What's Good For the Dodgers Isn't Good For America
Like big banks, the Los Angeles Dodgers are “systemically important" -- but what works for baseball doesn’t work for America. Imagine a company with too much debt. The firm can’t make payroll. It declares bankruptcy to work out its obligations.
Government regulators decree that the company’s executives can’t act in what they think are their firm’s best interests. This enterprise is too big to fail.
Any deviation from normal business is dangerous to competitors and disruptive to customers. A bailout and banishment of current owners would be better.
A global bank, circa 2008? No -- the Dodgers under owner Frank McCourt, last week.
For his part, Major League Baseball Commissioner Bud Selig resembles Bush-era Treasury Secretary Hank Paulson. In a crisis, what Selig says goes. Executives who challenge him risk exile.
One week ago, McCourt filed for the Dodgers in federal bankruptcy court. With more than $600 million in debt, he can’t pay ballplayers. He’s got a dispute with a counterparty -- his ex-wife -- that’s another unknowable financial drain.
McCourt insists he can fix his problems through the court’s rule of law. In bankruptcy, he’ll borrow $150 million at luxury-box rates from a JPMorgan fund. That loan will tide him over ahead of a cash inflow for TV broadcasts. (The judge has approved part of this plan).
But Selig and baseball officialdom won’t have it. “Baseball” would rather use its own resources to tide the team over. Baseball can borrow for cheaper (like the U.S. government). Then, MLB likely would seize the ballclub and sell it to a new owner, with current creditors protected from loss and from uncertainty, too.
Selig will argue baseball’s position. “In pursuing his own financial interests at the expense of the club, overleveraging it and draining millions of dollars for capital investment and operations, Mr. McCourt has placed the [Dodgers] in their current, incredible position,” the commissioner noted in court.
If the Dodgers were a creature of free-market capitalism, McCourt would be right. He may be a greedy, reckless owner who has harmed the Dodgers. But those issues would be for McCourt and creditors to sort out in court. If they failed, then the Dodgers could fail. A new team with superior executives would come along. Except for one detail.
Baseball may be American, but it is not a free market. MLB regulators control which enterprises are allowed to play the game. Teams can’t appear and disappear. “MLB views the Dodgers as one of its cherished crown jewels,” league lawyer Thomas Lauria told the L.A. Times.
Teams can’t miss payroll -- and to make sure they don’t, they can’t take on too much debt. “We’re here to protect the team,” as Lauria put it.
McCourt should have known these rules. McCourt knew, too, that when the rules aren’t clear, the commissioner has extraordinary discretion. If McCourt didn’t like these risks, he could have stayed out of this exclusive club.
What happens in baseball is becoming a model for the country.
Companies like the insurer AIG, Bank of America, and General Motors can’t fail. Like the Dodgers, they’re cherished crown jewels. After the 2008 meltdown, the Obama administration followed the Bush White House in using extraordinary powers to treat “important” companies as they saw fit -- rather than allowing the rule of law to govern.
This approach wasn’t an aberration of the acute crisis. The Dodd-Frank law gives regulators Selig-like powers to seize large or complex financial companies, whenever officials think that normal liquidation or bankruptcy is too damaging to the economy. Problem is, the U.S. economy is not a pastime.
Finance, in particular, is the part of the economy that allocates capital to all other parts of the economy. Finance needs free-market competition -- not an entertaining facsimile of it.
This piece originally appeared in Washington Examiner
This piece originally appeared in Washington Examiner