New MLB debt rules: Will they affect A’s stadium plans?, which is truly doing some outstanding work covering the Oakland A’s stadium battles, reveals today that the new MLB collective bargaining agreement includes a change to the team debt rules that could affect team owner Lew Wolff’s stadium plans. Namely:

The Debt Service Rule will be maintained, but the default EBITDA multiplier has been lowered from ten to eight, and from fifteen to twelve for Clubs incurring stadium-related debt in the first ten years of a new or renovated stadium.

If you just stared blankly at that sentence, you’re not alone: I had to read it a few times before I could figure out what it meant. An attempt, then, to translate this into English:

  • “EBITDA” is an acronym for “earnings before interest, taxes, depreciation, and amortization,” which basically can be thought of as “profit, before the tax attorneys get ahold of the books.” In the past, MLB teams were (technically) required to keep their debt load below 10x this number, or 15x if they’re building a stadium; now, those numbers get tweaked downwards to 8x and 12x.
  • What, if anything, does this mean for the A’s? Well,, citing Forbes’ figures, says the team’s “gross income” (they really mean net EBITDA, since it’s after expenses on things like players, or whatever you call those guys they fielded last year), has been $22-23 million the last couple of years. Assuming the A’s can increase that a bit for next season following their recent payroll-slashing trades, they could be eligible to take on perhaps $360 million in stadium debt.
  • That should be plenty of rope for Wolff to get a new stadium built: Even if it costs upwards of $400 million, he can always offload some of the stadium debt onto other entities — for example, by selling naming rights or PSLs in advance and using the cash to pay down part of the construction cost up front.
  • If Wolff borrows, say, $250 million for a stadium, he’d need to be paying $20 million a year in debt service, or about the same as what the San Francisco Giants now pay. speculates that this could be made up by hiking ticket prices, but keep in mind that the A’s are also going to need any new ticket revenue to pay for better players, (presumably) pay off the Giants for their territorial rights, and provide any profit that Wolff expects from this deal. This is especially so if other revenue streams like naming rights and PSLs are being siphoned off to pre-pay construction costs.

In other words, sorry for the teaser of a headline, because it looks like the debt rule probably won’t have much impact on the A’s plans. The real problem remains not how to finance a San Jose stadium, but how to pay for one, especially if they have to indemnify the Giants. That remains a tight margin, which is no doubt why everyone involved has apparently been busily working the media to try to influence that price tag: Wolff no doubt has some idea what dollar amount he can afford to pay to the Giants, but whether he can get San Jose at that price, only Bud Selig knows.

38 comments on “New MLB debt rules: Will they affect A’s stadium plans?

  1. I know that building costs can vary throughout the country, and that it’d be cheaper to build a baseball stadium in Kansas City than it would in the Bay area, but I still have a question: Where can you build a state-of-the-art baseball park in the United States for $400M?

    I think I can tell you one place you cannot do it: San Jose, California.

    In retrospect, it sure seems like the Giants could not possibly have timed their ballpark construction any better than they did. Just pure blind luck on that one.

  2. They timed it well as far as selling PSLs was concerned, but were construction costs really low in NoCal in the late ’90s? That was the peak of the dot-com bubble.

    The A’s are talking about a very small stadium (not much over 30k seats), so something in the $400k-500k range seems doable if they scale down their expectations. Of course, that means no in-stadium Hard Rock Cafes and such, which cuts into their ability to raise revenue from the place, so it’s a bit of a double-edged sword.

  3. You’ve got it right Neil. There will be no restaurant or a massive indoor club area. There may not even be an indoor concourse for the suite level. Wolff figures that the lack of finished space will save tons of money, my guess is into the nine figures. San Jose is warmer than either San Francisco or Oakland, so fans won’t suffer much in that regard.

  4. Guys, I have an “out of market” question which I’d like your opinions on.

    If, as seems to be the concensus, Wolff can build a scaled down no frills stadium (in San Jose or elsewhere) for $400m, and can generate enough new money with that stadium to just about pay for it – but probably not more, why would he do so?

    I mean, new is always nice. And even though I’ve never been to it, I’ll happily concede that the Oakland Alameda coliseum ‘sucks’ and is past it’s due date (particularly where baseball is concerned, thanks to the ’94 renovations in no small part). However, if you build a new facility and take on that level of debt (let’s say $300m after LW is done selling PSL’s or preselling club seats & suites etc), surely you’d be absolutely crazy to do so in order to end up in about the same net cash flow position you were in in the old, decrepit stadium?

