Categorized | Mark Timmons

A “Cool Billion” Dollars

A “Cool Billion” Dollars

Last August while writing in Forbes Magazine, Mike Ozanian stated the obvious:

If the season were to end today the New York Yankees and Philadelphia Phillies would be the only two of the eight MLB franchises with player payrolls above $100 million to make the postseason. By and large the league’s big spenders (Boston Red Sox, New  York Mets, Chicago Cubs, Detroit Tigers) have whiffed. One  more observation: Among the eight teams that would currently make the postseason, four (Yankees, Phillies, Minnesota Twins, Atlanta Braves) are above the league payroll median and four (Tampa Bay Rays, Cincinnati Reds, Texas Rangers, San Diego Padres) are below the median.  Since MLB increased revenue sharing at the start of the current collective bargaining agreement it has become increasingly clear over time that ownership and management, not spending, are the most important factors in determining success on the diamond.

I think we all would agree with that.  Ozanian also published which teams will have money to spend in the next few years and said the following:

Major League Baseball’s winter meetings are now history and several owners have staked nothing less than the financial future of their teams on off-season signings that will eat up huge chunks of revenue for years. The table below shows player obligations (excluding signing bonuses) from 2011 through 2016 as a percent of each team’s 2009 revenue (net of revenue sharing and luxury taxes). The player obligation figures come courtesy of Cot’s Baseball Contracts, which you can get here: http://mlbcontracts.blogspot.com. The Forbes revenue figures are a year old because we have yet to compile 2010 data, but still serve as a good proxy for future revenue for the vast majority of teams. The Minnesota Twins are a notable exception because they moved into a new stadium last season that increased revenue substantially. Of the remaining 29 teams, only the Boston Red Sox, Detroit Tigers and Philadelphia Phillies that have committed an amount equal to more than 150% of 2009 revenue to players. The Twins figure is inflated because they moved into a new ballpark last season. The Red Sox signed Carl Crawford and Adrian Gonzalez to rich deals during the off-season that combined could cost Boston over $130 million. The Phillies inked Cliff Lee to a contract that will cost them $119 million through 2011. Needless to say the Red Sox and Phillies have little room to sign stars in the near future unless they ditch some high-priced talent. On the flipside, the Cleveland Indians, Houston Astros, Kansas City Royals, Oakland Athletics, Pittsburgh Pirates, San Diego Padres and Tampa Bay Rays have less than 50% of 2009 revenue locked up in player contracts through 2011 and therefore have lots of room to sign some expensive talent. Lower player obligations also make these teams more attractive to someone who would be interested in buying them, which is good news in particular for supporters of the Pirates and Royals.

Team Player Revenue
  Obligations 2009
  2011-16 ($mil)
  as % revenue  
Arizona Diamondbacks 57 172
Atlanta Braves 97 188
Baltimore Orioles 70 171
Boston Red Sox 164 266
Chicago Cubs 88 246
Chicago White Sox 142 194
Cincinnati Reds 96 166
Cleveland Indians 27 170
Colorado Rockies 131 183
Detroit Tigers 165 188
Florida Marlins 105 144
Houston Astros 46 189
Kansas City Royals 23 155
Los Angeles Angels of Anaheim 73 217
Los Angeles Dodgers 68 247
Milwaukee Brewers 94 171
Minnesota Twins 162 162
New York Mets 93 268
New York Yankees 143 441
Oakland Athletics 39 155
Philadelphia Phillies 211 233
Pittsburgh Pirates 29 145
San Diego Padres 20 157
San Francisco Giants 95 201
Seattle Mariners 98 191
St Louis Cardinals 119 195
Tampa Bay Rays 31 156
Texas Rangers 99 180
Toronto Blue Jays 105 163
Washington Nationals 109 184

I wanted to share this because this means two things: (1) the Dodgers will have plenty of money to sign free agents over the next five years; and/or (2) it makes them extremely attractive to any possible buyer.  Love or hate Frank McCourt, even Ray Charles can see what he has accomplished.  Even Steve Dilbeck of The LA Times was forced to give him a backhanded complement:

The great irony is that the financially troubled McCourt has made the Dodgers a profitable and desirable team to own. The issue, of course, is less that he turned a profit on the team, but what he did with the profit.

