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Home Pete Toms LWIB: Loans to MLB Clubs, Playoff Ad Sales for TBS, Payroll & Competitive Balance

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Pete Toms Article Archive
Written by Pete Toms   
Monday, 20 September 2010 13:53

Last Week in Bizball by Pete Toms

This week in “Last Week in BizBall”, lending in the “post-Rangers sale” era, strong ad sales for MLB postseason on TBS, the link between player payroll and competitive balance plus some miscellaneous tidbits.

LENDING IN THE POST-RANGERS SALE ERA

Over the course of the recently completed sale of the Texas Rangers, MLB antagonized the lenders to former franchise owner Hicks Sports Group. The lenders objected to MLB’s role in the sale, arguing that the league would not approve of the sale to a bidder offering a larger sum. At one point during the process commissioner Selig informed the lenders that MLB could revoke the franchise if they (lenders) didn’t agree to the sale from HSG to their (MLB’s) approved bidder. Commissioner Selig’s threat provoked a bitter and very public response from various “sports lenders”. Going forward, many speculated that future deals would contain much stricter loan covenants with particular attention paid to the league’s “consent rights” in approving franchise sales. LWIB the Detroit Tigers became the first MLB franchise to secure financing since the nastiness of the Rangers sale, completing a refinancing of $130 million. Daniel Kaplan reported for the SportsBusiness Journal that the deal indicates that the potential fallout from the rancorous Rangers sale process appears to have been overstated but nonetheless a new reality.

The Tigers’ refinancing is also the first such deal since the resolution of the Texas Rangers’ contentious bankruptcy and franchise sale process, though the Tigers’ refinancing had been in the works for some time. There have been worries that MLB’s adversarial position against the lenders in the Rangers’ saga could prove problematic for future baseball financings.

Indeed, there was a great deal of negotiation between MLB and the Tigers’ main lender, Sumitomo Mitsui, over the rights the league has in the event of a default by the team. These rights, outlined in what is known as a consent letter, took up 13 more pages than they did in the original loan 12 years ago.

AND

The Tigers’ deal is what is known as an operating company loan, meaning all of it is lent directly to the club. In the Rangers’ deal, most of the debt was lent above the team, and MLB and the team were arguing that the lenders were entitled only to the amount directly lent to the club. In the Tigers’ case, if the team were to go into bankruptcy, the matter would be more straightforward because the lien held against the team is the same amount as the loan.

A truer test of the baseball lending market, sources said, will emerge when a deal arrives with money lent to the team and a holding company that is not secured by a lien.

STRONG AD SALES FOR MLB PLAYOFFS ON TBS

National TV ratings for MLB this season on Fox, ESPN and TBS have been flat to slightly diminished. Nonetheless, due to a handful of factors, TBS has experienced very strong ad sales for their upcoming broadcasts of the Division Series and ALCS. Contributing to the strong demand from advertisers is the almost certain (NYC, Philadelphia, Dallas, Atlanta) to possible (San Francisco) participation of franchises in large TV markets. Along with that, a resurgent auto category and the scarcity of ad inventory on insanely popular NFL broadcasts has resulted in a strong position for the MLB postseason on TBS. LWIB Mediaweek reported (HT Fang’s Bites)

With the first two playoff games set for Oct. 6, Turner’s sellout levels are well ahead of where they were a year ago. Some of the momentum can be chalked up to multiyear commitments with premium sponsors, but that doesn’t tell the entire story. According to Jon Diament, executive vp, Turner Sports ad sales and marketing, 27 new advertisers have signed on for the 2010 MLB playoffs, and the endemics have been particularly robust this time around.

Financial services account for the greatest percentage of TBS’ playoff bookings, and revenue is up 67 percent versus a year ago. Auto continues to come on strong, as foreign and domestic dollars have improved 140 percent.

