Too big to fail. It’s the name of a book, a movie in production that’s based on said book, which in and of itself was based on the excusing of businesses that directly correlate to the success of the economy. The idea is that by preventing some businesses from failing and allowing others to do so by either being portioned off in a “fire sale” or just by simply going away will not only make the strongest survive but keep the economy afloat as well.
You can almost apply that theory to Major League Baseball. In the past decade, we saw the Montreal Expos go bankrupt and essentially relocate to Washington, D.C. after contraction was prohibited in the collective bargaining agreement set forth in 2002.
Prior to that arrangement, Bud Selig suggested that the Minnesota Twins (now a perennial playoff contender) was a contraction possibility. I remember Jesse “The Governor” Ventura of Minnesota, taking Selig to task, when in all the talk about contraction, nowhere in those lines was thought of contracting the team Selig still had ties to (at the time), the Milwaukee Brewers who weren’t all that great at the time either. But that’s neither here nor there. The point is, no one really can argue that if there is talk of contraction, the smaller markets are the first to be considered.
Moving right along, MLB has its own quandary today, and it has to do with finances of two of its largest market and noteworthy franchises: the Los Angeles Dodgers and the New York Mets. In both cases, one could argue that their failings and flailings start right at the top: with their respective ownership.
In L.A., Dodgers owner Frank McCourt has been going through a very public and messy divorce. Judging by most reports out of the City of Angels, the team itself is being used as a pawn by both parties in the contested separation. McCourt’s soon-to-be-ex-wife, Jamie, is looking to be half-owner of the Dodgers as a result, since it is presumed to be an “asset” of Mr. McCourt and therefore fair game in their divorce settlement. As it appears, most of their settlement talks are centered around Ms. McCourt’s right to ownership of the franchise.
In the meantime, some under-the-radar financial transactions were ultimately brought to light regarding the finances of the team on the West Coast. While he greenlighted a $70 million expenditure this offseason, McCourt tried to use the Dodgers’ cable rights as collateral in a deal with FOX worth $200 million, should they default on the loan. This deal was promptly rejected by Selig, adding fuel to Jamie McCourt’s fire, countering that McCourt had endangered the team’s financial stability by brokering this type of deal, and that she was entitled to the information regarding these deals.
While McCourt preaches that is all right with the team and that he’ll still own the team and pass it along to his children some day, new manager Don Mattingly has to deal with this in the background, while the team picks up players that are supposed to compliment its young core including Matt Kemp, Andre Ethier and Clayton Kershaw.
Sound familiar? It should. Substitute “Massive Ponzi scheme investment, false profits, dwindling attendance, shoddy baseball operations and bloated player contracts that have another year before coming off the books” for “McCourt divorce”, and we have ourselves the New York Mets, ladies and gentlemen.
In light of recent liquidity issues being brought to the our attention with the Wilpons and specifically Sterling Equities borrowing $25 million from the MLB discretionary fund and submitting a bid for a loan syndicate to get even more cash flow, along with borrowing an additional $50 million at some earlier point and MLB saying they will not allow the Mets to use MLB as a lifeline for money anymore, it just adds to the masochism of following this team.
The Mets, well, we all know the story too well. A collapse in 2007, a floundering in 2008, massive injuries in 2009 and 2010 to an aging and overpaid/underachieving staff has caused a domino effect with many things in the organization. For one, ticket sales are so low, that they caused audible concern in many outlets at the end of last season and revamped their ticket office, cutting ties with Mets ticket VP veteran Bill Iannicello and bringing in new blood in the ticket office.
My theory is that when CitiField opened in 2009, ownership thought that not only would the team draw, even if they did go through their “slumps” interest would be achieved in the novelty of the new stadium. That wore off quickly when the summer doldrums hit. Towards the end of ’09, secondary market tickets were going for as low as $0.99! Couple that with another underachieving year, the Mets were literally giving tickets away to later games in the season, just to fill the seats.
