MLB General

In-Debted MLB Owners Welcome Back Bud!

Although MLB’s owners overwhemingly just extended Bud Selig’s contract as commissioner, they will feel the pinch when it comes to a notable change in the new CBA and its revised Debt Service Rules.

By Diane M. Grassi

And debt is the key word here, as MLB (Major League Baseball) team owners handed current MLB Commissioner, Bud Selig, an extension to his present contract by adding another 2 years.

Bud Selig had hoped to ride off into the sunset after the completion of this coming 2012 baseball season, when his most recent contract was to expire.

But as the bottom line is the top priority these days in MLB, and not necessarily its best interests, Selig will now retire after the 2014 MLB season, instead.

Selig’s self-proclaimed success in reaching another Collective Bargaining Agreement (CBA) with the Major League Baseball Players Association (MLBPA) this past December – and hailed as being done in record time – seemed to seal the deal for owners to ask Bud to stay on. The new CBA will now run through the end of the 2016 MLB season.

And it appears that Selig needed little arm-twisting in order to accept another 2 years by the owners. After all, an estimated annual salary, upwards of $25 million plus perks, is hardly anything to sneeze at.

Yes, it looks like Bud will indeed enjoy a lifetime appointment, not dissimilar to the likes of the justices of the U.S. Supreme Court, the Vatican’s Pope and almost by Happy Valley’s Joe Paterno; for Bud will be 80 years old when and if he officially retires in 2014.

This reporter this past December, penned a piece titled, MLB’s New HGH Test More Smoke & Mirrors. It examines the new CBA relative to the new drug testing policy in MLB. Yet, there are many other notable provisions of the 2011-2016 CBA, not the least of which concerns the revised Debt Service Rules, which largely and exclusively come under the purview of the commissioner.

The Debt Service Rules pertain to the amount of debt that MLB allows each MLB team to carry each year.

And no less than 9 MLB teams were non-compliant under such rules during the course of 2011.

They include: the New York Mets; the Los Angeles Dodgers; the Chicago Cubs; the Texas Rangers; the Philadelphia Phillies; the Baltimore Orioles; the Detroit Tigers; the Washington Nationals; the Florida Marlins.

During the last CBA, which ran from 2007-2011, each team was permitted to carry a debt ceiling up to 10 times the value of their team’s profits for the preceding year; that is earnings before taxes, depreciation, interest and amortization of the club; of course based upon which accountants are retained.

However, with the new CBA, clubs will only be allowed to carry a debt ceiling 8 times that amount. But since 2002, when the rule was originated, it has become rather deceptive as to how it is enforced and to whom it applies; as it is at the sole discretion of the commissioner.

Therefore, is it any wonder why little daylight has been seen concerning compliance of this rule? After all, it remains under the thumb of one Bud Selig.

Most notably, Selig has thus far only forced Los Angeles Dodgers owner, Frank McCourt, – of these teams in non-compliance – to sell his team, in spite of his efforts to keep his team afloat over the past year.

Although there have been other bankruptcies and sales of other teams which Selig has interfered with such as the Texas Rangers’ bankruptcy and sale in 2009 and 2010, the Houston Astros’ sale in 2011 and the Montreal Expos which became the Washington Nationals and sold prior to 2005, none has come under quite the scrutiny of Selig as has Frank McCourt.

This latest stunt of Selig’s took McCourt’s club out from under him and without allowing him a self-help remedy or the option to work it out with MLB.

In contrast, New York Mets owner, Fred Wilpon, Selig’s close and personal friend of 30 years, is in debt to the tune of $1.5 billion, which includes Citi Field debt and his Sports New York TV network, which broadcasts Mets games.

It was during the MLB playoffs in October, 2011, which serves as a reminder as to Selig’s preferential treatment of Fred Wilpon. He stated at the time that, “I don’t have any concerns. I’ve talked to Fred a lot about it, and they seem to be making good progress.”

Bud Selig should employ more judiciousness in enforcement of rules he himself crafted. And he seems to arbitrarily and with wide latitude interpret them.

When Frank McCourt applied for a private $30 million loan in the spring of 2011, in order to meet Dodgers payroll expenses, which was enough for Selig to start the process to force McCourt out. Now, the Dodgers are in bankruptcy, as so ordered by the federal bankruptcy court, to auction off the team by April 30, 2012. The winning bid still must be approved by Selig and the owners of MLB.

