June 03, 2011
Could debt worries sink San Jose A's stadium?
Nine MLB teams are carrying more debt than is allowed under baseball rules, according to an article by Bill Shaikin in today's L.A. Times. Not that that's an insurmountable problem — the MLB debt rules basically come down to "Don't do anything to make Bud Selig mad," and league profits are generally high enough to cover any debt payments — it is a sign that some teams could be more vulnerable to a prolonged economic downturn that pushes down ticket demand. Not that either of those is likely or anything.
Meanwhile, newballpark.org jumps off from the debt numbers to see what they'd mean for the proposed San Jose stadium for the Oakland A's, currently still on permahold. With lots of charts, they project how the A's could cobble together revenues to pay off $30 million a year in stadium debt — and how, if attendance dipped by 25%, they'd suddenly be facing a $5 million a year shortfall.
That's not an insurmountable problem either — $5 million barely even buys you a middle-aged middle reliever these days — but it does show how close to the bone teams have to go in order to pay off new buildings on their own dime. It also shows why the issue of territorial rights payments for the Giants have been such a huge stumbling block, as it's not like there'd be a ton of extra money from the new stadium to pay off the Giants.
Newballpark.org cites "the potential for an extra $30-50 million or more per year after debt service" from a San Jose stadium, but it's not clear where those numbers are from — the actual charts imply a smaller $20 million bump after debt payments at best. (It's also not clear whether the figures provided take into account that the A's would be see their revenue sharing checks reduced if they had more revenue of their own.) Still, it's an interesting exercise in running the numbers, and understanding why, if new stadiums are such gold mines, teams don't just go build them with their own money: They can be, but it's a huge risk, and everyone knows it's better to take risks with other people's money.
The Florida Marlins and Washington Nationals are one of the nine teams in violation of MLB debt service rules?! How is this possible?
The Marlins have been amongst the lowest payroll teams in MLB for years, in addition to getting massive slices of the revenue sharing pie and making considerable profits each season based on the financials leaked a few months ago.
And the Nationals have a low payroll and virtually no stadium expenses due to one of the greatest stadium deals in the history of mankind.
What is the calculation for debt service rules?
Posted by Chris A. on June 3, 2011 09:58 AM
The cap is 10x annual revenue, which would imply that the Marlins (for example) are carrying more than $1.4 billion in debt, which does sound a bit dodgy.
Posted by Neil deMause on June 3, 2011 10:07 AM
Oh, sorry, it's 10x *operating income*. So this just means that any team with low profits (or negative profits) is in violation. I still don't see how the Marlins qualify, since by all accounts (including those leaked documents last summer) they're making money hand over foot, but who knows which sets of books MLB is looking at for these calculations.
More on the debt issue here, for those interested:
blogs.forbes.com/monteburke/2011/03/23/special-report-inside-baseballs-debt-disaster/
I can think of a worse reliever deal: Matt Thornton.
Turning 35 in September, the White Sox signed him to a 2-year, $12 million extension, basically '11 $3M, '12 $5.5M, '13 $5.5M & '14 $6M w/ team $1M b/o, when he would be 38 at the end of the deal. It has to be one of the biggest rip-off deals for relievers ever.
I know nobody asked, but I just witnessed it firsthand. But one thing is for certain: everything in MLB including salaries needs to come down.
Posted by Mark on June 3, 2011 11:51 AM