News Briefs: Spring 2002

MLB reports operating losses of $232 million in 2001; Forbes estimates $76.7 million profit. According to figures released in connection with Commissioner Selig’s testimony before Congress in December, MLB lost $519 million on revenues of $3.5 billion. This figure includes $232 million of operating losses, $112.5 million of interest, and $175 million of "non-operational charges such as amortization of debt." MLB's numbers show that between 1995 and 2001, total revenues rose 156%. Player salaries increased by 113% during this period, while other expenses jumped 134%.

Several months later Forbes released its annual survey of baseball economics. It concluded that far from losing over $200 million last year, MLB's 30 clubs turned a collective $76.7 million profit. Selig termed the Forbes numbers "pure fiction." An MLB spokesman immediately accused Forbes of practicing "the type of journalism one expects from a supermarket tabloid," prompting Twins player representative Denny Hocking to crack, "Gee, should I believe a magazine that spends 365 days a year researching finances, or someone who has zero credibility?"

Opening Day salaries up 5.2%. The average salary is now $2,382,779, while the median declined from $975,000 to $900,000. According to the AP's Ronald Blum, the average salaries in the other major team sports range from $4.2 million in the NBA to $1.43 million in the NHL and $1.1 million in the NFL.

Ticket prices rise 3.8%. Team Marketing Report says that the average ticket to a major league game now costs $18.31, up from $17.64 in 2001. Three clubs, the Red Sox, Cubs and Padres, increased ticket prices by more than 10%, while the Royals, Tigers, Devil Rays and Braves actually lowered the cost of their average seat. Boston remains by far MLB's most expensive market -- its average ticket price of $39.68 is 61% higher than second-place Seattle's $24.60 -- but even Red Sox seats average $10 less than the average seat to an NFL, NBA or NHL game.

MLB plays Musical Owners in Boston, Florida, Montreal. When the plan to contract the Twins and Expos fizzles, Expos owner Jeffrey Loria sells his club to MLB for $120 million. He then reinvests the proceeds, plus $38.5 million loaned him by MLB, to buy the Florida Marlins. The Marlins are for sale because their owner, John Henry, led the group which was awarded the Boston Red Sox. At one point Henry simultaneously owned the Marlins, had a deal to buy the Red Sox and held 1% of the Yankees.

Robert DuPuy replaces Paul Beeston as MLB's President/COO. Beeston resigned in mid-March, reportedly after seeing his authority in labor negotiations undercut by Commissioner Selig. DuPuy, a former partner in Milwaukee's Foley & Lardner, served as MLB's principal outside counsel under Selig before becoming MLB's Executive Vice President-Administration and Chief Legal Officer in 1998.

Commissioner Selig covers up his own violation of MLB rules for six years; owners shrug. Major League Rule 20(c) forbids any owner from loaning money to another owner unless the loan is disclosed to the Commissioner and approved by the other clubs. This January, the Minneapolis Star Tribune disclosed that in 1995, then-Acting Commissioner Selig borrowed $3 million from a lender controlled by Twins owner Carl Pohlad without disclosing it or obtaining the approval of other owners. When the loan came to light, newly appointed MLB executive vice president Bob DuPuy – formerly Selig’s personal lawyer – insisted Selig had done nothing wrong because the loan was promptly repaid. White Sox owner Jerry Reinsdorf said of the rule, "If we choose to enforce it or not enforce it, that's our business. It's not a federal statute." Way to build confidence in the integrity of your business, guys. It was later disclosed that Pohlad had also loaned money to a business controlled by Rockies owner Jerry McMorris, and that the Cardinals had borrowed from a bank controlled by Reds owner Carl Lindner.

Labor talks underway. Press reports suggest that although the parties have agreed to change the amateur draft to reduce draftees’ leverage and to increase the percentage of local revenues to be shared, they remain far apart on most issues. The MLBPA is expected to meet in early July to set a strike date. Let’s hope the next newsletter, to be published around Labor Day, will carry details of the new CBA.

MLB settles Minnesota contraction suit. The settlement, which must still be approved by the Metropolitan Sports Facilities Commission, provides for the Commission to drop its action against MLB and the Twins in return for a guarantee that the Twins will play in the Metrodome through 2003. MLB came to terms when it became clear that Judge Harry Seymour Crump would direct MLB to produce financial data requested by the Commission.