    Other than being able to say “it’s new” and having wider seats and cupholders, if the new stadium ends up being more or less revenue neutral for both club and owner, what is the point?

  5. @John: perhaps to drum up business for the San Jose hotels owned by Wolff and the other backers of Baseball San Jose ?

  6. John, your scenario assumes that the revenue streams of the A’s would stay relatively flat in a new stadium. They won’t. Not only will the team be drawing in significantly more in attendance which will offset the increased debt load, but it will eventually lead to increased TV revenues and franchise value. That is why you do it. Wolff can realize a 5 fold increase over what he paid for the team by moving them to a new stadium. And frankly both are going to be needed if the A’s ever hope to be competitive with the Angels and Rangers (ostensibly the Red Sox and Yankees West now).

  7. I’m a little baffled by this analysis at There are a lot of numbers, but they never get added up.

    My back of the envelope calculation, using the numbers given:
    stadium cost: $500M
    other costs: $50M (no Giants payoff)
    Current debt: $90M;

    Naming Rights: – $60M (but values are down from several years ago)
    Paydown current debt – $40M (is this coming from revenue sharing?)

    Net remaining debt: $540M;

    The analysis magically declares this down to $250M of ‘bad’ debt, but I donÔøΩt see how. The AÔøΩs wonÔøΩt get any parking revenue from SJ, and concession revenue canÔøΩt get very high.

    Divide by 12: $45M / year gross revenue required to stay within the new MLB criteria.

    According to Forbes, this is higher than any current MLB team. The leader is Boston, at $40M per year.
    So the AÔøΩs go from getting $30M a year in revenue sharing to having the highest income in the league?

    Maybe IÔøΩm missing something. Enron style creative accounting . . . ?

    Probably none of this matters, because MLB makes the rules and interprets them.
    But there is a long history of ‘renegotiations’ between Mr. Wolff and San Jose over the years, over many deals, somehow always resulting in him getting a lower price and/or more money.


  8. Why doesn’t the MLB just get rid of the A’s & Rays and let Wolff & Sternberg buy the Dodgers & Mets? It would certainly allow them to do two leagues and no interleague play throughout the year. Another MLB team would have to switch from the NL to the AL but I’m sure they could find a suitor like the Pittsburgh Pirates that would be happy to join.

  9. Let’s look at this another way: How much would the A’s have to increase their revenues in order to pay for a move to San Jose?

    Per the numbers Marc gives above, we’re looking at around $540m in new debt, which requires about $40m a year just to break even. Stadium costs are deductible from revenue-sharing, though, so they’d get about $12m back that way. According to Forbes, the A’s brought in $161m last year (all figures after revenue sharing checks are distributed); at $188m we find the Rockies. So San Jose would have to be capable of turning the A’s into the Rockies for that to work.

    Now, factor in money for paying off the Giants, adding payroll, and maybe even a bit of a profit for Wolff. That has to be at least another $40-50m a year, especially if they’re going to try to field a real team. (Outfielders are *not* deductible from revenue sharing.) Here’s who’s in that echelon: Giants $230m, Mets $233m, Phillies $239m.

    In other words, Wolff can probably make the move to San Jose – and compete for a division title – if it will turn his finances into those of the Giants. That’s certainly possible, but just as certainly not certain. Which, yet again, is why I think Wolff very much needs to sweat the Giants’ price point – it could make the difference between a reasonable risk and a dangerous one.

    And, needless to say, this goes to show why so few teams build new stadiums with their own money (aside from the fact that they can usually get someone else’s money to do it): Even when you’re moving to a relatively large, relatively untapped market like San Jose, it’s really tough to make those construction bond payments just on the money from cushier club seats.

  10. Dan;

    No, it doesn’t assume revenues will stay flat. As stated, it assumes that revenues will increase by at least enough to cover the construction debt, but perhaps not a great deal more.

    The A’s in San Jose would no doubt fetch a higher selling price than in Oakland. But Wolff claims that isn’t the issue (if it was, you’d think he would have prevailed on his friend A.H. Selig to buy out his franchise). A new stadium that has little in the way of revenue generating amenities by definition can not generate the kinds of revenues you are talking about.

    A $400m “no frills” stadium in San Jose will increase the A’s revenue. It just doesn’t get them anywhere near the Angels or Rangers, much less the Yankees or Red Sox. For that to happen they need a stadium that doesn’t cost them much (or anything) and that can generate significant revenues on it’s own (like Citizen’s Bank Park, for example).

