker. There was Manny Ramirez, the team's big dollar acquisition, who missed a huge chunk of the season a few years back for violating the league's drug policy. Earlier this season, a couple of Dodgers fans severely beat a visiting Giants fan and put the man into a coma. And to top it all off, last week, the Dodgers' owner, Frank McCourt, announced that his team was filing for bankruptcy in order to free up some money to pay for the team's day to day expenses.

Now, anybody can get into a tight place, but I'm sure a lot of people think that professional sports teams that have the recognition that the Dodgers could never find themselves so far behind the 8-ball that they need to declare bankruptcy. As I looked at the story a little more closely, however, I found three key areas of the Dodgers' money woes that translate directly into a personal finance discussion.

1) It appears the genesis of the team's money issues stems from McCourt's divorce. If the McCourts are trying to split assets right down the middle, things become pretty easily muddled when one of those assets is a team of living, breathing ball-players. In fact, McCourt's recent television deal (that was rejected by league Commissioner Bud Selig) was, in part, an attempt to raise funds for a divorce settlement.

Personal finance lesson? Divorce Is Expensive. Ideally, when you get married, you are planning on spending the rest of your life with that person (though, as Flexo at Consumerism Commentary recently argued, there are times when a pre-nuptual agreement might make sense). In any case, it is worthwhile to really evaluate the person you are considering marrying to see if you think that a life-time commitment is something that you think is possible. If not, the consequences to your finances (and your personal well-being and happiness) can be dire.

2) As I mentioned above, the Commissioner rejected the Dodgers' television deal. He did so because he didn't think it was "consistent with the best interests of baseball," and that he thinks that "the action taken ... by Mr. McCourt does nothing but inflict further harm to this historic franchise."

Personal finance lesson? If You're Not the Boss, You Can't Make the Rules. If you are trying to advance your career, make sure that the work you're doing is making your boss happy. McCourt is unable to effectively run his team efficiently, and so Selig is denying him the opportunity to make money from a media deal. If McCourt had been responsible with his primary task (running the Dodgers), it stands to reason that Selig would have been more responsive to McCourt's branching out.

3) Remember Manny Ramirez? The player who was suspended for violating the league's drug policy and missed 50 games on the 2009 season? Court documents released last week show that the biggest single amount that is owed by the Dodgers is $21 million dollars, which they owe to Manny Ramirez. Oh, also, Manny Ramirez retired from baseball in April of this year (many people think it was because he was likely going to be suspended again for another drug violation). So, to put that more plainly, the Dodgers owe a huge sum to a player who doesn't even play baseball anymore. The Dodgers signed Manny at age 35, which is well into the winter of most baseball players' careers. He repaid the Dodgers for their generous contract by getting suspended, followed by leaving the team, followed by leaving baseball.

Personal finance lesson? Be Careful of Buying Too Much at the Wrong Time. It is true that Manny had had an exciting career with the Red Sox, but the Dodgers should have realized that age wears a body down. Still, people like to be optimists. Consider the run up in housing prices in the mid-2000s; everybody thought prices would keep going up forever, and very few people realized how over-valued real estate was actually getting.** Just as the Dodgers face bankruptcy, so too do many people who bought into a market that just couldn't seem to stop going up. Until it did.

In short though, I sincerely hope the Dodgers are able to overcome their monetary problems and get back to focusing on baseball for a variety of reasons. One of the most compelling reasons to me personally is that my favorite baseball player when I was a little boy was Don Mattingly, who is now the manager of the Dodgers. Maybe McCourt should take a lesson from Donnie Baseball, and learn to keep his eye on the ball, and focus on what a baseball team should focus on: baseball.

What do you think? Are the above reasonable points? Leave me a comment; I'd love to hear your feedback.

*And that's coming from a Padres fan, so you KNOW it's gotta be true!
**For more on just how few people realized it, check out Michael Lewis's The Big Short, which is an excellent book on the real estate crisis.

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