As previously reported on Friday, Deadspin published a detailed piece on the Ricketts family’s purchase of the Cubs. The article — which actually cites a Cubs Insider post — includes pre-sale estimates of revenue growth and future payrolls, as well as insight on why the Ricketts viewed MLB ownership as a worthwhile investment. It also documents lots of family infighting over why Tom was getting all the press, but that is far less interesting to me as a financial reporter.
I expect to use a lot of the Cub-centric information in future posts after I have had time to fully internalize all the data. For now, I wanted to start with a short post on one item that immediately caught my attention: How Major League Baseball conveniently ignores its own debt-servicing rule.
The rule is designed to prohibit teams from taking on more debt than they can afford. These rules concerned the Ricketts in 2009 because Sam Zell’s conditions for selling the Cubs involved a lot of debt as part of a tax-dodging scheme. The Ricketts worried MLB might block the sale over this debt.
Yet a February 27, 2009 email quoted in the Deadspin piece stated that “MLB has heard the $550mm debt number and did not freak-out.” The piece continued noting that “all the fretting over MLB’s debt service rule…was apparently unfounded.”
This is how we ended up with the Miami Marlins as we know them.
We all know that shortly after Derek Jeter & Co. bought the Marlins, they gutted the team to slash payroll. This pre-planned fire sale was required because the purchase price necessitated a level of debt that could not be serviced at existing payroll levels. In other words, MLB allowed the Marlins to be sold at a price that prevented the new owners from being able to afford the team they bought.
The Deadspin article demonstrates that this was not a one-time lapse in judgment (or would that be morals and ethics). Major League Baseball is unwilling to block team sales over its own rules because greed trumps the health of the sport. Kind of like how player salaries have decreased in the face of rising revenues.
While this may seem an esoteric matter of accountancy, I suspect it will play a major role in the next round of collective bargaining. The players union cannot like that the debt-servicing rule is conveniently enforced when it allows teams to justify slashing payroll to ensure compliance, yet ignored during team sales.