Wow, is Norman Braman a sore loser or what? The article in Miami Today, which quotes Mr. Braman, does not specify where the supposed 2003 Florida Marlins pro-forma financial projection was obtained, but only Freddie Mac regulators would be surprised if Braman were not the person behind the leak.
The article suggests that the Florida Marlins are in such bad financial condition that it would be a mistake for local governments to enter into any agreements with them. But the only concrete impression which can be taken from the limited data and sloppy presentation is that someone [Braman] is desperate to convince us of that position. However, not desperate enough to provide all the facts or the pro-forma financial itself. Given the importance of this issue to the community, to present the article as unbiased news was irresponsible. It should have been labeled as a Braman op-ed.
Here's why:
- Pro-forma financials are hypothetical. The pro-forma may have constituted a worse case scenario -- limited national revenues and high non-player expenses -- designed to convince an investor of the need for capital. So to quote pro-forma losses without addressing the assumptions on which they are based, is at best potentially misleading and at worst, a con job.
- Lack of reliability. What a company may share with a potential investor varies from what it would turn into a bank or file with the IRS. There is no penalty or disincentive associated with inaccuracy, it's the equivalent of no-income verification loan.
- Huge difference between a net loss vs. an operating loss. The article notes a 'net loss' of $66 million in 2003. It is a mistake for outsiders to focus on anything other than operating results, since a 'net loss' is subject to manipulation involving depreciation and other non-cash expenses. That's why Forbes deals with operating results in its annual analysis of MLB's finances. Operating results is the best indicator of how your main business is doing. But let's let David Samson explain - this from a 2004 ESPN article:
- Sloppy presentation of amounts. Pro-forma team debt of $141 million was stated in the article. However, it was not specified when the debt would have accumulated to that amount. Other parts of the article indicate what equity would have been in 2005 and profits in 2007. Any financial presentation needs consistency to be useful.
- Source of debt unaddressed. The Marlins were purchased in 2002 for $158.5 million, $120 million of which was the value ascribed to the Montreal franchise which Loria exchanged for the Marlins. The remainder, $38.5 million, constituted a loan from MLB, $15 million of which was conditional on securing a stadium within 5 years. Forbes estimates the Marlins operational profits from 2002 through 2007 as totaling $44 million. Whatever debt may or may not be currently on the Marlins books, none of it can reasonably be ascribed to either the team's purchase value or operating results since 2002.
- Current performance ignored. As John McCain might say, the Florida Marlins financial fundamentals -- highest revenue sharing recipient and lowest payroll in MLB -- since 2006, are all good. There is no reason to believe that 2008 operating results would not be in the $40 million dollar operating profit range, consistent with the team's operating profits in 2006 [$36 million] and 2007 [$43 million]. When I look at those numbers, I don't see debt. I see a team funding its portion of the new stadium through revenue sharing monies intended for other purposes.
- Forbes estimates are verifiably accurate and consistently ignored. The way that Forbes estimates are ignored or discounted always amazes me. Let's take 2003. The Forbes estimate of the Florida Marlins losses was $12 vs Samson's self-admitted $20 million operating loss. Pretty close no? But take it a step further, who thinks that Samson would have felt compelled to be exact, or even conservative, in estimating the team's losses to an ESPN reporter? Let's take 2008. Forbes nailed the team's valuation. It would be extremely difficult to get revenues and expenses wrong and be accurate on a valuation. Maybe more credit should go to team president, David Samson, given his interest in movies, for achieving Keyser Söze or Jedi-like deceptions regarding their finances.
- One undisputed fact. The pro-forma indicated that the Marlins planned to pay below average salaries. Some things just don't change, even on pro-forma financials.
Jeffrey Loria has had more experience with write-offs than any recent professional sports owner. Owners typically can deduct player contracts for the first four or five years of franchise ownership. Loria purchased a majority share in the Montreal Expos in 1999, but the clock started over again three years later when he sold the Expos and purchased the Florida Marlins.
"If we had a loss of $60 million on paper, but $20 million in cash, that's a big difference," said David Samson, president of the Marlins, which reportedly lost $20 million last season despite winning the World Series. "But the only number Jeffrey cares about is that actual cash loss. The benefit of depreciation is far outweighed by the reality of cash losses when you are losing money operationally."
