What caught my eye...
Bill Shaikin of the L.A. Times wrote this morning that nine teams are reportedly in violation of MLB's debt service rules -- one the nine being the Baltimore Orioles. With dwindling season ticket sales and underwhelming performance of the MASN network (from a viewer and ad revenue standpoint), I don't think it comes as a surprise to many O's fans that Baltimore's financial cup doth not runneth over. Shaikin summarizes the rules MLB has in place as follows:
The rules, intended to ensure clubs have the resources to support their financial obligations, generally limit a team's debt to 10 times its annual earnings, although Selig has wide latitude to enforce those rules.
Shaikin also mentions that the individuals leaking this financial information about these nine teams were not authorized to do so? Put on your tinfoil hats -- it seems to me they most certainly were authorized to leak the info, and this is simply a first volley from ownership to frame the upcoming Collective Bargaining Agreement with the MLB Players' Association, due to be renegotiated this off-season. Jon and I will look at this more closely, but for today let's just get the basics out of the way.
Obviously the fluid nature of revenue streams in the sport make it such that teams debt leverage ratio will fluctuate -- potentially dramatically depending on the particular revenue streams on which the organization most depends. For the Orioles, it makes intuitive sense that diminished season ticket sales and in-season ticket sales could have a significant impact on the club's revenues. MASN, thought by many to be a stabilizing revenue stream once up and running, has struggled to attract advertising money due to poor viewership (who would have thought fans wouldn't necessarily be interested in watching the O's and Nats on a regular basis?). So it is quite possible that the team, run no worse than it has been in the past five years, could see its debt leverage ratio slip out of whack after prolonged fiscal seepage on the ticket and ad sales front.
This is all educated guesswork, and we'll dig into the details more in the coming weeks. The larger question -- are there financial troubles across the sport -- is the more interesting question, and I think an easy one to answer. Currently the Dodgers and Mets have received lots of ink relating to their dire financial straights, and it's quite possible that both franchises are in serious trouble, with the debt leverage report providing further evidence. For the other seven franchises listed in today's L.A. Times article, we have scenarios wherein teams have run up their debt past a level Major League Baseball set as "reasonable". At the same time. each of these teams have taken on this debt by entering into agreements with lenders who themselves have analyzed the credit risk and sided with the teams that they are in fine financial position to take on the debt.
Whatever work went into setting the recommended debt leverage ratio at 10-1 for MLB clubs was likely done with the interest of the sport in mind -- we don't want our teams running themselves into bankruptcy and forcing frequent changes in ownership. Stability is a good thing. But if financial institutions are sitting down with Major League teams, you can be sure they are aware of MLB's debt service guidelines. You can also be certain the due diligence run on the business of the borrowing team is thorough, particularly in this economic climate. So where does that leave us?
Essentially, we see banks are siding with the borrowing organizations in determining their business is sound and they will be able to pay off the debt they are accumulating. If banks are willing to take on these risks, it seems to me that it is unlikely these teams are in danger of folding any time soon (again, educated guesswork with more research to follow). But, wow, is it a nice storyline to start running out there if you are looking to construct a dialogue centered around ownership cutting costs in various areas. With issues surrounding the Dodgers and their ownership, and widely publicized financial woes plaguing the Mets, the media is ripe for an overarching story about desperate times facing MLB ownership on the whole.
Don't believe the hype...