    If they aren’t building the revenue producing extras, they will simply be moving from being a “have not” franchise that enjoys MLB welfare payments to a “mostly have not” franchise in a better (and more profitable) area that doesn’t get anywhere near as much MLB welfare.

  11. Neil, I really do think it would cost more to build AT&T Park today than it did when they started on it in… Was it about 1998?

    Compared with 2005, you are probably right. But so much has changed since 1998, yeah, I’d say AT&T Park would cost a good 50% more to build today than it did back then.

    San Jose is one of the exceptions to the real estate collapse. Every state has small regions that buck the statewide or nationwide trends, and San Jose is one of them. Note that I’m not saying they’ve continued with the breakneck pace of 2003; not at all. But they’re not Stockton, either.

    I also don’t think you’d build a “basic” park, just to keep the costs down. Frankly, that would never work in that market. If it doesn’t approximate the atmosphere around AT&T, they won’t gain any new fans. Not that the current stadium is lovely, by the way. But a new stadium will have to be a major step up.

  12. AT&T is actually pretty basic as new stadiums go – have you been there? I think it’s a great place to see a game, but it doesn’t have the soaring concessions concourses that you have at many of the newer parks. Some of this is probably due to seismic issues, but the fact that the Giants were working on a budget plays into it, too.

    Anyway, AT&T cost $357m, so add on 50% and you’re just about exactly at what Wolff has budgeted for a San Jose stadium.

    San Francisco in the late ’90s was one of the very, very rare examples of where a stadium could actually pay for itself (mostly because of the glut of dot-com PSL buyers). San Jose in the early ’10s *might* be, too, thanks to its population, but from where I sit it looks like a very slim margin.

  13. A question about Neil’s analysis of the revenue the A’s would need to make the new stadium costs viable – is the revenue sharing the A’s now get ($30M a year, apparently) included in the current revenue reported by Forbes? If so, then either a new stadium at best just gets the A’s to a much higher risk status quo for everyone, or they have to grow their revenue to levels well above the Giants.
    All of this feeds my suspicion that there will turn out to be a lot of hidden public subsidies for any stadium in San Jose. Remember he is superficially financing a new soccer stadium on his own, but in fact has quietly received several discounts on the land since the first deal was announced, and still has in his back pocket the opportunity to convert other land from industrial to residential use. The San Jose City Council has shown its determination to accommodate whatever he needs.

  14. Yes, it’s after revenue sharing, but the Giants’ figures are after revenue sharing as well, so the “turn into the Giants” argument still stands. In other words, the A’s would indeed have to add more than $70 million a year (it’d be more like $100 million a year) in revenues to make up for the lost revenue-sharing checks, but that’s how much the Giants are out-earning them currently.

  15. Marc – I don’t understand where you’re getting your math from. In my analysis I have the A’s becoming a roughly $200 million revenue team in 2015, which is to me somewhat conservative. No unrealistic projections, well short of the Giants’ $230 million in 2010. If the point is to get the A’s off the dole then it’s feasible. The only issue is one of servicing the debt, which is equivalent to that of an ace pitcher or slugger. The A’s can maintain a $100 million payroll in the new regime, which is a lot better than $60 million.

  16. ML, how do you see the A’s running a $100m payroll on $200m in revenue? That’s only $40m more than they’re bringing in now (after revenue sharing), and you’re talking about adding $30m in payroll plus $25-30m in stadium bonds plus whatever they’d have to pay the Giants – how would that work?

  17. Payoll is around 50% of revenue for teams that aren’t perennial revenue sharing recipients. Those on welfare – well, they have to play by a different set of rules. There are some quibbles about whether the A’s actually get $160 or $150 million. Either way, they and the Rays are under certain unwritten constraints that other more self-sufficient teams aren’t.

  18. From all of this debate, it’s clear to me that the best solution for the A’s would be to relocate to Sacramento. True they don’t have the corporate sponsors to the degree of the South Bay, but they’d also not have to pay off the Giants for the territorial rights and they’d have a market to themselves (admittedly a smaller market). I really think if MLB ever did award San Jose to them, they’d have to build such a no-frills stadium to cut costs that it would not be much of an attraction in the long run. Add to that most South Bay baseball fans are Giants fans and I don’t think they’d be that much more successful in the long run in San Jose than they are in Oakland. I really think Sacramento is the best bet for them.