Contraction grievance to be decided by mid-July. Arbitrator Shyam Das says he’ll try to rule on the MLBPA’s grievance by mid-July. The union claims that MLB cannot contract without its permission; MLB insists that while it must bargain the effects of contraction with the MLBPA, it does not need the union’s consent to contract. If the MLBPA wins, contraction is dead for now; if MLB wins, the battle over the effects of contraction (MLB wants a draft of players from the affected organizations, while the MLBPA argues they should all become free agents) will likely keep Das busy well into the 2002-03 offseason.

Around the Majors

Disney negotiating possible sale of Angels to Donald Watkins. Watkins, who would be MLB’s first African-American owner, has made a preliminary offer of $250 million for the Anaheim Angels. Although Watkins’ true net worth has been the subject of considerable speculation, UBS PaineWebber has agreed to back him with a $150 million “credit arrangement.” No deal will be completed until a new labor agreement is signed.

Diamondbacks secure $160 million of new capital. Four investors recruited by Jerry Colangelo have agreed to buy 49.5% of the team for $16 million/year in each of the next 10 years. Colangelo will retain 1%, while the club’s other investors will control the remaining 49.5%.

Red Sox sold to third highest bidder. After a bidding process described as a "bag job" by the Attorney General of Massachusetts, John Harrington, trustee of the Yawkey Trust, sold the Red Sox, Fenway Park and 80% of the NESN cable network to a group including Marlins owner John Henry, former Padres owner Tom Werner, former Senator George Mitchell and The New York Times Company. The purchase price of $700 million (including assumption of $40 million in debt) was the highest ever paid for a major league team, but was $90 million below the bids submitted by Charles Dolan of Cablevision and a syndicate headed by Miles Prentice. To settle the Attorney General's investigation of the sale, the winning bidders agreed to contribute another $30 million to charity.

Cubs battle neighbors over new seats. The team wants to add close to 2,000 seats to the outfield bleachers. Owners of the buildings across the street from Wrigley Field, many of whom sell space on their roofs for several times the price of a seat in the park, have objected to the effect such seats would have on their views, presumably under a theory of "you have no right to stop me from freeloading."

Rockies' owners pay $35 million for 23.7% of club. The bankruptcy judge presiding over the estate of bankrupt uranium trader Oren Benton approved the sale of his share of the Rockies to owners Jerry McMorris and Charles and Dick Monfort -- though not before suggesting they had wrongfully withheld financial information to discourage others from bidding for the shares.

Marlins swap John Henry for Jeffrey Loria. Loria paid $158.5 million for the club, the same price paid by Henry when he bought the Marlins from Wayne Huizenga in 1999. The well-liked Henry had been unable to strike a stadium deal with local authorities before September 11, raising grave doubts that Loria will be able to do so anytime soon. The price paid by Loria includes a $38.5 million loan from Major League Baseball; if the Marlins don't get a new stadium within five years, MLB will forgive $15 million of the loan and charge no interest on the remainder.

Astros now the Minute Maidens? After paying $2.1 million to buy out the remainder of Enron's 30-year, $100 million naming rights contract, the Astros re-sold their naming rights, for about the same price, to the Houston-based orange juice subsidiary of Coca-Cola. For the next 28 years the Astros will play at Minute Maid Park. This sets up a potential Citrus Showdown interleague series against the Devil Rays, who play in Tropicana Field.

Royals, Cardinals ballpark bill dies in legislature. The lower house of the Missouri legislature adjourned for the year without voting on a bill, passed by the Missouri Senate, which would have contributed $210 million over 30 years for a new St. Louis park and $$294 million over the same period to renovate the Royals’ Kauffman Stadium and the NFL Chiefs’ neighboring Arrowhead Stadium.

Brewers’ park more expensive than previously disclosed. A state audit concluded that the cost of Miller Park and related infrastructure had risen to $413.9 million, 28.5% above the original $322 million budgeted in 1995.

Twins win Round One of 15-round battle for new stadium. The innovative plan approved by the Minnesota legislature calls for a $330 million state loan to build the park. The Twins would immediately pay $120 million to begin retiring the loan. A local city interested in building the park would need voter approval to contribute $12 million/year from taxes on local bars, restaurants, hotels and parking. In return for paying all operating expenses, the Twins would receive all revenues from the facility.

The park remains contingent on (1) a local government approving the necessary taxes, (2) MLB committing to keep the Twins in the new park for at least 30 years, (3) certification from state officials that there are “reasonable prospects” for meaningful economic reform within MLB, and (4) Twins’ ownership agreeing to the $120 million upfront payment. Current Twins owner Carl Pohlad won’t make such a commitment, and at least one prospective purchaser, Clark Griffith, says it’s too much to pay. (The Twins claim that Alabama businessman Donald Watkins, who had expressed interest in the Twins before turning his attention to the Anaheim Angels, never showed them he had the resources to consummate a deal.) Further complicating matters, the bill forbids countywide taxation, which prevents Minneapolis from competing for the park unless its residents repeal a 1998 law which imposed a $10 million limit on the city’s contribution to any sports facility.