The team’s value apparently has somehow skyrocketed even while all this divorce mess was unfolding. Forbes estimated the Dodgers were worth $727 million last April, but recently upped its valuation to a cool billion.

Frank McCourt, business genius!

Now, all is not roses because of the debt and the divorce.  Dilbeck goes on to say:

The problem for McCourt is he has leveraged the team so seriously ($433 million long-term debt, up to $650 million total liabilities) that he hasn’t been able to secure additional funding. He’s had to request an advance from Fox for its 2011 TV rights.

OK, maybe not a genius.

So, the guy who many say has allegedly pillaged the Dodgers has actually increased their value to a BILLION DOLLARS?   Things just don’t appreciate like that without spending money either.  I am not convinced that McCourt will be forced to sell the Dodgers, although that is certainly a possibility, but Dodger fans should at least be heartened that the Dodgers are a valuable brand, with McCourt increasing their value by nearly 250% in just 7 years.  Nothing like that has even been done before.  Maybe that’s part of the reason TOPPS named them Organization of the Year.  Add in the fact that it has happened in one of the worst economies this nation has seen in decades and the feat is even more impressive.

A pillaged asset is one that has been looted of value.  While the amount of money taken out of the Dodgers by the McCourt family may seem obscene, anyone has to acknowledge that increasing the value of the Dodgers by nearly 2.5 times bodes well for the franchise.  Add in the fact, that the Dodgers have a low percentage of revenue tied up in contracts, and the 2011-2016 seasons are starting to look pretty good.  I admit that Frank has built all this on a” house of cards.”  They may all come tumbling down. .. or not!  I can’t say.  However, he may have another trick or two up his sleeve.  It should be interesting to watch.  Whoever owns the Dodgers in the next five years has a golden opportunity with player acquisition, and the Dodgers should continue to field a competative team.

About Mark Timmons

When you see the invisible, you can do the impossible!

18 Responses to “A “Cool Billion” Dollars”

  1. Brooklyn Dodger says:

    Fundamentally I don’t disagree with the above. I’ve said on numerous occasions that I expected McCourt to begin spending more money on players the closer he gets to Dodger TV in 2014, something a well-heeled owner could do right now. And winning now would only enhance the brand further, and increase sponsorship money going forward in anticipation of 2014.

    Also, McCourt’s relationship with News Corp. puts doubt in my mind with respect to Dodger TV. Are the Dodgers going to launch a new network in 2014, or will they further extend their TV contract with Fox beyond 2014, albeit at a lot more money than they get from Fox now? And if they do launch Dodger TV, will it be in a partnership with News Corp.? Mind you, I have nothing against a partnership in that venture (e.g., I don’t believe that the Yankees fully own YES, and it may well be the same with other regional networks).

    And I agree that McCourt is no idiot, and I’m sure he has a plan going forward. But until I see it, at least for now I would prefer an owner not limited by the shackles that over-leveraging can bring.

  2. Brooklyn Dodger says:

    Oh, and let me add. If McCourt ever does get the Dodgers solvent, I believe that he will spend big time, of only because his ego will require it. Not a bad thing (probably even a good business strategy to enhance the brand), and probably not uncommon among ownership.

  3. Rory says:

    Same information different day. We all know the Dodgers, and every other franchise in baseball, has increased in value.

    “Things just don’t appreciate like that without spending money either.”

    Sure they do. Take a look at housing prices – up until about ’06.

    McCourt fell into a good thing, and he rode along with all the other franchises that also increased in value. MLB is a thriving business. Baseball junkies just keep ponying up the dough. The bad economy hasn’t seemed to affect MLB owners. Point of fact, the bad economy has only effected the middle class. The wealthy are wealthier than ever. That of course includes MLB owners.

