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Breaking Down How Nine of MLB's 30 Clubs are Violation of Debt Rules PDF Print E-mail
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Written by Maury Brown   
Saturday, 04 June 2011 10:07

Money in the mouse trap

Thirty percent of Major League Baseball’s 30 clubs are in violation of the league’s debt service rule, according to a Los Angeles Times report.

Those nine clubs are reportedly the Los Angeles Dodgers, New York Mets, as well as the Baltimore Orioles, Chicago Cubs, Detroit Tigers, Florida Marlins, Philadelphia Phillies, Texas Rangers and Washington Nationals.

Rob Manfred, baseball's executive vice president of labor relations, would not confirm the number of teams in violation of the debt rule or identify any of them to the LA Times.

"To take a snapshot of the number of non-compliant clubs at a point in time can be very misleading," Manfred said. "With one or two exceptions, we see how teams are going to be compliant again in the short term, so we're not worried about them.

"We are not concerned about the overall economic condition of the industry."

In looking at the list (with some exceptions), it’s easy to explain some of the reasons why.

  • Dodgers – This one’s easy. You’re read plenty of stories about the McCourt divorce, sagging attendance, and Frank McCourt saddling the club with debt. No surprises here as McCourt is now taking future sponsorship payments just to make payroll.
  • Mets – In the same league as Dodgers. You’ve heard the stories about the Madoff scandal coming to roost on top of the organization, and declining attendance. The club is on the verge of having David Einhorn as a minority investor to stem the flow of red ink, now running at $70 million when the year is over.
  • Cubs – The last two you know, but the Cubs situation isn’t always on the radar. But, when the clubs was sold from Sam Zell and the Tribune Co. to the Ricketts family it was done as a “leveraged partnership”. The way the deal worked was the Ricketts borrowed money to buy the team, and the proceeds from the loans went to Tribune. The media company then retained a small stake in the partnership, less than 5 percent, giving it some exposure to the loans – a tax dodge for Zell and Tribune. Thus, MLB knew about the debt structure for the sale before it occurred. The sale, which totaled 845 included Wrigley Field and a 25 percent stake in Comcast SportsNet Chicago.
  • Phillies – For the club that has dominated the NL East over the past several years, the debt is likely tied to player payroll. The club has continuously bankrolled a high level of player payroll signing players to multi-year extensions or landing free agents such as Cliff Lee. The Phillies are edge of hitting the Luxury Tax ceiling this year.
  • Rangers – Give this one to Tom Hicks. The former owner of the club defaulted on over a half-a-billion in debt and was forced to sell the club through an auction process last year. The debt will continue to be the club for some time.
  • Tigers – Salary. Salary. Salary… Comerica Park. The Tigers, who had an Opening Day payroll of $105,700,23 have had high levels of player payroll dating back to 2007. The following year, the club was had a $136,198,404 end-of-year payroll that ranked 4th in the league behind only the Yankees, Red Sox, and Mets. With the Mets being able to write off a portion of their revenue-sharing obligations due to being in the first years of building Citi Field, they missed being dinged by the Luxury Tax, while the Tigers were not, paying $1,305,220. And on the matter of stadium, there is still a heavy debt obligation on Comerica Park, another reason for the debt weight around Mike Illitch’s shoulders.
  • Marlins – Ballpark. Yes, we know. Public on the dime. But, if there’s a place to look, it’s there. Now, about spending that revenue-sharing money improperly….
  • Nationals – This is one that gets a bit confusing. The $611 million Nationals Park was funded entirely by the public and player payroll has been some of the lowest in the league. The Lerners, who own the Nationals, are also one of the most-wealthy in all the league (technically the richest after the death of Twins owner Carl Pohlad). Ted Lerner has a net worth of $3 billion. So, what’s the catch? At first, we thought it was due to in-stadium revenues needing to be a certain level to assist in paying down construction bonds, but that’s money that District absorbs. Stadium lease payments? The Werth deal? If there was a place where the Nationals might be getting bit, it's at the gate. With the Nats currently ranking 21st in average attedance (21,402), and never being able to galvinize the fan base since Nationals Park opened, it's the one spot that you might point to.
  • Orioles – Another head scratcher as the club is not on the hook for stadium debt of any significance, closing payroll was $73,231,289, or 23rd out of 30 clubs, and they own the lion’s share of regional sports network MASN with the Nationals. Much like the Nats, the Orioles haven't been able to bring fans through the gate due to an abysmal win-loss record for over a decade. The Orioles currently rank just behind the Nationals (20th in league attendance) drawing an average 21,031 per game.

The Bottom Line

Rob Manfred said it, and it’s likely true: not all of these clubs will stay under the weight of debt for too long, and besides… the rule, created by Commissioner Selig as part of the 2002 CBA and held over in the most recent CBA set to expire this year, is at his behest. Clubs can borrow against the league facility funds, which means that it’s possible that a revolving door of debt within MLB’s own house occurs fairly regularly.

And, for those clubs on the list above that have been recently sold (Cubs, Rangers, and soon-to-be Astros)  they will surely point to this passage near the end of the current CBA (bolding by author):

6.5 Sale Transactions. In all transactions involving the sale or transfer of a control interest in a Club, the Commissioner must certify to the Clubs and to the Players Association that the level of debt undertaken in connection with the acquisition or transfer will not create a persistent inability of the Club to comply with the requirements of the Debt Service Rule. As part of that certification, the Commissioner, within 30 days of approval of the transaction, will provide to the Players Association the new Club ownership’s Long Term Plan for Debt Service compliance.

But here’s the deal: MLB’s gross revenues are so robust at the moment ($7 billion last year), that there’s a steady flow of cash to make payments. Are the Dodgers and Mets a concern? You know it. Should baseball be concerned about the structure of future sales? They should, and after the Dodgers, situation, the league is hyper-aware of it.

Selig was wise to put the rules in place around debt. Now, it’s a case of rolling off a few of those clubs that are saddled with it.


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Maury BrownMaury Brown is the Founder and President of the Business of Sports Network, which includes The Biz of Baseball, The Biz of Football, The Biz of Basketball and The Biz of Hockey, as well as a contributor to FanGraphs and Forbes SportsMoney. He is available for hire or freelance. Brown's full bio is here. He looks forward to your comments via email and can be contacted through the Business of Sports Network.

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