Friday, September 3, 2010

Debt is everywhere in baseball…not just the Cubs.

If you are like me (and I hope for your sake, you’re not), you were very concerned about the amount of debt that was taken by the Ricketts family to take ownership of the Cubs. 

The actual amount in loans is somewhere around $450 million.

We all hope and pray that Tom Ricketts is as good of a business man as many people have claimed he is and that he can continue to pay off the debt the family has taken on. 

At $450 million, the Cubs’ debt is so high that the amount owed on this team right now is probably greater than the worth of most of the franchises in baseball. 

Anyone who has pays even mild attention to the big picture of baseball this year knows the drama that has happened down in Texas with the Rangers.  The former Rangers owner, Dan Hicks basically drove the team into bankruptcy and after a ridiculous circus, the team was finally sold.  The debt that Hicks ran up on the Rangers was astonishing.  Including debt incurred as owner of the Dallas Stars hockey team, Hicks ran owed $525 million in loans. 

The team was sold for almost $600 million.  The team is valued at $451 million.

The Mets recently took out a $375 million low interest loan from Major League baseball.  I guess attendance at Citi Field hasn’t been as good as they had hoped. 

Then I saw this about the Dodgers yestereday (via Biz of Baseball)

According to a report by the Los Angeles Times, court documents from the McCourts divorce case show that the club has now assumed $433 million in debt as of last year.

Frank McCourt bought the Dodgers 6 years ago for $430 million…of which about 75% of that purchase was financed via loans.  Now McCourt owes more on the team than the total purchase cost of when he bought it.  That’s going in the wrong direction, my friends. 

In that same story we find out that there is some very serious problems with how the Dodgers have been running things…

The court documents and analysis by the LA Times showed:

• The Dodgers generated $72 million in operating revenue last year but had a net profit of $8.4 million, largely because of $28 million in debt service and $34 million in revenue-sharing payments. Baseball requires the teams that generate the most money help support the ones that generate the least.

• The debt is not projected to drop significantly until at least 2013. The Dodgers' business plan is based on selling 3.8 million tickets every season, a number the club has hit once in six years. The team is projected to sell 3.6 million tickets this year, based on current attendance.

• Bank of America, the Dodgers' lead lender, last year restricted the team to $66 million in deferred player compensation at any one time, a provision called "unusual but not unprecedented" by a high-ranking baseball official, speaking on condition of anonymity because of the court case.

Here is a list of players who are being paid by the Dodgers this season…but aren’t wearing Dodger uniforms:

  • Juan Pierre-$7 million
  • Andruw Jones-$3.2 million
  • Jason Schmidt - $2.5 million
  • Orlando Hudson - $1.44 million
  • Nomar Garciaparra - $1.25 million
  • Ramon Ortiz - $1 million

All this on top of deferred payments spells some problems for this “high revenue” team. 
It’s funny because there are other teams other there that a being accused of just the opposite and basically stealing money from other clubs to line their pockets in cash.  (The Florida Marlins in particular.) 

The Dodgers case is interesting has the McCourts are busily trying to work their marital problems in court right now.  With the amount of debt the team has, Frank just might want to let his future ex-wife have the team straight up.  

The Dodgers are also in the middle of a significant renovation of Dodger Stadium…and that can’t help matters much. 

Tom Ricketts, who is the main business dude on the Cubs ownership team, needs to watch the Dodgers situation very closely.  What is happening on both teams isn’t all that much different (outside of the divorce stuff and the fact the Cubs suck).  Both have older, out of date ballparks.  Both have about $450 million owed on the team.  And both owe a lot of money to players in the near future. 

The Dodgers, financially, are probably going to have problems for years adding to their payroll.  They might have a hard time completing renovation plans at Dodger stadium.  And if things do take a bad turn, they might end up defaulting on some of their loans resulting in a similar fiasco to what the Rangers just went through. 

Are the Cubs in trouble?  I don’t think so.  But Cubs is a strong franchise still…but one has to wonder if they struggle on the field for 3 or 4 years straight, what could happen?  The Cubs probably have the highest amount of debt of any team, and will probably need to do a renovation on the ballpark that will cost between $100 and $250 million…which will probably have to be financed as well. 

Of course, what do I know about finances?  I’m the one calling for the Cubs to reduce ticket prices next year while at the same time asking them to go out an sign a superstar player.  (I also just put my family through hell as I dealt with financing a new house.) 

What I do know about finances is that debt, no matter what anyone says, is bad.  The Cubs, Dodgers, Mets and Rangers, all big market teams, are saddled with a ton of it right now.  The Mets and Dodgers appear to be in a situation where they are only adding to their problems.  The Rangers are just now under new ownership and we’ll have to see where that goes. 

But what about the Cubs?  Very few people could make heads or tails of the complicated deal between the Ricketts family and Tribune Company in the sale 10 months ago.  The Tribune Company was privatized under some pretty shady financing, and that company is practically destroyed now as the lenders try to make back mere fractions of what is owed.  That company took a hit from a bad economy (and some other things).  The Cubs are in debt, and attendance is plummeting at almost as fast of a rate as losing is increasing.  Hopefully we aren’t seeing the Cubs get hit by the same perfect storm that has brought down the Tribune. 

Ok…enough of this…it’s time to watch some baseball!!!!