    I am trying to get a handle on what others think of the Dodgers chances, and there so much uncertainty it ranges from winning the West to finishing 4th again. Power rankings have us middle of the pack. Early betting lines say the Gints will win 93 and take it. Over/under, as best I can make it, is about 87 wins for the Dodgers. I have my son on that one today. He works at PH in Vegas.

    I have this gut feeling the Dodgers are counting on Kemp to get his head out of his ass, Loney wakes up, Furcal is healthy, starting pitching gives quality start after quality start and Ethier gets his stroke back. All that happens and we can live with Gibbons/Gwynn/Thames slugging it out for playing time.

    Our minor league system rating is weird. It’s like none of sites that rate this stuff can agree on it. We bounced up with the Lee signing, but he hasn’t thrown a pitch yet. As near as I can tell from reading on the subject, the only players that are close are Gordon and Robinson. I haven’t paid for any current information, so if any of you guys have done that maybe you can update.

    It’s the Giants guys. Most of the experts say we will be looking up at them all year.

  4. DodgerDude says:

    Dude,

    The experts get paid a lot to be wrong 75% of the time. Look at the past two weeks of football prognostications. They were wrong more often than not. Who picked the Giants and the Rangers last year? Nobody! I think the media storm against Frankie skews some of the media against the Dodgers as well. All teams have question marks. Look at the Giants: Huff usually doesn’t put two good years back-to-back. DeRosa, Fontenot, Sanchez, Sandoval, Burris, Tejada, Burrell, Ross and Rowand have lots of question marks and don’t exactly strike terror into the hearts of other teams. Posey looks like a superstar in the making, but four years ago, the Dodgers had another catcher who looked like a superstar in the making and he tanked. The Giants had very opportunistic pitching last year, but it can easily change. Look at the 2009 Dodger Bullpen and then look at them in 2010. Big difference with virtually the same personnel. Why do you use a different yardstick when it comes to measuring other teams? The Dodgers have no fewer question marks than any other team.

  5. ken says:

    Mark – Thank you for presenting both sides of the coin.

    Depends on what the definition of “Obligations” is. Maybe the fact that the Dodgers have a lot of expiring contracts in the next 3 years erroneously makes the 68% number look wonderful. However, it probably does not include the large contracts that need to be executed if the kids drafted by Logan do not pan out or the natural increase in salaries through arbitration or the large contracts needed to sign existing players after their arbitration years are over. Therefore, In my opinion, not a meaningful statistic.

    The Dodgers are a team that could be on the cusp of greatness if their owner’s debt load was reduced by at least 50%. Unfortunately their debt load only will increase when Frank is required to pay Jamie for her share of the quasi-community property value in the Dodgers. (%50 to $200 million) The Dodgers need an ownership group whose debt to value is less than 30% and their annual fully amortizable principal and interest payments are less than $15 million.

    I nominate Mini-Me to own the Dodgers instead of Dr. Evil.

  6. Bobby says:

    i’ll take the under on the giants 93. that team is not good offensively, and unless a bunch of avg players have way above avg years AGAIN, they will not come close to winning the division.

  7. Jae says:

    The Giants shot their wad last year. They will be lucky to win 85 games this year.

  8. ken says:

    51 years is still not enough.

  9. Mark Timmons says:

    Ken,

    You are the lawyer – Let’s say that the court rules against Frank and orders them to liquidate the team or one side buy the other out and split the proceeds. Let’s say the Dodgers are valued at 1 Billion and they have $700 million in liabilities. They would tehn have to split $300,000,00 million correct?

    Also, do you know if MLB has any rules against “public” ownership?

  10. Brooklyn Dodger says:

    Jae,

    Don’t be so confident that the Giants will not be in contention this year. Even if their pitching isn’t as good, their offense might be a lot better. It’s been reported that Pablo Sandoval has lost significant weight, and is in the best shape of his life. They also have a premium prospect who may open the season in left field, or be called up after the season begins, much like Buster Posey last year. That prospect is Brandon Belt. It might be name to remember.

    http://www.baseball-reference.com/minors/player.cgi?id=belt–001bra

  11. Bill Russell says:

    The Greenbay Packers are owned by the fans and they are pretty successful.

