News Briefs: Spring 1999

Luxury tax bills paid. After posting a 79-83 record with the majors' highest payroll, the Baltimore Orioles were hit with a $3,138,621 luxury tax bill for the 1998 season. Other taxpayers included the Red Sox ($2,184,734), Yankees ($684,390), Braves ($495,625) and Dodgers ($49,593). The tax threshold, originally expected to reach $55 million in 1998, actually leaped to $70,501,185, including $5,576,415 per team in benefits. This figure represents the midpoint between the fifth- and sixth-highest payrolls. The luxury tax rate falls from 35% to 34% in 1999, then disappears entirely in 2000.

Owners go 9-2 in arbitration. Derek Jeter and Mariano Rivera of the Yankees were the only players to win their arbitration hearings, although 51 of the 62 cases settled before a ruling.

New economic study committee appointed. Days after the Dodgers signed Kevin Brown to a seven-year, $105 million contract, Commissioner Selig created a new "Blue Ribbon Task Force on Baseball Economics." Its members include former Senate majority leader George Mitchell, former Federal Reserve chairman Paul Volcker, columnist George Will, Yale president Richard Levin (who, as a consultant to the owners, developed their 1989 salary cap proposal), Selig and 13 other owners and their representatives -- but, ominously, no one from the MLBPA.

Ads on uniforms? MLB is reportedly considering the sale of ads on player uniforms. The proposed ads would be small, 1" to 1-1/2" patches, positioned for maximum TV exposure.

MLB-ESPN dispute heads to court. With five years left on a contract calling for it to televise baseball on Sunday nights, ESPN won the rights to telecast the NFL on Sunday nights throughout the regular season. The two contracts created a conflict on Sunday nights in September, which ESPN sought to resolve by shifting its Sunday night baseball telecasts to sister network ESPN2. MLB refused. The impasse ended Sunday night baseball a month early in 1998, costing fans around the country a chance to see the game in which Cal Ripken's consecutive-game streak ended.

Early in May, MLB notified ESPN that it was terminating ESPN's regular-season baseball contract after the 1999 season. ESPN sued to invalidate the purported termination. ESPN says the contract allows it to pre-empt up to 10 regular season games for "events of significant interest"; MLB counters that this provision was intended to give ESPN scheduling flexibility for unexpected events, not to let it pre-empt baseball whenever it had the chance to air higher-rated programming. MLB has rejected all compromises proposed by ESPN; its apparent overreaction leads one to suspect that it believes it can strike a better deal with Fox Sports.

MLB's chief operating officer embarrassed by side deal with Clemens. In the course of pressuring the Blue Jays to trade him, Roger Clemens revealed that when he signed with Toronto, he and Jays president Paul Beeston entered into a secret side agreement giving Clemens the right to demand a trade. Two problems: MLB has long considered such side agreements unenforceable, and Beeston, the man who made the agreement, is now MLB's #2 man behind Bud Selig. Beeston was fined a reported $5,000.

Forbes picks up where Financial World left off. The December 14, 1998 issue of Forbes contained the magazine's first-ever valuations of professional sports teams. To no one's surprise, the Yankees topped the list for MLB, with an estimated value of $362 million based on 1997 revenues. The Orioles ($323 million) and Indians ($322 million) followed, with the Twins ($94 million) and Expos ($87 million) at the other end of the scale. However, Forbes did not consider the Yankees MLB's most profitable club in 1997: their estimated earnings of $21.4 million were topped by the Colorado Rockies' $38.3 million. Some of Forbes' estimates appear dubious - notably that the Dodgers earned only $900,000 in 1997, and that the world champion Marlins lost $5.5 million. The magazine also estimated the debt-to-equity ratios of every club, with the Rangers (79%), Giants (89%), Brewers (97%) and Tigers (an incredible 106%) the most highly leveraged.

Forbes published 1998 valuations in its May 31, 1999 issue. Once again the Yankees led the field; their record-breaking season helped boost their value 36%, to $491 million. The value of the average non-expansion team rose 11% in 1998, with 22 of the 28 teams worth more than the year before. Exceptions were the Mariners, White Sox, Marlins, Royals, Twins and Expos. The Yankees were also MLB's most profitable club, earning $23 million even after their revenue-sharing payments. Forbes estimated that 14 teams lost money - but since their list of losers includes the Dodgers, Cubs, Red Sox, Mets and Angels, it should be taken with a large grain of salt.

Forbes' valuations were accompanied by a diatribe against revenue sharing which opened, "Planned economies sound great in theory but don't work very well in practice," and went on to decry "more revenue socialism." Forbes didn't explain how the owners' decision to change the formula for dividing the revenue from their jointly produced product qualified as a "planned economy" or "revenue socialism."

Minnesota antitrust investigation quashed. On April 29, the Minnesota Supreme Court held unanimously that MLB's antitrust exemption barred the State of Minnesota from investigating MLB in connection with charges that the owners conspired to force local governments to build new stadia by threatening to move clubs if they don't.

2000 All-Star Game shifted from Florida to Atlanta. Citing concerns over the stability of the Marlins, MLB has moved the 2000 All-Star Game from Miami's Pro Player Stadium to Atlanta's Turner Field. John Henry, the Marlins' new owner, wasn't happy, calling the decision "outrageous... shocking... disappointing." MLB hinted that Florida would be considered again if it built a new, baseball-only stadium.

MLB plans central control of umpires. When the umpires' current labor contract expires after the 1999 season, Sandy Alderson, MLB's executive vice president of baseball operations, will assume control of both leagues' umpiring crews, with an eye toward standardizing umpiring styles and eventually merging the staffs into a common pool.

