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Nine of 30 teams reportedly in violation of MLB debt service rules

Dodgers' and Mets' issues are well-known but others are said to carry debt 10 times more than annual earnings. McCourts' personal use of redirected funds makes situation different, consultant says.

June 02, 2011|By Bill Shaikin
  • The Dodgers aren't the only team Major League Baseball Commissioner Bud Selig should be concerned about these days.
The Dodgers aren't the only team Major League Baseball Commissioner… (Brendan McDermid / Reuters )

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."

Frank McCourt, the Dodgers' owner, has told executives within the industry he does not agree with Selig's decision to appoint a trustee to oversee his team and does not understand why Selig has not acted similarly with any other team.

"I can't say I haven't heard people in baseball talk about that," Chicago-based sports business consultant Marc Ganis said, "but there is a lot of deferral to Bud on this one."

Selig often says baseball is in a "golden age," in large part because revenue has jumped from $3.6 billion in 2002 — the last year seriously threatened by a strike or lockout — to $7 billion in 2010.

The debt service rules emerged from the 2002 labor negotiations, after overall club debt soared from $600 million in 1993 to $2.1 billion in 1999 and $3.1 billion in 2001.

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.

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.

"We are not concerned about the overall economic condition of the industry."

The chief executive of one National League club called the number of teams out of compliance "a hiccup" and said the commissioner's office has worked to correct the situation before lenders could become reluctant to extend financing within MLB.

"I think we're healthy," the executive said. "The banks see it. The banks get it. We're still thriving."

McCourt says the Dodgers are in compliance with the debt service rules. According to a person familiar with the matter, McCourt received a waiver from the commissioner's office last year permitting the Dodgers to hold debt more than 10 times annual earnings.

That waiver is currently under dispute, according to a person familiar with Selig's view of the matter.

Under the debt service rule, Selig is authorized to impose whatever remedial measures he sees fit. The rule lists 16 possible actions Selig could take, among them an order that a team raise equity, a requirement that all team expenditures be approved by his office and the suspension of the team owner.

Dodgers trustee Tom Schieffer must approve all team expenditures over $5,000, although Selig did not cite the debt service rule in announcing Schieffer's appointment. McCourt has said he believes Selig's actions are "predetermined" to force an ownership change.

Ganis, the consultant, noted that McCourt and his ex-wife, Jamie, redirected more than $100 million of Dodgers revenue toward their personal lifestyle, while no such allegation has been made against Fred Wilpon, the Mets' principal owner.

"Don't underestimate that issue," Ganis said.

In addition, there is no indication the Mets have struggled to meet payroll this season, as the Dodgers have.

Wilpon told Sports Illustrated last week that his team had $427 million in debt and could lose $70 million this season.

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