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Miami Today week ending 9/25
Florida Marlins' 2003 fiscal projections portray dire need for stadium, huge debt
By Risa Polansky
A 2003 Florida Marlins projection shows a team $141.1 million in debt, with equity declining until it gets a new stadium.
Equity, at the time $28 million, was projected to fall to $7.2 million by 2005.
Marlins officials declined to comment on their 5-year old financials or update details.
The team is in line to put $120 million plus $2.3 million a year rent toward a $515 million ballpark.
Miami-Dade County and the City of Miami are to fund the rest, though a preliminary document shoulders the team with cost overruns up to at least $20 million.
Deal opponent Norman Braman has for months protested that the team could not afford to pay for the deal.
He tried through a lawsuit this summer to have the team's financials made public, but Circuit Court Judge Jeri Beth Cohen wouldn't allow it.
The Marlins asked Mr. Braman to invest in the team in 2003, he said, but he declined.
"They have no tangible net worth, only debt. That was the decision I made not to invest at that time."
The financial pro-forma showed the Marlins at a $66.3 million net loss in 2003.
The Marlins expected losses to shrink over the years and predicted an $8.5 million profit in 2007, the first year they thought they'd be in a new stadium.
The documents reveal also that, in a new ballpark, the Marlins planned to charge above-average ticket prices and pay players below-average salaries.
"Everything should be a concern to the public," Mr. Braman said.
Sports management experts also raised concerns over charging high prices and building a quality team.
"What a stadium does is that it gives you potential revenue," said sports economist Andrew Zimbalist. "You don't get the revenue unless you put people in the seats."
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ESPN.com: Sports Business [Print without images]
Thursday, April 15, 2004
New owners' tax break losing value
By Darren Rovell
ESPN.com
Tax day used to be a sigh of relief for new owners of professional sports teams, but for today's owners recently welcomed into the sporting world fraternity, the reception from Uncle Sam isn't as great as it was decades ago.
Boston Red Sox owner John Henry, along with a group of partners, spent $700 million to purchase the team two years ago and will spend $125 million on a team that hopes to beat the New York Yankees this year. But Henry will not benefit as much from what used to be one of the sporting world's greatest perks -- writing off large portions of player payroll. Had he bought a team 35 years ago, his tax breaks would be worth a fortune.
When a group led by Bud Selig bought the bankrupt Seattle Pilots in April of 1970 for $10.8 million and moved them to Milwaukee, the 35-year-old used car dealer and future Major League Baseball commissioner later reported only a franchise purchase price of $600,000 to the government for tax purposes, attributing $10.2 million of the cost to player payroll.
Bill Veeck
Based on his genius and ingenuity, Bill Veeck was elected into the Hall of Fame in 1991.
The accounting practice was first used by former owner and renowned promoter Bill Veeck, who discovered that a new owner could use the value of the players' contracts in a sale in order to report a lower purchase price when his group bought 54 percent of the Chicago White Sox in 1959. The deduction could then be used to show smaller profits or larger losses on paper, reducing the taxable income.
But in the three decades since Selig bought what would become the Brewers and trucking magnate Leonard Tose led a group to buy the Philadelphia Eagles for $16.4 million -- he reported a $50,000 franchise sale price to the Internal Revenue Service -- the value of writing off the costs of player contracts has been severely diminished, meaning that there's less celebration among new sports owners on April 15.
There are a number of reasons that tax breaks for new owners are less appealing, including higher franchise prices, a greater net worth of owners and government rules that have restricted amortization -- spreading the cost of a contract over time to help reduce future income taxes.
"In the old days, when men were made of steel and ships were made of wood, the teams cost a fraction of a fraction of what they do today and the tax benefits were therefore huge," said Paul McKenney, a lawyer who has advised several sports owners on tax issues. "Now the tax benefits are very minimal."
"It's definitely not a significant motivating factor in purchasing a team," said NBA commissioner David Stern, who has been at the league's helm for the past 20 seasons. "No matter what the tax treatment is, if the team isn't profitable, it can't provide a substantial benefit."
The principal behind the idea that allows a percentage of payroll to be deducted and used to report slimmer profits or inflate losses, is based on the fact that the government considers sports contracts to be an intangible asset. Much like a piece of machinery, whose cost can be written down over a period determined to be its useful life, players also have a useful life value to a sports team, under IRS rules.