Expos lose owner, employees, office equipment. When MLB bought the Expos from Jeffrey Loria and arranged for him to take over the Florida Marlins, Loria was allowed to take the Expos' coaches, trainers, staff, computers and scouting reports with him. Fortunately for the Expos, new manager Frank Robinson has forgotten more about baseball than Loria and his stepson/executive V.P. David Samson ever knew.

Bloomberg kills Giuliani stadium pacts for Mets and Yankees. In one of his last acts before leaving office, New York Mayor Rudy Giuliani struck tentative deals to build new stadiums for the Mets and Yankees at a combined cost of $1.6 billion. The city would finance the parks through tax-exempt construction bonds; the teams and the city would split the cost of debt service 50-50. A week after succeeding Giuliani, Michael Bloomberg killed the deals. He did, however, agree to honor Giuliani's pledge that the city would pay each club $5 million/year for the next five years for design and planning costs.

Mets appraised at $319 million in connection with sale. Co-owner Nelson Doubleday triggered the appraisal by exercising a put option in the club’s partnership agreement, forcing Fred Wilpon to buy his half of the club for its appraised value. The appraisal disappointed Doubleday, who reportedly thought the Mets were worth $500 million.

Yankees’ cable network heads to court. Before Opening Day, the new Yankees Entertainment & Sports (YES) network had deals with all but one of the cable systems in metropolitan New York. Unfortunately, that one was Cablevision, which controls (a) 40% of the market and (b) the MSG Network, the Yankees’ former TV partner. Cablevision offered to carry YES as a premium channel, or on the same basis as it offers MSG and Fox Sports New York; YES demanded $2/subscriber and carriage on the “expanded basic” service purchased by nearly all Cablevision subscribers. While the other systems had accepted YES’s terms, their contracts provide that they will get the benefit of any better deal struck by Cablevision. YES has filed a federal antitrust suit against Cablevision.

Oakland loses best chance for downtown park. In mid-May the Oakland City Council voted to construct 807 housing units on the 12-acre plot most frequently mentioned as a possible new home for the Athletics. Oakland Mayor Jerry Brown supported the bill after a consultant concluded that even if the Athletics’ owners agreed to pay $146 million toward construction, the proposed $400 million park would still leave the city on the hook for at least $174 million.

Cardinals lose Missouri stadium deal, explore possible Illinois home. Days after the Missouri legislature adjourned without approving a bill to finance new parks for the Cardinals and Royals, team officials met with Illinois Governor George Ryan to discuss a potential move to East St. Louis, Illinois. Before the legislative setback, the club had struck a deal with St. Louis officials that called for the team's owners to contribute $138 million towards a new park and $300 million for a "Ballpark Village," a multi-use development adjacent to the stadium.

Padres make final contribution toward cost of their new park. The $450 million, 46,000-seat park, delayed by financing issues and no fewer than 16 lawsuits, is expected to debut Opening Day 2004. The team will pay $146 million of the cost, with the City of San Diego paying $206 million, the Centre City Development Corp., the city's downtown development arm, paying $76 million and the San Diego Port District contributing $21 million.

Devil Rays say they won’t be contracted. Managing general partner Vince Naimoli insists the team is solvent. They also have an ironclad lease that runs through 2027, local officials who aren't about to let the Devil Rays get away after being burned by the White Sox and Giants, and a state supreme court decision that MLB's antitrust exemption doesn't extend to franchise relocation issues.

Blue Jays receive $5 million from MLB. The payment is intended to compensate the club for losses sustained as a result of the continuing decline of the Canadian dollar. Owner Rogers Communications says MLB is prepared to discuss a permanent formula to protect foreign clubs against currency fluctuations.

Washington, Northern Virginia interests circling the Expos. Virginia’s group is headed by wireless communications magnate William Collins; D.C.’s is led by financier Fred Malek. Both hope to persuade MLB to sell them the Expos, who would play in Robert F. Kennedy Stadium while their new home is constructed. Peter Angelos of the Orioles adamantly opposes a team in Washington, but can’t veto it.

Copyright © 2002 Doug Pappas. All rights reserved.
Originally published in the Spring 2002 issue of Outside the Lines, the SABR Business of Baseball Committee newsletter.

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