SBJ/April 4-10, 2011/In Depth

Financial woes of Mets, Dodgers and Rangers bring call for review of owner debt rules

As the financial sagas of the New York Mets, Los Angeles Dodgers and Texas Rangers have shown, baseball has a high-profile issue with owner debt. The Mets last fall required a $25 million emergency loan, and the embarrassing issues with these three clubs have begun to tag MLB Commissioner Bud Selig with the same sort of negative image as steroids did a few years ago.

To that end, industry chatter for years has suggested MLB’s enforcement of its debt rules has been lax and inconsistent. The current CBA says that clubs may not carry debt greater than their average annual earnings before interest, taxes, depreciation and amortization, multiplied by 10 (or 15 in the case of a team with a new or renovated stadium). A club with average EBITDA of $20 million playing in a new ballpark, for example, conceivably would then be allowed to carry $300 million in debt. The current formula also carries a small exemption for each club.

Rob Manfred, MLB executive vice president for labor relations and human resources, insists that the league is continuing to monitor all team debt, and that the issues with the Dodgers, Mets and Rangers were created by external forces as opposed to anything endemic to baseball.

“These are unique situations that I don’t necessarily believe are directly relevant to bargaining,” Manfred said. “The Mets are more an issue with [Bernie] Madoff and the Sterling Equities holding company [controlled by Mets owner Fred Wilpon and his partners]. The Dodgers situation is the result of a personal matter, and the club continues to generate outstanding cash flow.”

As a result of such situations, there is an increasing likelihood the labor talks will revisit the debt issue to expand the scope of what falls under permissible liabilities and include some of the owners’ other financial holdings not directly part of team ledgers. The union will understandably want to see if enlarged debt rules would create a drag on player spending. But they, too, know that financially healthy clubs are in the best interest of everybody.

“They’re trying to tighten up the controls and certainly try to avoid another Rangers type of situation,” said Rob Tilliss, founder of sports advisory firm Inner Circle Sports. The Rangers were sold in a bankruptcy auction. “Baseball has not been as focused on this issue historically as the NFL, and they’re now really trying to hone in on it.”

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