Around the Majors

Boston. The Red Sox propose to replace Fenway Park with a new facility on an adjacent plot of land. The new park would be constructed with Fenway's distinctive dimensions. The club estimates the cost of a new park at $350 million, plus $130 million for land acquisition and site preparation. The Sox say they're willing to build the park if the government picks up the acquisition and preparation costs -- but the club, which is still owned by the late Jean Yawkey's JRY Corporation, has essentially no cash reserves to finance its contribution to a new park. Meanwhile, the Save Fenway Park! Preservation group announced its own design for a renovated Fenway. Its plan would add 10,000 seats, plus luxury boxes, club seats, and parking, to the existing site.

Cincinnati. Marge Schott's suspension, which was due to expire on December 31, was extended three months by mutual consent. During this period she agreed to sell her general partner's share, and all but one of her limited partnership shares, of the Reds for $67 million to three current limited partners, Carl Lindner, George Strike and William Reik. Lindner will assume control of the club as soon as the sale is approved. The Reds also signed a 30-year lease for their new 45,000-seat park, scheduled to open in 2003.

Cleveland. Owner Richard Jacobs stunned the community by putting the Indians up for sale. The 73-year-old Jacobs says he wants to choose the next owner before any health problems which may arise limit his ability to do so, and will sell the club only to an owner committed to maintaining the club's newfound quality.

Detroit. The Tigers sold naming rights to their new home for $66 million over 30 years. Tiger Stadium's replacement will be known as Comerica Park, honoring a local financial-services company.

Florida. MLB unanimously approved commodities trader John Henry's purchase of the Marlins from Wayne Huizenga for $150 million. In other news, WQAM, the Marlins' flagship radio station, has sued the club, claiming that the breakup of the Marlins reduced the value of its rights.

Houston. The Enron Corporation will pay more than $100 million over thirty years for naming rights to the Astros' new park, which will be called Enron Field. All of this money goes to the Astros, whose lease allows them to keep all revenues from the park in return for payments of $7.1 million/year to the Harris County-Houston Sports Authority, which is building the retractable-roofed stadium.

Kansas City. The foundation which has controlled the Royals since Ewing Kauffman's death has agreed to sell the club for $75 million to a group headed by attorney Miles Prentice. However, MLB may ask Prentice to restructure his group. Prentice assembled a syndicate of 40-50 investors to meet the foundation's demand that half of his money be raised locally, but some owners consider such large groups unwieldy and inherently unstable.

Los Angeles. The Dodgers have rejected a proposed $200 million overhaul of Dodger Stadium, but plan a less comprehensive overhaul which will add up to 30 more boxes, additional premium seats and a new press box. Construction is expected to begin after the 1999 season. Meanwhile, an offer from Arizona interests to build the Dodgers a new spring-training complex has started a bidding war with Vero Beach, Florida, where the Dodgers have trained for half a century.

Montreal. With Wayne Huizenga gone and Marge Schott going, the Least Valuable Owner award now belongs to Claude Brochu of the Expos. Several prospective investors have backed away from the troubled club because Brochu, who owns only a small piece of the club, refuses to relinquish operating control. George Steinbrenner also weighed in against Brochu, noting that the Expos' 1998 payroll of $8.3 million was almost $5 million less than the club received from revenue sharing. "The purpose of that was to assist them to build their team so they could become more competitive with the rest of baseball. They're not doing that. They're not signing players. They're putting it in their pocket, and that's got to be stopped. That's wrong."

New York Yankees. In a startling development, George Steinbrenner has merged the Yankees' business operations with those of the NBA's New Jersey Nets. Nets owners paid more than $200 million to become equal partners in the new "YankeeNets" holding company. With the Yankees' huge cable contract expiring after next season, the deal gives the combined franchises more leverage in upcoming negotiations.

Oakland. Owners Steve Schott and Ken Hoffman have found two groups willing to meet their asking price of $120 million for the Athletics. Local government officials favor a group headed by Hall of Famer Joe Morgan and former Athletics executive Andy Dolich, backed by grocery store magnate Bob Piccinini. MLB, however, is believed to prefer the rival group, led by San Mateo lawyer Michael Lazarus and including Bob Watson and Steve Stone. The Athletics have also extended their lease at the Coliseum for three more seasons, through 2004.

Philadelphia. As part of the same bond issue which will partially finance the Pirates' new stadium, Pennsylvania will pay about $80 million toward a new park for the Phillies. Unlike their cross-state rivals, the Phillies don't have a site, a stadium design or additional financing in place, but they're doubtless counting the days until they can leave the hideous Veterans Stadium.

Pittsburgh. The final piece of financing for the Pirates' new park fell into place when the Commonwealth of Pennsylvania approved an $80 million contribution. The Pirates' new PNC Park, scheduled to open in time for the 2001 season, will be built next to Three Rivers Stadium.

Seattle. As they prepare to move to their new home in midseason, the Mariners have learned that the move may cost them $100 million -- the current estimate for overruns at Safeco Field, which is now expected to cost at least $517 million. The Mariners also claim to have lost $2 million in 1998, following losses of $4 million in 1997, $13.2 million in 1996, $20.2 million in 1995, $15 million in 1994 and $16.9 million in 1993. The 1998 figure includes $9.3 million in revenue from expansion fees.

Toronto. The Blue Jays have signed a new 10-year lease at SkyDome. After SkyDome Corp. filed for bankruptcy late last year, the stadium was sold to SportsCo for $80 million (Canadian) - roughly 13% of its construction cost

Copyright © 1999 Doug Pappas. All rights reserved.
Originally published in the Spring 1999 issue of Outside the Lines, the SABR Business of Baseball Committee newsletter.

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