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Friday, June 03, 2011

L.A. Times: Nine of 30 teams reportedly in violation of MLB debt service rules

The Dodgers and New York Mets might rank as the biggest financial headaches for Major League Baseball, but they are not the only ones.

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

In addition to the Dodgers and Mets, the teams out of compliance are the Baltimore Orioles, Chicago Cubs, Detroit Tigers, Florida Marlins, Philadelphia Phillies, Texas Rangers and Washington Nationals, according to the people, none of whom were authorized to disclose the information.

Commissioner Bud Selig declined to comment for this story. His predecessor, Fay Vincent, said he would consider the number of teams in violation of the sport’s debt rules to be “troublesome.”

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

That waiver is currently under dispute, according to a person familiar with Selig’s view of the matter.

Tripon Posted: June 03, 2011 at 03:11 AM | 15 comment(s) Login to Bookmark
  Tags: business, cubs, dodgers, mets, miami, nationals, orioles, phillies, rangers, tigers

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   1. CFBF Was Killed By The Mad Queen Posted: June 03, 2011 at 03:32 AM (#3843971)
The NL East is pretty screwed up. Maybe the Braves can win the Fiscal Discipline Division Championship.
   2. Brian C Posted: June 03, 2011 at 03:57 AM (#3844004)
This sounds all ominous and stuff, but is there any reason to think this is actually a big deal? The writer of this article conspicuously forgets to say.
   3. jmp Posted: June 03, 2011 at 04:20 AM (#3844026)
It does mention at the end that if a team is in violation of the rule, the league could step in and approve team expenditures, among other things. That seems to indicate that player acquisitions could be nixed, but clearly there are teams mentioned in the excerpt that spent money in the off-season.
   4. BringBackTimTeufel Posted: June 03, 2011 at 04:27 AM (#3844027)
How many teams can Bud seize and move to Washington?
   5. Drew (Primakov, Gungho Iguanas) Posted: June 03, 2011 at 04:28 AM (#3844028)
Wait, the Marlins? Is their crime having too little debt?
   6. Ron J Posted: June 03, 2011 at 04:29 AM (#3844029)
#2 A little over a decade ago Michael Ozanian wrote basically the same story (he was the first I'd read to bring up the debt ceiling rule abd pointed out that MLB simply ignored it at that time. Mind you, some of the debt was simply accounting games in a large empire. The Twins went from one of the higher debt teams to no debt depending on what was best for Pohlad's overall financial picture to pick one example). He did point out that at the really high debt levels teams require ownership to be able to smooth over cash flow issues (even if the team is profitable -- and few owners are ever truly out of pocket)

They may not be able to compete for certain free agents (I'm told that there can be tax advantages for players to have a deal structured as a bonus and salary. Teams with cash flow issues simply can't do this) and they may not be able to insure major contracts (or so one of Ozanian's sources claimed in his article)

Ozanian's thesis was that it wasn't a critical problem at that time but it wasn't too far removed from being an issue. But then I think Forbes is pre-disposed to be unhappy about debt.
   7. jmp Posted: June 03, 2011 at 05:11 AM (#3844037)
They may not be able to compete for certain free agents (I'm told that there can be tax advantages for players to have a deal structured as a bonus and salary.

Is that still true today? I remember this being brought up a few years ago, but thought that the law was changing, preventing that from being the case.
   8. Walt Davis Posted: June 03, 2011 at 05:57 AM (#3844046)
Maybe they changed the rule but I recall this being sort of a joke rule. If memory serves, the denominator was something like 2 years revenue but the numerator was all debt. It was one of the mechanisms by which they were threatening to keep player salaries down. So you'd sign a guy for 7/$100 and that would all be in the numerator; you'd have, say, $200 M a year in revenues and so your denominator would be just $400 M. Depending on the number of long-term contracts, a $100 M payroll might generate $200-300 M in liability (over say 5 years) all on its own and you'd be in violation of the rule.

Ahh, hell, try this instead of my crappy memory:

I like to describe that era leading up to the 2002 Collective Bargaining Agreement as a time when we were financing player compensation and whatever growth we were realizing through debt. There was a lot of available debt, very cheaply priced. We put in place the most critical element of that CBA, a debt-service rule. The debt rule said that what used to be balance sheet, ratio-based debt would become EBITDA-based debt. It also said the debt cannot exceed more than ten times EBITDA.

Most people say, "ten times EBITDA, that's a pretty big leverage factor." But not if you consider that most clubs didn't even have positive EBITDA. We had a lot of work to do. But putting that rule in place basically forced clubs to focus on earnings and, as a result, slowed the pace of payroll growth. Payroll has still gone up every year for the most part, but the pace of growth is more in line with revenue growth.
   9. Sean Forman Posted: June 03, 2011 at 04:14 PM (#3844333)
I agree with Walt. It seems to be that guaranteed player contracts should not be in this calculation, but that is just me. You can trade that debt to another team. You can't get the Mets to pay the Phillies stadium debt in exchange for an a-ball pitcher.
   10. OMJ, urban D machine Posted: June 03, 2011 at 05:10 PM (#3844398)
You can't get the Mets to pay the Phillies stadium debt in exchange for an a-ball pitcher.

Aren't players traded for cash all the time?
   11. Gamingboy Posted: June 03, 2011 at 05:29 PM (#3844423)
   12. Greg Pope Posted: June 03, 2011 at 05:31 PM (#3844427)
Aren't players traded for cash all the time?

I believe that any cash over $1 million needs commissioner approval.
   13. David Nieporent (now, with children) Posted: June 03, 2011 at 05:46 PM (#3844437)
You can't get the Mets to pay the Phillies stadium debt in exchange for an a-ball pitcher.
You might have been able to if Steve Phillips were still in charge.
   14. Rickey! No. You move. Posted: June 03, 2011 at 05:46 PM (#3844440)
Until such time as the rest of the division gets their books balanced Atlanta shall be awarded the NL East. So say we all!
   15. Steve Treder Posted: June 03, 2011 at 05:48 PM (#3844446)
Aren't players traded for cash all the time?

I believe that any cash over $1 million needs commissioner approval.

Yes, the Bowie Kuhn Rule, imposed following Charlie Finley's attempted sale of -- who was it, Fingers, Blue, and Rudi?

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