Selig and his investors deducted roughly $2 million off the balance sheet from the Brewers and used it to offset the reporting of their personal income for each of the next five years. But in the year after Selig's tax benefits ran out -- write-offs equaled more than $140,000 -- the IRS began limiting the degree to which owners could discount the cost of players contracts to their advantage.
In October 1976, the government unveiled the Tax Reform Act of 1976, which established that no more than 50 percent of the purchase price could be allocated to intangible assets, such as player contracts, unless a rare exemption was granted if an owner provided a reason for exceeding that amount.
The impact was immediate.
Oil investor Robert K. Moses Jr. was reportedly interested in buying the Houston Rockets, but when the deal fell apart, he cited the inability to make the financing package work with a smaller write-off.
In 1986, the IRS added another reform for those looking to become partners in sports teams and use the depreciation value to offset the taxes on their personal business income. In order to do so under the new criteria, owners had to pass one of seven tests that would allow them to be classified as active owners.
"The whole deal shouldn't really exist because owners are not buying the players as much as they are buying the franchise, the rights to the name and the rights to play in the stadium," said Paul Weiler, the Henry J. Friendly professor of law at Harvard and author of "Leveling the Playing Field: How The Law Can Make Sports Better for Fans."
But the tax break has become less of a factor, given the modern state of the business.
"When owners are losing millions of dollars in real money, it's crazy to think that they're fine with it because they are not paying as much tax," said Jeff Smulyan, who owned the Seattle Mariners from 1988 to 1992.
Jeffrey Loria
Despite a World Series title, Jeffrey Loria's Florida Marlins still experienced significant cash losses.
Jeffrey Loria has had more experience with write-offs than any recent professional sports owner. Owners typically can deduct player contracts for the first four or five years of franchise ownership. Loria purchased a majority share in the Montreal Expos in 1999, but the clock started over again three years later when he sold the Expos and purchased the Florida Marlins.
"If we had a loss of $60 million on paper, but $20 million in cash, that's a big difference," said David Samson, president of the Marlins, which reportedly lost $20 million last season despite winning the World Series. "But the only number Jeffrey cares about is that actual cash loss. The benefit of depreciation is far outweighed by the reality of cash losses when you are losing money operationally."
The process of convincing the IRS to even grant the 50 percent deduction became harder when local auditors usually assigned to random projects were replaced by national auditors who specialized in the finances of sports teams, said Carl Fortner, a tax partner on Foley & Lardner's Sports Industry Team, which has counseled several professional team owners on tax issues, including Selig. In October, the IRS sent a 15-page memo to those that audit teams to be aware of the latest government standards as it applied to taxing franchises.
"The IRS has been much less receptive to greater deductions because franchises cost so much these days," said Bob DuPuy, president and chief operating officer of Major League Baseball.
Whereas it used to be automatic that a team owner could attribute a huge chunk of the franchise price to player salaries, team owners now have to hire auditors who determine a true market value for the player's contract instead of the actual dollars being paid to player.
It is that value, according to Fortner, that is shown to the IRS. Unlike decades ago, where owners would simply spread the costs over the first five years of ownership, player contracts in most cases now may be depreciated based on the length of individual contacts. This debunks the theory that new owners are more likely to sell after their fifth year of ownership because the write-off period is longer. Plus, owners are allowed to depreciate other intangible assets, including season ticket waiting lists and suite revenues.
Despite the stress put on cash losses and a more scrutinizing IRS, some say the write-offs still have value.
"The total money for the tax benefit should be increasing in terms of dollars because the salaries have been on the rise for so long," said Scott Rosner, lecturer at the University of Pennsylvania's Wharton School of Business and co-author of "The Business of Sports." "The value is just diminished due to the astronomical wealth of the owners coming into the sport. So the old-guard owner might have saved $2 million in taxes and that meant a lot. The new age owner could be saving $20 million and that's less of a deal."
Ted Leonsis bought the Washington Capitals five years ago and the chance to write-off player salaries from his $85 million purchase of the team is declining. But Leonsis has reportedly lost more than $100 million throughout his ownership reign, so creating larger paper losses won't dull the pain of having to still dole out the cash.
Said Leonsis: "I look forward to the day where (write-offs are) an issue for me."
Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.rovell@espn3.com.
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washingtonpost.com
Expos for Sale: Team Becomes Pawn of Selig
By Steve Fainaru
Washington Post Staff Writer
Monday, June 28, 2004; Page A01
Second of three articles
SAN JUAN, Puerto Rico -- As the 2002 baseball season approached, Commissioner of Baseball Allan H. "Bud" Selig held a financial stake in two major league teams.
In the National Football League, National Basketball Association or the National Hockey League, even one would have been prohibited. But Major League Baseball has no conflict-of-interest rules preventing the commissioner from owning teams.
Selig had owned the Milwaukee Brewers since 1970. When he was elected commissioner in 1998, he placed his ownership stake in a blind trust, suspended his $316,926 annual salary and announced his withdrawal from the Brewers' day-to-day operations.
Even then, the perception that Selig was still involved would lead to an ugly internal power struggle with the Brewers' president and chief executive officer, who ultimately resigned over the matter last year.
Selig's relationship with the second team was in many ways thornier. His was one of 29 teams that bought the Montreal Expos for $120 million in February 2002 after legal challenges stopped baseball from shutting down the Expos and another franchise. Selig, as commissioner, had personally appointed Montreal's president, general manager and manager shortly after contraction collapsed.
Now, with the club in limbo, he had to figure out what to do with it.
To chart the Expos' odyssey -- from contraction to Puerto Rico, where baseball is renting out the team for 22 "home" games to raise cash -- is to see clearly how Major League Baseball uses its exemption from antitrust laws to control markets and how Selig's dual roles as commissioner and owner create inevitable conflicts.
Selig adopted essentially the same strategy for the Expos that he used to persuade taxpayers in Wisconsin to bail out his financially crippled team.
Baseball would offer the Expos to vacant markets such as Washington, Northern Virginia, Las Vegas and Portland, Ore., but at the same steep price he had set to keep Major League Baseball in Milwaukee: a state-of-the-art ballpark that would cost hundreds of millions of dollars.
With the public paying for the new stadium, private investors would have more money available to pay Major League Baseball for the team. In other words, taxpayers in the bidding cities would be helping the owners, including Selig, recover their Expos investment, which was approaching $175 million.
As he had in Milwaukee, Selig argued that a publicly financed ballpark was the only way to make the Expos competitive. "Is the community's life better [with a new ballpark]? Yes," Selig said. "Can a ballclub build a stadium and survive? No."
Selig's predecessor as commissioner, Fay T. Vincent, was not convinced. "It's hard for me to argue that local governments should be put in position to finance these facilities to help owners who themselves are enormously wealthy," he said. "That's a fairly tough way to run a business. I mean, c'mon."
Selig's strategy depended heavily on baseball's antitrust exemption. Without it, the Expos or another team probably would have simply moved to the District or Northern Virginia. As recently as 1999, for example, Selig had quietly impeded the Expos' then-managing partner, Claude R. Brochu, in his efforts to move to the Washington area, which, excluding Baltimore, is the nation's sixth-largest market.
The Supreme Court ruled in 1922 that baseball was not interstate commerce as defined by the Sherman Antitrust Act, a ruling the Court later called "an aberration." The 1998 Curt Flood Act granted antitrust protection to major league players but codified baseball's immunity on issues related to the "expansion, location or relocation" of franchises.
Without the exemption, Brochu or any other team owner could have moved into the capital region without Selig's permission and despite the objections of Baltimore Orioles owner Peter G. Angelos.
With it, Washington would become a strategic pawn in what former Expos president David P. Samson described as "one of the most insane transactions in sports history."
Samson's stepfather, international art dealer Jeffrey H. Loria, stood up at an owners meeting in January 2001 and threatened to resist if baseball tried to fold the franchise, which Loria had purchased in December 1999. Major League Baseball eventually accommodated Loria by paying him 10 times his original investment, then subsidizing his purchase of the Florida Marlins.
The Marlins' owner, billionaire commodities trader John W. Henry, bought the Boston Red Sox in what Massachusetts Attorney General Thomas F. Reilly called a "bag job" by Selig and Major League Baseball despite the existence of higher bids. Henry and Selig denied the charge, but, to avoid litigation, charities benefiting from the sale received an additional $30 million.
