Friday, June 03, 2011

Dodgers Not Alone In Debt Troubles (But Probably Lead The Pack In Trouble, Nonetheless)

According to Bill Shaikin of the LA Times, confidential MLB memos indicate there are eight other teams who are not at the MLB-set 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." [...]

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.

Shaikin has also been all over Frank McCourt's precarious financial situation, and the article is dense. However it doesn't push the point of why the Dodgers, even if their ratios are among some of their peers (including contending teams like the Rangers and Phillies, I might add), are in even more dire straits than probably all except the recently-lifelined Mets.

Frank McCourt took a discount on future income streams in order to advance payments to make the May 31 payroll. He has not resolved his outstanding issues with his wife, Jamie McCourt, who arguable owns half of the team (and half of the revenue). And most damning is that Frank's future plans to keep the Dodgers as a going concern hinge squarely upon a massive advancement of funding from Fox in exchange for a gargantuan commitment of future income streams valued at today's rates. And this deal, the only lifeline Frank McCourt can find (remember, he's courted other investors to no avail), has two significant impediments in Bud Selig/MLB and Jamie McCourt.

The Mets, according to Shaikin, were able to get a $200M advance from an convertible equity position. That is very different from the Dodgers' situation, in which there are no equity partners to be found.

Having a garage sale to get some liquidity would be scary enough--no one wants to see Andre Ethier, Matt Kemp, or Clayton Kershaw (among others) sold off in desparation. But the lengths to which Frank McCourt is jeopardizing future income streams makes me worried that more desparate moves are close at hand. We know that June's two payroll cycles include the deferred balloon payments to Manny Ramirez. I am guessing that Frank's scrambling will get more and more erratic.

If MLB triggers a change in ownership of the Dodgers, all of these agreements for discounted future income still hold, right? I can assume that whatever discounts San Manuel Casino or Merrill Lynch Wealth Management (both sponsors on the outfield wall, though I have no idea if they were party to the recent McCourt dealings) extracted from Frank McCourt will carry to the next owner. And wouldn't it make it less and less appealing for future potential owners to pick up the Dodgers with more and more obligations?

I know the Dodgers might have ratio-based company. But I have to think that when it comes to a precarious financial position, the Dodgers are unfortunately in a league of their own.