Friday, February 19, 2010

The Tax Angle of the Tax Dodging Dodger

I wrote here in agonizing the detail of the split up of Jamie and Frank McCourt, owners of the Los Angeles Dodgers (Well, Frank is an owner, Jamie may be, depending who you ask. Frank and his lawyers say, "No." )

At the time of my original piece, The Los Angeles Dodgers, The Pillsbury Doughboy and Money, it certainly appeared that this was more than a one act play, and, indeed, Jamie has just returned to the stage. Last we left this unhappy couple, unhappy at least when they are around each other, Frank was claiming that he was down to his last $100 million. Jamie claims he is hiding billions. To prove this, she has now filed a document that purports to show that Frank, seeing how the Chinese will buy almost any absurd amount of U.S. Treasury debt, is trying to get in on the act and sell the Chinese a new firm he has thought up in his head, Global Sports Partnership LLC. In this Frank vision, he will put the Dodgers, and seemingly to get the Chinese to understand that this truly is a new global enterprise and not a desperate act of a man trying to raise cash, he will, get this, start buying soccer teams in England and China.

WSJ reports:
The memorandum was offering to sell a 7% stake in Global Sports for $150 million. The memorandum shows it was being presented to Citic Group, a Chinese industrial and financial conglomerate. The memorandum quotes Mr. McCourt welcoming Citic "as a founding partner" of Global Sports
Jamie has not worked out the math, for us all, to explain how a guy trying to hustle 7% of the Dodgers, mixed in with some kind of mad scheme to buy soccer teams, for $150 million is hiding billions, but this she insists proves the case.

Of course, hell hath no fury like a woman scorned by her husband after he catches her with the company's director of protocol, which means this is scorched earth time in the eyes of the lady.

As a starter, she has taken the blow torch and revealed the secret way the real estate rich live tax free in an age of inflation. WSJ again:
Ms. McCourt's filing also said that between 2004 and 2009, the couple received, directly or indirectly, payouts from their enterprises that averaged over $2.3 million a month. That the money was "almost entirely on a tax-free basis," the filing said. The filing said that Mr. McCourt, who built his fortune as a real estate developer in Massachusetts, followed the pattern of many developers by living off cash from lines of credit and loan proceeds, which wouldn't immediately be taxable. Capital gains taxes would be paid when the underlying properties were sold, the filing said.
This, indeed, is a very clever tax dodge to use during a period of inflation inspired increases in assets.

Jamie may be too busy to notice that we are in the Great Recession and that assets prices have been crashing, which is not a very good thing if you are borrowing money against those assets to the tune of a couple of million a month, to use for living expenses.

One would need a fuller picture of all of Frank's assets and how much he has borrowed against them to really understand how tight or not tight things are for Frank, but one thing is becoming clear, and Jamie may not realize this, by what she has revealed, Frank may be financially in the ninth inning with only an out or two left. He may be behind in the count, down by a couple of runs and the IRS may be getting ready to head to the mound to pitch against him.

Frank appears to be a hustler so he may be able to surprise the IRS and lay a bunt down to get on base to keep the rally alive. As for Jamie, this is really like a baseball game that she has decided to play with a football helmet and shoulder pads on, that is they are on as long as the former director of protocol is not around.

Stay tuned.

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