    I happen to like the Dodger Dudes post from above. Paying big dollar salaries every year does not mean championship. Of course we would all wish for one more big stick to put in the lineup and one more good picher added to the staff but the team we have should be very competitive. The Giants don’t scare me on paper. So we beat them in a low scoring game that goes 10 – 11 innings. The Rockies may be the best team in the West on paper in my opinion. I think our pitching is better then Colorado’s. We have alot of question marks on the team but that’s what makes baseball exciting. Rooting for the underdog. That’s why they play the games.

    Just got my tickets for Camelback, March 18th, 19th and 20th. Go Blue.

  12. Brooklyn Dodger says:

    The link below includes Brandon Belt’s AFL numbers as well. Maybe it’s a bunch of hype, but it appears that based on the numbers, Belt is a player to watch. To put it another way, if he was a Dodger prospect there would be a lot of excited bloggers on this site.

    http://mlb.mlb.com/milb/stats/stats.jsp?pos=1B&sid=l119&t=p_pbp&pid=474832

  13. Bill Russell says:

    Toronto just traded Napoli to the Texas Rangers, the one place they didn’t want him to go. haha Pool Michael Young, they are screwing with his head as Napoli will get some of the DHing now.

  14. DRomo says:

    What can we do to get Young?

    The Dodgers are worth a billion dollars you say?
    I belive something is only worth what someone will pay. Frank will be forced to sell(most likely) and there is no way that brings a billion dollars!!

  15. ken says:

    “The thing that would be best for Frank and Jamie and their children, in my opinion, isn’t necessarily the best for Los Angeles and for the Dodgers,” Boies said.

  16. ken says:

    If the Court rules against Frank regarding the Dodgers being separate property and also rules that the Dodgers are community property, then yes the Judge will usually order the “In Spouse” Frank to “buy out” (which is really a tax free exchange of an interest in the asset for a loan) the other spouse, Jamie. Yes, Frank would have to buy half of the equity as of the date of trial. Would Bud allow that additional debt to be placed upon the Dodgers?

    What would be particularly sticky would be if the Commissioner rules that Frank and Jamie are co-owners and have joint control. This might require them to jointly run (Ruin) the team forever because, in that hypothetical, Bud might be able to disapprove any sale between them because the Dodger Team debt incurred would so high that it would violate the Debt Formula Rules.

    ATTACHMENT 22
    6.5 Sale Transactions. In all transactions involving the sale or transfer of a control interest in a Club, the Commissioner must certify to the Clubs and to the Players Association that the level of debt undertaken in connection with the acquisition or transfer will not create a persistent inability of the Club to comply with the requirements of the Debt Service Rule. As part of that certification, the Commissioner, within 30 days of approval of the transaction, will provide to the Players Association the new Club ownership’s Long Term Plan for Debt Service compliance.

    No body including Bud can currently force a sale until the ownership issue is resolved by the Court. No sale is allowed currently because of California Family Law Section 2400 which places an Automatic Temporary Restraining Order upon the property. However, if Commissioner Gordon rules that the Dodgers are Frank’s separate property then Frank can sale them or obtain more debt (Subject to Bud’s approval if the Dodgers are not or would not be in compliance with the MLB CBA Debt Formula).

    I do not know of any MLB rules against “public” ownership. I have not seen any ownership restriction within the MLB CBA.

    ARTICLE XXII—Management Rights
    Nothing in this Agreement shall be construed to restrict the rights of the Clubs to manage and direct their operations in any manner whatsoever except as specifically limited by the terms of this Agreement.

    However, since the Dodgers are owned by an LLC, there is a low probability that Frank would deal with any minority members because he would lose a lot of his ownership privileges and would have to comply with proportionate distribution rules, financial disclosure rules, reasonable compensation rules, and the fiduciary standards of a managing member. On the other hand you would need a very good Securities attorney to comply with the appropriate securities exemptions in order to allow a broad public ownership structure like Green Bay. (Green Bay’s original stock sale occurred in 1923, prior to the cration of the SEC.)

  17. Voldomer says:

    Any news on Chavez?

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