Nine of 30 teams reportedly violated MLB debt servicing rules


The Dodgers and New York Mets might be Major League Baseball’s biggest financial headaches, but they’re not the only ones.

Nine of 30 teams are in violation of MLB’s debt servicing rules, according to information presented in a confidential briefing at owners’ meetings last month and confirmed to The Times by three people familiar with the presentation.

Besides the Dodgers and Mets, the non-compliant teams are the Baltimore Orioles, Chicago Cubs, Detroit Tigers, Florida Marlins, Philadelphia Phillies, Texas Rangers and Washington Nationals, according to people. , none of which was authorized to release the information. .

Commissioner Bud Selig declined to comment for this story. His predecessor, Fay Vincent, said he would view the number of teams breaching the sport’s debt rules as “embarrassing”.

Dodgers owner Frank McCourt told industry executives he disagrees with Selig’s decision to appoint an administrator to oversee his team and doesn’t understand why Selig hasn’t taken action. the same way with any other team.

“I can’t say I haven’t heard the baseball people talking about it,” said Chicago-based sports business consultant Marc Ganis, “but there’s a lot of carryover to Bud on this one.”

Selig often says baseball is in a “golden age”, largely because revenues have fallen from $3.6 billion in 2002 – the last year seriously threatened by a strike or lockout – to $7 billion in 2010.

The debt service rules emerged from collective bargaining in 2002, after the club’s overall debt fell from $600 million in 1993 to $2.1 billion in 1999 and $3.1 billion in 2001.

The rules, intended to ensure clubs have the resources to meet their financial obligations, generally limit a team’s debt to 10 times its annual revenue, although Selig has wide latitude in enforcing these rules.

With the financial troubles of three teams exposed to the public – the Dodgers in divorce court since 2009, the Rangers in bankruptcy court last year and the Mets following the Bernie Madoff scandal in recent months – a A prominent sports investment banker said his industry is “somewhat concerned” about the league’s ability to ensure its teams remain on a solid economic footing.

“You have to think, with two of the major franchises struggling and a major market team just emerging from bankruptcy, what else is there?” said the banker, who declined to be identified because of his work with the league and its clubs.

Rob Manfred, executive vice president of baseball labor relations, did not confirm the number of teams in violation of the debt rule or identify any of them.

“Taking a snapshot of the number of non-compliant clubs at any given 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 situation of the industry.”

The chief executive of a National League club called the number of non-compliant teams a ‘hiccup’ and said the commissioner’s office had worked to rectify the situation before lenders became reluctant to provide funding to the within the MLB.

“I think we are in good health,” the executive said. “The banks see it. The banks understand. We are still thriving.

McCourt says the Dodgers are following debt service rules. According to a person familiar with the matter, McCourt received a waiver from the commissioner’s office last year allowing the Dodgers to hold debt more than 10 times their annual revenue.

That waiver is currently being challenged, according to a person familiar with Selig’s views on the matter.

Under the debt service rule, Selig is authorized to impose any remedial measures it deems appropriate. The rule lists 16 possible actions Selig could take, including an order for a team to raise equity, a requirement that all team expenses be approved by his office, and the suspension of the team owner.

Dodgers administrator Tom Schieffer must approve all team expenses over $5,000, though Selig did not cite the debt service rule when announcing Schieffer’s appointment. McCourt said he believed Selig’s actions were “predetermined” to force a change in ownership.

Ganis, the consultant, noted that McCourt and his ex-wife, Jamie, redirected more than $100 million in income from the Dodgers to their personal lifestyle, while no such allegations have been made against Fred Wilpon, the principal owner of the Mets.

“Don’t underestimate this problem,” Ganis said.

Plus, there’s no indication the Mets have struggled to meet the payroll this season, the way the Dodgers have.

Wilpon told Sports Illustrated last week that his team is $427 million in debt and could lose $70 million this season.

Dodgers financial data is not publicly available for this year or last, but divorce court records show the team lost $10.3 million in 2006, $5.7 million in 2007, $39.4 million in 2008 and $8.4 million in 2009.

The Mets announced last week that they had agreed to sell a minority stake in the team for $200 million. McCourt said he was not interested in selling a share of the Dodgers.

McCourt last year sought approval for a $200 million loan from Fox. Selig rejected the deal, in part because the Dodgers’ debt would have risen from $525 million to $725 million, according to a person familiar with the deal.

However, according to the New York Times and ESPN, Wilpon has the option to convert the sale of a minority stake into a $200 million loan within three years. Manfred declined to discuss the deal with the Mets, but said it was not similar to one proposed by McCourt.

“The Mets situation, when you understand it, is a capital injection,” Manfred said. “It has nothing to do with additional debt or future income. We don’t see any similarity between the two situations.

The Dodgers pledged future ticket and parking revenue to pay off the loans, according to court documents. McCourt says a proposed long-term deal with Fox includes an equity stake in Prime Ticket and should be considered a capital injection; Selig has yet to approve or deny the contract.

“The Dodgers are in compliance with MLB’s debt service rule,” McCourt spokesman Steve Sugerman said Thursday. “And the Dodgers will continue to be in compliance next year with Fox’s media rights agreement in place.”

Vincent, the former commissioner, said it is difficult to understand the issue of debt service without understanding the nature of the debts.

“Getting into debt with an outside party that could enforce rights could be very difficult,” Vincent said. “Debt to a landlord’s twin brother is another story.”

The pre-bankruptcy Rangers situation and the Dodgers’ current situation have become complicated in part because some of the debt is not held by the team itself but by related entities. Manfred said the current round of collective bargaining includes proposals to tighten debt service rules, although it is not specific.

The players’ union has the right to be informed of the team’s debts and to be consulted in the event of infringements and appeals. Michael Weiner, executive director of the Major League Baseball Players Association, would not discuss the number of teams violating the debt service rule or identify any of those teams, but said that he did not see the issue as a major concern.

“The fact that we’re negotiating about potential rule changes doesn’t mean it’s not working,” Weiner said, “nor does the fact that we’re negotiating about potential changes to benefit plans or the sharing of income or any other matter.”

[email protected]


Comments are closed.