McCourt turns a classic double play; treats Dodger deal as property gambit.

It's the kind of deal that gives hope to the Everyman who has always dreamed of owning a major league sports franchise--especially those who watch late night "no-money-down" infomercials.

Fox Entertainment Inc.'s $421 million sale of the Los Angeles Dodgers to real estate investor Frank McCourt, finalized last month, isn't really a $421 million sale.

The number is actually $371 million because under terms of the deal, Fox, which is controlled by Rupert Murdoch's News Corp., agrees to refund $50 million by Feb. 13, 2006.

But that's just for openers. In classic real estate leveraging, the rest of the financing comes through what amounts to a seller-financed deal. The difference is that instead of securing the debt with the property being sold, Fox is looking to McCourt's other real estate holdings, mostly in Boston.

It is a lesson in how a motivated seller will do almost anything to unload an asset and a savvy real estate investor may barely dip into his pocket to pay for it.

"It's very common in real estate, especially if you're buying from a financial institution," said Jim Thomas, the L.A. real estate developer and investor who owned a majority stake of NBA's Sacramento Kings from 1992 to 1999. For a media company like Fox, though, "that's a totally different ballgame."

Ever since reports surfaced that McCourt was interested in purchasing the Dodgers, there have been questions raised about his ability to both finance the deal and operate the ball club, which had a payroll last year of $106 million, fourth highest in the league.

In the end, Major League Baseball Commissioner Bud Selig said McCourt was a qualified owner. "The banks were satisfied. We were satisfied," Selig said. "There's no doubt in my mind that he will be a good owner of a very storied franchise."

Fox funding

McCourt's deal with Fox starts with the $50 million refund, but according to filings with the Securities and Exchange Commission, there's a lot more.

In selling the franchise, along with Dodger Stadium and the team's training facilities in Veto Beach, Fla., and the Dominican Republic, Fox is lending McCourt $125 million for two years, secured by what Fox's filing with the Securities and Exchange Commission refers to as "non-team real estate."

There's another $40 million in a four-year loan secured by bank letters of credit, and a $31 million loan for three years that, if unpaid, Fox can convert into an equity stake in McCourt's real estate business.

Add it all up and Fox is essentially funding all but $175 million of the purchase price.

McCourt goes further. On Feb. 13, when the deal closed, he handed Fox $225 million in cash--$25 million of which he borrowed from Bank of America. "We ended up putting in just over $200 million," McCourt said in an interview last week from the Dodgertown spring training compound in Vero Beach.

Where that $200 million came from was not clear--McCourt wouldn't say. But as part of the deal for the team he agreed to extend Fox's broadcast fights for the Dodgers. That deal was worth $33 million annually through the 2012 season, about $300 million, the Los Angeles Times reported.

Fox has not disclosed terms of the extension, and Fox Sports Networks spokesman Lou D'Ermilio declined comment. But if any of those payments were front-loaded, that, too, would reduce McCourt's out-of-pocket costs.

And McCourt is not finished with his financing. Now he plans on bringing on an equity partner, preferably one from Los Angeles. "We haven't established all of our criteria," he said. "But to the extent that we bring in a third party, I know it would be a local investor. That would be high on my list."

'Somewhat creative'

Depending on the schedule of Fox's broadcast payments and the size of the third party's equity investment, McCourt could very quickly do something that Fox claims it was never able to: make a profit. In its most recent SEC filing, Fox said it would lose $16 million on its $311 million purchase of the Dodgers and related properties in 1998 from the O'Malley family.

"Seldom do you have a seller retain a position like this," said David Carter, principal at Sports Business Group. "This was somewhat creative."

But making the most of a deal is standard procedure for McCourt, who has spent the better part of the past quarter century as a player in--and occasion thorn in the side of--Boston's real estate industry.

Over the last 17 years, McCourt has amassed a collection of real estate in South Boston that did not always hold the promise of a decent return.

He tried to buy the properties from developers Cabot Cabot & Forbes in 1980, but litigation tied them up until 1987, when McCourt was finally awarded the land for $8.5 million, the Boston Globe reported.

A decade later, McCourt and the Boston Redevelopment Agency battled over a proposed land swap that would have allowed the Massachusetts Bay Transportation Authority to own his property that was to house a mass transit station. The swap never occurred, but MBTA agreed to build the station on McCourt-owned properly.

McCourt even pitched the site as a potential replacement for Fenway Park, longtime home of the Red Sox, when he made his 2001 run at buying that team.

"The Seaport District is an emerging, attractive portion of the downtown waterfront," said Michael Leon, partner at Boston-based law firm Nutter McClennen & Fish LLP. "(McCourt's property) is perfect, in terms of infrastructure access."

Boston real estate

In late January, McCourt formed McCourt-Seaport Management Corp. to "hold, develop, use, operate and ... finance and sell ..." the 24 acres in the Seaport District. He has pledged this property as the collateral for Fox's loan of $125 million.

McCourt has wasted no time marketing the property, though without a listing price. He is circulating a 20-page marketing booklet on the site, claiming, according to the Globe, that its 3,078 parking spaces generate $3.9 million in annual profits.

Officials at Cushman & Wakefield Inc.'s Boston office, which is circulating the booklet, did not return a call.

Gary Lemire, senior vice president in CB Richard Ellis' Boston office, said that with parking lots near downtown valued at between $10,000 and $20,000 a space, the overall site could be worth anywhere between $100 million and $200 million.

"We created a structure to buy the L.A. assets and not have to sell anything precipitously," McCourt said. He would not put a value on the real estate, though believes it to be worth "considerably more" than $200 million.

"Real estate is not as liquid as other investments," he said. "To maximize value, you need to have time."

Time can also work against a developer.

With Boston's commercial property market in a three-year downswing and a number of competing properties on the market, McCourt's timing could be better, said Lemire.

The Pritzker Family, which controls Hyatt Corp., is putting its 21-acre Fan Pier property, which fronts on Boston Harbor and is across the street from McCourt's Seaport properties, on the market. Fan Pier is entitled for about 3 million square feet of development, according to the Globe.

"There's not a market right now for large development parcels," said Lemire. "We're kind of in the same boat as San Francisco, only not as bad."

Could Fox end up a major player in Boston real estate when its $125 million note comes due in 2006?

McCourt scoffed at the thought of defaulting on the property, saying its cash flow would service the debt. "We've already received several very viable offers on the property," said McCourt. "I have no concerns at all."

Neither, apparently, does Major League Baseball, which in addition to approving the transaction, apparently bad McCourt agree to a certain amount of League oversight of his operations.

According to amended incorporation documents for his primary business entity, McCourt Co., the sale of any interest, the assumption of any debt or the issuance of any shares in the company are subject to MLB rules.

Major League Baseball officials did not return calls.

Andrew Zimbalist, economics professor at Smith College and author of "May the Best Team Win: Baseball Economics and Public Policy," said McCourt and Fox may have violated a baseball regulation capping owner debt levels at 40 percent of total assets.

"They seemed to have flagrantly violated baseball's debt rules," Zimbalist said. "But they often violate the rules."

Jonathan Diamond contributed to this story.