  19. Hey ML:
    To express Neil’s point in a slightly different way, and to back off from the detailed numbers for the moment (even though i love numbers!) . . .
    Comparing the A’s to the Giants:
    – the A’s will have significantly larger debt;
    – the A’s will have a smaller stadium (fewer seats);
    – the A’s will have lower ticket prices (your assumption);
    – the A’s may be paying off the Giants;
    – the A’s will get close to 0 parking revenue;
    So won’t the A’s need higher revenue than the Giants? How is this going to happen?

    And I just saw your post about Sacramento and the no-frills stadium . . . again we have an example of how Wolff operates in the soccer stadium, which is now about as cheap and no-frills as you can get. It’s being compared unfavorably to high school bleachers. Far different from the pretty renderings published in the initial proposal.


  20. “again we have an example of how Wolff operates in the soccer stadium, which is now about as cheap and no-frills as you can get. It’s being compared unfavorably to high school bleachers. Far different from the pretty renderings published in the initial proposal.”

    Bingo. You hit it right on the head Marc. Wolff is a real estate guy, only concerned about making a buck. Assuming this pie in the sky stadium ever were built (not likely), he’d try to sell it as soon as possible for a quick buck, not concerned at all about the consumer comfort, etc … carpet bagger, swindler.

  21. Believe that Neil pointed out that AT&T is pretty much a bare bones stadium–just like LW is proposing for SJ–amazing when your not getting public handouts what you can do and still make it attractive for the fans…and last I saw there weren’t alot of people lining up to invest $600M in 2 areas of SJ that are just a tad bit run down (ahh yes—you miss the FMC building that was abandoned how many years ago?)–

    Yup–LW is a carpetbagger…damn anyone who wants to spend their own money in SJ for the benefit of the community–

  22. Spend his own money???

    Come on, you don’t really believe that do you? AT&T a bare-bones stadium? Is that why they continually get named as one of the best facilities in America?

  23. ATT proves you don’t need Yankee or Dallas Cowboys types of amenities to be a fan favorite- and yes- at $375M to build it is considered to be a relatively bare bones stadium- (as noted by Neil and ML in comments above)– and yes- just like the giants did the construction of the stadiums will be privately financed- which is the point of this particular post-

  24. Marc – The Giants have a $130 million payroll. I don’t expect the A’s to have anything approaching that for years, maybe the rest of the decade, even if they get the San Jose green light. If they want to charge more for tickets and find the demand is there, the headroom is there. According to TMR, the A’s average ticket price is $21-24. That doesn’t take into account how virtually every single game seat sold is discounted 20-70%. The A’s ticket revenue situation is practically destitute.

    There’s an assumption that compensation for the Giants will be either a large lump sum or some ongoing annual payment. The Giants’ argument is predicated on paying off their mortgage. However the compensation is structured, I don’t expect it to proceed much beyond 2017, the end of the Giants’ debt service. Even if the compensation is $100 million, with MLB footing half, that’s only $10 million per year for five years by the A’s. That’s not going to kill them in the long run.

  25. I just meant that AT&T doesn’t have a ton of restaurants and hotels like some other places I could mention, thus keeping the cost down. As far as ballpark design goes, I agree that it’s very well done, though a lot of the credit goes to the fault lines that created San Francisco Bay.

    Most of the exorbitant cost of modern stadiums does *not* go toward things that increase the comfort of the average fan. They do, however, usually increase the revenue streams to the team from the, shall we say, more-than-average fan.

  26. ML, even without any payments at all to the Giants, you’re talking about a stadium generating $40m a year in new revenue for the A’s, while costing about $60m a year when added payroll is included. How’s that gonna work?

  27. Here’s the revenue breakdown:
    $91 million from new gate (sellout situation)
    $15 million in concessions share ($5 per head, 40% margin)
    $24 million in local TV/Radio rights
    $20 million in sponsorships (not naming rights or other long-term deals)
    $1.5 million in other in-stadium revenue
    $42 million in MLB central revenue (TV, merchandise)

    Total: $194 million. That drops nearly $20 million if only 2.5 million show, not a likely scenario in at least the first few years. $194 million should take care of $95-100 million payroll, $25 million in debt service, whatever payment is made to the Giants, and other operational costs, taxes, etc. It also comes with a promise expressed in the CBA: a move out of Oakland means the team is no longer a revenue sharing “recipient”.

  28. If $194m in revenue can support a $100m payroll plus $25m in debt service, then how come the A’s current $161m in revenue can’t support even a $70m payroll with no debt service?