In 2003, Major League Baseball, operating a team over an extended period for the first time, decided to park the Expos in Puerto Rico for a quarter of the team's home games. The venture brought in about $350,000 per team and promoted the "internationalization" of the sport.
The Expos would play 103 road games -- 27 percent more than their competitors. The team traveled 40,951 miles last season. The on-field temperature at 18,000-seat Hiram Bithorn Stadium in San Juan sometimes reached 150 degrees. Announced attendance at a May 20 day game between the Expos and Brewers this year was 8,941; a reporter counted 2,443 fans by hand. When Milwaukee's Scott Podsednik homered in the top of the ninth, the ball clanged loudly against the metal bleachers, then rolled away.
There wasn't a soul to chase it down.
Washington 'in a Class by Itself'
On Oct. 5, 1998, Selig flew to Montreal to meet with the premier of Quebec, Lucien Bouchard.
The trip was a last-ditch effort, arranged by Brochu, to obtain financing for the new ballpark that was critical to the Expos' survival in Montreal. Brochu, a former Seagram's executive, hoped Selig could win over the premier, who a month earlier had turned him down. Selig launched into his standard pitch. In many ways, it was the same one he had delivered repeatedly to get Miller Park built in Milwaukee. The bottom line: Montreal would have to build a new stadium to keep the Expos.
"My government's answer remains the same," the premier responded. "We will not make the funds available. That's final."
The Expos were in a death spiral, but how it happened was a matter of debate. Montreal's main problems seemed to be caused by Major League Baseball itself. A strike shortened the 1981 season, interrupting what could have been five straight seasons of at least 2 million fans. The Expos recovered, but then came the strike of 1994. The club was 34 games above .500 and leading the National League East by six games when play ended on Aug. 12. By the following year Montreal faced a severe financial crisis and began to unload players.
"Montreal, basically, after the strike in '94, abandoned baseball," said Robert A. DuPuy, baseball's president and chief operating officer. "They turned their back on baseball."
Mitch Melnick, the sports director at Team 990, the Expos' flagship English-language station, disagreed. "The fan base was destroyed as the product was destroyed," said Melnick. "I guess this is Major League Baseball's way of wishing the problems would go away: Blame the customer."
Rejected by the local government, Brochu sought out alternatives. He opened secret negotiations with Virginia telecommunications executive William L. Collins III, who since the early 1990s had been trying to bring a team to Northern Virginia.
Brochu had explored several markets, including Portland, Ore., Las Vegas and Charlotte. "Washington always was to me in a class by itself," he said. "The economics, the demographics, the wealth of the area, the population, productivity, disposable income, the number of companies and firms that would be potential supporters -- it was just so far superior to any other location, by a long shot."
A source involved in the discussions said Brochu and Collins reached "an agreement in principle" to move the club to Northern Virginia. But Brochu called the talks "very, very preliminary," mostly because Selig stood in the way.
"I felt the team should have been moved and I told the commissioner that," said Brochu, at the time a member of the Executive Council, the commissioner's cabinet of owner advisers. "I always heard, 'Well, he's thinking it over, he'll review it, he'll know in two more months or six more months.' There was really no decision."
Selig said he wanted to preserve baseball's 31-year streak of not moving teams. He also wanted to address the game's economic problems before considering relocation. "Moving, in this system, what is that going to do?" he said.
Rebuffed from moving and at war with his fellow owners, Brochu stepped down. The search for his successor revealed a lot about the withered state of the franchise.
One of the team's main sponsors, a Mercedes-Benz dealer named Sam Eltes, located one. Eltes' sister-in-law from his first marriage had a son who worked as the financial adviser to Loria, a baseball-loving international art dealer in New York.
Loria had helped bid up the price at a sweaty 1993 bankruptcy auction for the Baltimore Orioles, only to lose to Baltimore attorney Angelos. He had owned the Class AAA Oklahoma City 89ers for four seasons.
Loria was not a typical major league owner. He had made millions dealing in 20th-century sculpture, painting and works on paper. He worked out of an unmarked private office on East 72nd Street in Manhattan. He had written two books: "Collecting Original Art," a primer on collecting with a foreword by his mentor, the late actor Vincent Price, and "What's It All About, Charlie Brown?" a psychological deconstruction of the "Peanuts" comic strip.