Fred Wilpon and partner, Saul Katz, are being sued for a now adjusted $386 million by Bernie Madoff trustee, Irving Picard, and such will go to trial in New York City on March 19, 2012. The basis of the lawsuit, for the benefit of victim investors of Madoff’s, contends that that Wilpon and company knowingly indulged in Madoff’s Ponzi scheme while receiving their own profits from him.

Wilpon maintains the he and his partner never made off themselves with the $300 – 500 million from Bernie’s misdeeds. Rather, they fancy themselves merely as legitimate beneficiaries of Madoff’s keen investment skills. Even if that proves true, there is no record that Wilpon reinvested such earnings back into team payroll or team operations, having used Mets proceeds to invest with Madoff, while financing a stadium with public monies.

And whether or not Wilpon will ever have a competitive National League East team again, or in the near future, remains in question. To wit, the Mets have cut payroll by $50 million since 2011 and claim they have lost $70 million in team revenue for the 2011 season. And being able to field a competitive MLB team is the main intent of the Debt Service Rules.

But as long as one remains a Friend of Bud’s, (FOB) one need not fear. And one’s fate is sealed should the opposite prevail; for

Fred Wilpon’s money woes read like a laundry list of creditors and should qualify for an over-take by MLB, according to its own rules.

For example, Standard & Poor’s just reduced the bond rating for the outstanding bonds used for Citi Field; the primary source of its construction financing. These were tax-free bonds floated by New York City’s Mayor Michael Bloomberg, in concert with the federal government.

In order to cover Mets present expenses, Wilpon has chosen to sell at least $200 million of Mets ownership shares which he plans to sell as a block to 10 minority owners. Since little was incentivized in these offerings, it has been difficult realizing such sales.

Fred Wilpon also secured a $40 million bridge loan in December, 2011 with Bank of America, in order to pay off a $25 million debt on stadium and off-season expenses from 2011. And the $25 million the Mets borrowed from MLB and due by the end of 2011 has yet to be repaid. However, Bud Selig has not required a repayment due date in writing to Wilpon.

Also of note, is that any loan made by MLB to any club, may not to be used for existing debt, but rather for future investment to enhance the club going forward. Yet, in true Wilpon fashion, he has skirted this issue and Selig is perhaps caught with another one of his rules he chooses not to observe.

In late December, 2011 Wilpon and Katz also retained bankruptcy services firm, CRG Partners, primarily known for their reorganization services for firms considering bankruptcy. Again, Wilpon denied that bankruptcy was ever a part of his thinking.

There may be more parity amongst MLB teams these days regarding on-field competition according to Selig, but hardly is there any objectivity as concerns the commissioner of MLB and its 30 owners; for MLB is run as if it is a national bank or holding company rather than a body used to field competitive baseball teams.

Perhaps it is not too off-base to believe MLB is headed toward a Wall Street meltdown of its own; or at least an administrative one.

And Bud Selig might want to check with Mets and Dodgers fans about just that. For it is fans, which too often MLB and its owners take for granted, that remain the straw that stirs the drink; and without them MLB ceases to exist.

And finally, similarly to the banking industry, mortgage industry or various hedge funds, MLB has now become an over-leveraged conglomerate. But it continues to ride that slippery slope of a wave which could eventually come crashing down; not unlike Bernie Madoff has.

Too big to fail? Yes, if you are Frank McCourt and no, if you are Fred Wilpon.

But ultimately, during this now over 4-year recession, we have learned that no one individual or corporate entity is exempt from engaging in responsible management; not even the commissioner of MLB.

It is just a matter of how long Bud Selig can ride this wave; in spite his spanking new contract.

Copyright ©2012 Diane M. Grassi
All rights reserved.
Contact: [email protected]

By Diane M. Grassi

Diane M. Grassi attempts to shine new light on issues centered on professional and amateur sports through her writing, by going beyond the headlines and sound-bites and to present sports fans with the back-story. In that effort, she seeks out those issues that rarely become headlines and elicits discussion as to why that is case.

Grassi’s goal is to not only provide content, but to offer an outlet for sports fans of all types, of various backgrounds and life experiences, to engage in topical issues with candor, good humor and provocative thought. Yet, to Grassi, it is the issues that are paramount, as opposed to the messenger, while maintaining intellectually honest and original fact-based reporting and research without an agenda.

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