SELECT READ MORE TO SEE DETAILS ON PAYROLL AND COMPETITIVE BALANCE, PLUS TIDBITS

PAYROLL & COMPETITIVE BALANCE

The Yankees’ victory in last season’s World Series was viewed by many as evidence that MLB’s economic system was broken. Detractors of the current economic model argued that the Yankees bought that championship by signing free agents AJ Burnett, CC Sabathia and Mark Teixeira the previous offseason. Only a season prior, defenders of MLB’s economic model pointed to the participation of the Rays and Brewers in the playoffs as evidence of unprecedented on field parity. LWIB, Matthew Futterman argued in the Wall Street Journal that this season, more than any other since the '94 strike, spending on player payroll has had practically no effect on on-field performance.

According to estimated payroll figures updated throughout the season, the correlation between a team's player payroll and its winning percentage is 0.14, a number that makes the relationship almost statistically irrelevant. That figure is 67% below last year's mark and is easily the lowest since the strike.

This outcome represents a stark reversal from the state of affairs a decade ago. In 1998, the correlation between payrolls and wins was 0.71, a figure that suggests a strong and significant tie. And in the 1999 season, when the correlation was 0.5, all eight teams that reached baseball's playoffs were among the 10 top spenders.

If the 2010 season had ended Wednesday night, however, only three of the 10 richest teams would make the playoffs, and four postseason teams—the San Diego Padres, Tampa Bay Rays, Cincinnati Reds and Texas Rangers—would have climbed into that exalted position from the bottom half of the spending list.

Mr. Futterman also notes some other factors contributing to this statistical conclusion and you should read the whole piece to find out what they are.

TIDBITS

  • Last summer LWIB noted (scroll to the bottom) reports that the non-profit group which owns the Triple A Memphis Redbirds had failed to make a $1.625 million payment on bonds which were issued to construct their AutoZone Park stadium. In an effort to reverse fortunes, the Redbirds turned over management of the franchise to Global Spectrum (owned by Comcast Spectator). LWIB there was more bad news for the Redbirds. The franchise is basically bust and a sale is now a matter of when and not if. SmartMoney.com reported (HT Ballpark Digest)

Last week, bond trustee U.S. National Bank filed a regulatory notice indicating bondholders would receive a partial payment on a portion of the Memphis Redbirds Baseball Foundation's $50 million in muni bond debt.

AND

The Redbirds, the highest level minor league affiliate of the St. Louis Cardinals, hired a professional sports management company last year and are regrouping "to manage the team for an ultimate sale."

  • LWIB, much media attention was paid to the disappointing attendance in Tampa Bay for the three game series vs. the Yankees. Tom Jones reported for the St. Petersburg Times that the series was a big hit on local TV. According to Mr. Jones, Tuesday’s game was the most-watched television program in Tampa Bay.
  • Ballpark Digest reported LWIB that beginning September 21, Versus will broadcast “…the Triple-A Baseball National Championship Game for the next three years.” As noted in the report, earlier this season Versus broadcast their first professional baseball game, featuring the last minor league start of Stephen Strasburg.
  • Run scoring in MLB is down this season, hardly news to any of you. The decline in run scoring will continue to be a storyline in MLB this off season during contract negotiations between player agents and management. (Attention Alex Anthopolous) Steve Fall is the CEO of The Sports Resource, providing statistical analysis support to player agents engaged in arbitration/contract extension/free agency negotiations. LWIB, Mr. Fall wrote on his blog (HT Darren Heitner @ The Sports Agent blog) about how the decline in offense will be framed in upcoming negotiations.

This presents a challenge for agents with arbitration-eligible and free agent position players this offseason. Clubs will no doubt pull out comparables from recent seasons when the run context was substantially higher.

Fortunately, there is a solution. Agents can adjust for the decreased offense in the same way economists do so for inflation…..


Pete Toms is senior writer for the Business of Sports Network, most notably, The Biz of Baseball. He looks forward to your comments and can be contacted through The Biz of Baseball.

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