Newballpark.org, 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, Newballpark.org, 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. Newballpark.org 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.