Dodgers' and Mets' issues are well-known but others are said to carry debt 10
times more than annual earnings. McCourts' personal use of redirected funds
makes situation different, consultant says.
By Bill Shaikin June 2, 2011, 7:37 p.m.
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."
Frank McCourt, the Dodgers' owner, has told executives within the industry he
does not agree with Selig's decision to appoint a trustee to oversee his team
and does not understand why Selig has not acted similarly with any other team.
"I can't say I haven't heard people in baseball talk about that,"
Chicago-based sports business consultant Marc Ganis said, "but there is a lot
of deferral to Bud on this one."
Selig often says baseball is in a "golden age," in large part because revenue
has jumped 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 the 2002 labor negotiations, after overall
club debt soared 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 support their
financial obligations, generally limit a team's debt to 10 times its annual
earnings, although Selig has wide latitude to enforce those rules.
With the financial struggles of three teams exposed to public view — the
Dodgers in divorce court since 2009, the Rangers in bankruptcy court last year
and the Mets in the aftermath of the Bernie Madoff scandal over the last few
months — a prominent sports investment banker said his industry is "somewhat
concerned" about the league's ability to ensure its teams remain on solid
economic footing.
"You've got to be thinking, with two of the premier franchises in trouble and
a major-market team that has just come out of bankruptcy, what else is out
there?" said the banker, who declined to be identified because of his work with
the league and its clubs.
Rob Manfred, baseball's executive vice president of labor relations, would not
confirm the number of teams in violation of the debt rule or identify any of
them.
"To take a snapshot of the number of non-compliant clubs at a point in 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 condition of the industry."
The chief executive of one National League club called the number of teams out
of compliance "a hiccup" and said the commissioner's office has worked to
correct the situation before lenders could become reluctant to extend financing
within MLB.
"I think we're healthy," the executive said. "The banks see it. The banks get
it. We're still thriving."
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.
Under the debt service rule, Selig is authorized to impose whatever remedial
measures he sees fit. The rule lists 16 possible actions Selig could take,
among them an order that a team raise equity, a requirement that all team
expenditures be approved by his office and the suspension of the team owner.
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