Tags: Mets | Teams | Major | League | Debt | Problems

Mets, Other Teams Face 'Major League' Debt Problems

Friday, 18 Feb 2011 01:41 PM

 

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Speculation swirls almost daily about the fate of the New York Mets and Los Angeles Dodgers even as Major League Baseball boasts record revenue, leading some analysts and bankers to question whether the league is minding the store.

Over the past two years, baseball has seen two teams pushed into bankruptcy — the Chicago Cubs and Texas Rangers — and one sports banker wonders whether the Mets may eventually join them due to a $1 billion legal battle with the trustee for victims of Bernard Madoff's Ponzi scheme.

Meanwhile, Dodgers owner Frank McCourt is locked in a bitter divorce battle that many expect will result in that storied team's sale.

The off-the-field struggles and heavy debt loads of so many major-market teams' owners have some industry observers questioning the league's stewardship.

"It's either an unfortunate set of circumstances or it demonstrates a consistent failing at Major League Baseball to monitor the ownership of its clubs on an ongoing basis," said Marc Ganis, president of consulting firm Sportscorp and an adviser to Tribune in its 2009 sale of the Cubs.

Baseball, like many sports, saw fans and corporate backers trim spending during the recession, but owners suffered as well. Many are businessmen who used debt to invest and got in over their heads, putting the fates of their profitable teams in question.

"It's not the teams that are distressed, it's the ownership," said a sports banker, who asked not to be identified discussing team finances.

Baseball's debt limits for teams and ballpark operations are calculated by multiplying a club's two-year average earnings before interest, taxes, depreciation and amortization by 10 or 15, depending on whether a ballpark is new or renovated.

However, a newspaper industry downturn led to Tribune's bankruptcy, while too much debt taken on by former owner Tom Hicks led to the Rangers bankruptcy, analysts and bankers said. Excessive debt is also the problem for Mets owner Fred Wilpon and the Dodgers' McCourt.

While owners struggle, baseball has never been stronger, with revenue rising 4.5 percent last year to a record $7 billion. Last fall, MLB Commissioner Bud Selig called it the sport's "golden era" and said his tenure should be judged by team values.

Another sports banker said Selig must be "beside himself" as the Mets could end up in bankruptcy.

"This Madoff mess is a tremendous black eye," said the banker, who asked not to be identified discussing any teams. "If (the trustee) is right, these guys could file this thing."

Critics said Selig and MLB officials allowed owners' financial troubles to spiral out of control, not moving as fast as the National Basketball Association did when it bought the money-losing New Orleans Hornets.
However, leagues walk a fine line if they push too far the other way on financial requirements.

"The difficulty there is that ownership can range from a giant company a la Tribune Co. down to an individual," former MLB Commissioner Fay Vincent said. "The real issue is what do you do about regulating the business of owners.

If baseball makes the rules too onerous, it could push ownership toward large corporations, he said. Such a move also could hurt the team price tags Selig prides himself on.

The Cubs were sold for a league-record $845 million in 2009 and the Rangers fetched $593 million last year. Forbes magazine last year estimated that team values rose, on average, 2 percent to $491 million.

"If you tighten the rules on leverage and it depresses sales prices, that will not be very popular with owners," said a sports consultant, who asked not to be identified.

Prospective buyers also dismiss talk of more stringent monitoring of owners' non-baseball businesses. "I think it would be an outrageous intrusion of privacy," said a businessman who has looked at buying a baseball team but asked not to be named.

While baseball officials declined to discuss the non-baseball finances of league owners on the record, the topic will likely be addressed this year.

"An issue that will be on the table in 2011 will be upstream holding company debt. There's no doubt about that," said a senior baseball official, who asked not to be identified discussing financial matters usually addressed by Selig.

© 2014 Thomson/Reuters. All rights reserved.

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