  29. It’s not a matter of whether $160 million in revenue can support a decent payroll. Of course it can. That doesn’t mean the teams want to do that. Why spend $80 million on a team that wins 72 games when $40 million will win 60 games? Either way the team sucks.

  30. So, again: You’re saying that the A’s revenue will go up by $33m a year, while the team is taking on $25m a year in debt service. At which point Lew Wolff will suddenly decide to use that $8m a year windfall to add $50m in payroll.

    What am I missing here?

  31. Sure, but it’s always a choice. He can have a $100 million payroll, $80, $60 million. There’s no payroll mandate and no salary floor. There is a mandate from The Lodge to get the A’s off revenue sharing, so that previous “windfall” is in the long term, untenable.

  32. Given that 1) the new CBA just renewed the revenue-sharing arrangement, 2) it’s MLB that’s been dragging its feet on the move, while Wolff is pushing for it, and 3) even if you remove the A’s as revenue-sharing recipients, somebody else is just going to take their place, because that’s how the system works, I’m not sure where you think this “mandate” is coming from.

    And in any case, given that by your own accounting the A’s will already need to be selling out in order to net $8m in new revenue (even if they pay nothing to the Giants), what’s the benefit to Wolff of adding all that payroll? He’ll be losing money at that point, and it’s not like he can sell more tickets if there’s a winning team. (I guess he can raise ticket prices, but then we’re back into “Can the A’s turn into the Giants?” territory.)

    I’ll agree that the San Jose situation is the closest scenario we’ve seen in a long time to a new stadium being able to pay its own way. But I still don’t see the numbers to show that it would be better than a break-even proposition, or even turn a slight loss. And I don’t see Wolff going through all of this just so he can lose money.

  33. Neil, I agree.

    Others have stated resolutely that Wolff is paying for “everything” in this stadium. And that the reason for this project is to increase the value of the franchise (presumably so Wolff can recapitalize).

    If the numbers are as presented, it doesn’t work to make the business significantly better (even taking into account San Jose’s affluence). Even if Wolff can get this lined up and built, he’ll be a maximum of $15m a year better off (and that assumes sellouts indefinitely in the new park – something the Giants, the alleged target here, haven’t always managed).

    Let’s double that amount of extra net just for the sake of it. At +$30m, can the A’s become contenders? No. Even if they were holding at $90m in payroll, they aren’t likely to become competitive on a regular basis.

    So what happens if Wolff just pockets that cash? Does an extra $20-30m make the club significantly more saleable or, more importantly, raise the sale price dramatically? Again, the answer is no (particularly since some of the gain will likely disappear as a result of revenue sharing reductions).

    While MLB would hate the idea, I think you can make the argument that Wolff wouldn’t be much worse off (financially) staying in the mausoleum compared to paying for his own $450m+ stadium.

    I’d like to see the A’s in a new facility. I just don’t see how this makes fiscal sense for LW. Whatever else we might say about him, he isn’t stupid and he understands business.

  34. Eventually the MLB business model will have to evolve. Central revenue should continue to increase, and MLB’s next big issue is addressing the widening gap between teams with big local TV contracts and those without. All the while, MLB will grow as a whole and the A’s will be beneficiaries, making it easier over time to deal with debt service and field a competitive payroll. This isn’t about becoming the Yankees or Red Sox. This is about giving the A’s room to breathe.

  35. Yep, just as I thought. Sacramento is the best option. San Jose makes no sense since as Neil has proven it’s a break-even proposition at best. They have very few fans in the Bay Area and Sacremento has Railey Field waiting for them.

  36. @MM–your lack of awareness is astounding–Sacto can’t figure out how to build an arena for the Kings but they will magically be able to build a $500M ballpark for the A’s–of course it will need to be public funding–because as Neil pointed out, there are few places that can support a privately financed ballpark–SF and maybe SJ—and if you think Raley field can be expanded for the A’s–think again–ML has done a great assessment of this a few years ago–sure you can find his post if you do a bit of research–but keep on dreaming and maybe that ballpark and arena will both appear overnight—

  37. I agree with Mike … Sacramento makes more sense than SJ. While they lack the corp infrastructure, they’d nevertheless have the entrie mkt to themselves and would not have to pay territorial rights payments for the Giants for many years to come. They’d have a better chance of drawing there too given their low support in the Bay Area.

  38. I agree with Mike … Sacramento makes more sense than SJ. While they lack the corp infrastructure, they’d nevertheless have the entrie mkt to themselves and would not have to pay territorial rights payments for the Giants for many years to come. They’d have a better chance of drawing there too given their low support in the Bay Area.