No sales from fans = no revenue generating. I would be willing to bet that SNY is probably one of the few profitable items in the Sterling portfolio of companies. Keep in mind, of course, that Sterling Enterprises is a real estate investment trust…that industry has also taken a hit to their interests, that’s a fact.
In the meantime, I wonder how long this madness can continue, for either the Dodgers or the Mets. The Dodgers were competitive as far as two seasons ago and could very well say that their fall off the precipice had to do with a down year from their star Matt Kemp and perhaps an unproductive Manny Ramirez (he’s on the Tampa Bay Rays now, where players careers go to die…Tampa will be addressed later of course). The McCourt drama is just backpage headlines, they could say. Save the nixed loan deal from FOX, we really don’t hear about liquidity issues as there seems to be cash generated through some arm of the Dodgers. Of course, I am not in LA…so that’s just being totally subjective.
It seems to me, as an outsider looking and as a diehard fan of one of those franchises, that the only people who suffer here are the fans. The reality is that the Mets have not decreased payroll. They, too, have a built-in excuse about the underperformance of high ticket free agents, injuries and wanting to go for low-risk/high-reward instead of the low-reward/high-risk route they had taken in the past seven years. But the Mets did, technically, spend this offseason, but they were acting frugally. Perhaps some fans thought it might have been a good thing to overpay Cliff Lee when Lee has a better chance of winning anywhere else BUT the Mets at this current moment. Other may have wondered why they couldn’t have taken a shot at Carl Crawford. I have no idea, but locked into Jason Bay for now kind of limited that idea. There are tons and tons of unanswered questions, but the Mets can’t say they didn’t spend and have not spent in the past. It’s where they are spending it, who they entrust with it and what has happened.
I couldn’t help but wonder though…Does MLB have its own “Too Big To Fail” policy regarding franchises? I discussed in a podcast the other night this domino effect that specifically the Mets have had. In the past, I was trying to be objective, not buy everything that was handed tome at face value and try to look at things analytically since I have analyzed financial information for a majority of my career. I was trying not to look at things like a “fan.”
Then one of my blolleagues on this podcast said something that hit me: when the Mets release info, it’s typically when it’s worse than they are saying. Whether dealing with injuries, managerial issues, even the stadium, it’s too little, too late. It makes me wonder if when a large market team is scraping around for coins in the sofa cushions, it’s time to sell the team. If the Sterling team is in as much debt as the news is speculating, it’s going to be impossible to find someone to assume those liabilities. The same, to a lesser extent, in LA. Frank McCourt is getting lines of credit left and right. What happens if a judge declares his wife 50% owner? Will he have to buy her out of her share? Or will this court case drag on forever and ever, and their fans will have to take a back seat to get a decent product out there?
And if the Mets go bankrupt and are excused from paying the debt…how far will MLB go? Who will they allow in as an owner? I’m talking new blood and not these old fart billionaires who have made this an exclusive Boys Club for years. MLB might need an overhaul overall, and with Selig’s contract up in 2012, there might not be a better time to impart this.
Similar to that tree in the woods, if the Mets and Dodgers fail in MLB, will anyone notice? Probably not. We won’t notice because the ownership club in MLB is strong enough to set it up that even those who are not the strongest (of teams) can and will survive. If MLB has gone to these great lengths to keep these teams operational simply by either turning a blind eye or extending lifelines, then I am expecting more of the same until the very worst has happened. And we don’t even know if it will come to that.
Keep in mind a few years ago, as I mentioned above, Selig wanted to contract the Twins and Expos. Now there’s suggestion that the Tampa Bay Rays are up for contraction. They went from one of the most exciting teams in baseball three years ago, to one that is barely finding an identity there on the Gulf coast.
Imagine that being a team in New York or Los Angeles.
Wouldn’t happen. There is too much at stake in those markets.
Too big to fail? Indeed.