Special Report: Inside Baseball’s Debt Disaster
By MONTE BURKE
(I wrote this story with my colleague, Nathan Vardi. Follow him here. The story will appear in the April 11 issue of FORBES, on newsstands this week.)
Inside Baseball’s Debt Disaster
Madoff and the Mets are just part of the problem facing Bud Selig and Major League Baseball.
By Monte Burke and Nathan Vardi
As the U.S. economy and financial markets strengthened last fall, investors across the island of Manhattan breathed a welcome sigh of relief. But a short subway ride away in Queens it was a different story. Inside the offices of the New York Mets at Citi Field—the team’s plush new $800 million stadium—things looked grim.
The Mets had just finished a woeful season, losing more than half of their games and drawing 600,000 fewer fans than the season before. Despite the new ballpark, the team’s revenues had fallen by some 13%, resulting in an estimated $6.2 million in operating losses before interest, taxes, depreciation and amortization. The Mets did not have enough cash left over to meet a mountain of bills, including an upcoming league revenue-sharing payment that small-market teams were counting on. The banks that had once been so willing to lend liberally to the Mets were no longer in the mood to extend more credit.
In the past the team’s owners, Fred Wilpon and Saul Katz, had drawn on the Mets’ 16 accounts at Bernard Madoff’s investment firm when the team needed cash. But those funds disappeared when the Ponzi scheme collapsed. In an act of desperation, the Mets were forced to turn to Major League Baseball Commissioner Allan H. “Bud” Selig, who through the league made an emergency $25 million loan to the Mets, eerily similar to the too-big-to-fail bailouts taxpayers gave Wall Street to keep the banking system afloat.
It wasn’t the only meltdown Selig faced. Another one of baseball’s marquee franchises, 2,400 miles away to the west, was in deep trouble, too. The Los Angeles Dodgers had become the prized bauble up for grabs in the contentious divorce proceedings between owner Frank McCourt and his wife, Jamie. Court documents revealed that from 2004 to 2009 the McCourts—using the Dodgers and related assets as collateral—had racked up a staggering $459 million in debt, much of which was used personally. FORBES estimates that almost all of the team’s profits were being used to pay down just the interest. As was the case with the Mets, Selig was again asked for help by a desperate team. This time he turned down the cash-starved Dodgers’ attempt to borrow $200 million from their cable broadcaster, Fox.
Coming just one year after the bankruptcy of the Texas Rangers, this latest one-two punch has been deeply unsettling to those with longstanding business ties to the game. “It’s bad for baseball to have this situation where two owners are teetering on the brink,” says sports economist Andrew Zimbalist. One baseball executive with a deep knowledge of both the Mets’ and Dodgers’ finances goes further. “This is a very serious issue,” he says. “These are two of the flagship franchises in all of sports. This situation is going to infect all of baseball.”
http://blogs.forbes.com/monteburke/2011/03/23/special-report-inside-baseballs-debt-disaster/