"My books! My records! My pool table! My Van Gogh! Sob!" muses Snoopy on the cover of Loria's book as his doghouse goes up in flames.
Action, Contraction
Loria's purchase coincided with preparations for civil war inside the national pastime.
The collective bargaining agreement between owners and players was about to expire. Selig was a veteran of the previous eight negotiations, each of which resulted in a work stoppage and, mostly, defeat for the owners. Selig began to lay the groundwork for battle.
In January 2000, the owners voted to give him full authority to address baseball's economic problems.
Then, in July, Major League Baseball released what it called a landmark report. A "Blue Ribbon Panel" concluded that baseball was no longer fair for teams in small broadcast markets, which could not generate enough revenue to compete.
Exhibit A was the Montreal Expos. The report showed that the team generated less revenue over its entire season than the New York Yankees took in during a six-game homestand.
Don Fehr, executive director of the players' union, called the report "the opening round" of the labor negotiations. Selig had also ramped up baseball's lobbying on Capitol Hill. He hired Baker & Hostetler LLP, the powerhouse Washington law firm. Selig knew that Washington could make or break the negotiations. In the event of a work stoppage, Congress inevitably would use the antitrust exemption as the hook to hold hearings and tear into the commissioner.
The lobbying effort was headed by William H. Schweitzer, a Baker & Hostetler partner who had worked nine years as general counsel for the American League. Schweitzer, a Republican, was joined by a Democrat, Lucy J. Calautti, former chief of staff for Sen. Byron L. Dorgan (D-N.D.) and the wife of Sen. Kent Conrad (D-N.D.).
Schweitzer and Calautti decided to launch the first Political Action Committee of any major sport. "My whole thought was that if you're going to participate in the process, like they said they wanted to, you needed a PAC," said Schweitzer.
Since 2002, the Office of the Commissioner of Major League Baseball Political Action Committee has raised $488,295 -- nearly all of it from baseball owners, officials and their relatives. It has distributed $102,500 to members of the House and Senate Judiciary Committees, which have jurisdiction over antitrust matters.
Major League Baseball has spent $5.045 million on lobbying over the past six years, more than the NFL, NBA, NHL and the Professional Golfers' Association combined, according to federal lobbying disclosure records.
Schweitzer and Calautti bound the Blue Ribbon report and distributed it to every member of Congress. How many people actually read it is unclear, for it contained a startling recommendation: "Franchise relocation should be an available tool to address the competitive issues facing the game," the report stated.
Baseball had used the antitrust exemption to control franchise movement after the Senators left Washington in 1971. Now its own economic panel was concluding that one solution to baseball's economic problems was to break up regional monopolies "occupied by one or more high-revenue club."
The reference was clearly to markets such as New York, where the Yankees and Mets controlled an area of more than 15 million people, and the Washington-Baltimore corridor, the exclusive domain of the Baltimore Orioles.
"If the recommendations outlined in this report are implemented, there should be no immediate need for contraction," the panel added.
Within months of the report's circulation on Capitol Hill, however, baseball initiated plans to shut down at least two franchises.
DuPuy said Major League Baseball chose the more drastic step of contraction because the economic conditions in baseball had worsened considerably.
Inside baseball there was speculation that contraction was a part of the owners' pre-war buildup, a negotiating ploy designed to show the players' union that baseball was prepared to cut at least 7 percent of its work force if it did not gain concessions.
But owners and union representatives said contraction was not a tactic. "Obviously, it was real," wrote Red Sox owner Henry in a lengthy e-mail interview. Henry, whose former team, the Marlins, was a candidate, added, "In any business or industry, if you have companies or divisions that are not making it, you close them."
Richard E. Jacobs, the former owner of the Cleveland Indians, warned Selig: "It's going to be a bloody process. The blood's all going to be yours. Do it anyway."
The process began in October 2000. Selig announced at a Chicago owners meeting that he had asked DuPuy and Paul Beeston, then baseball's president and chief operating officer, to study the ramifications of eliminating franchises.
As the meeting broke up, Samson, the Expos' president, bolted across the room to confront Selig.
"What do you mean: You're contracting the Expos?" Samson asked incredulously.
DuPuy quickly grabbed Samson by the arm to defuse the situation.
"David, we'll talk," he said.
In the spring of 2001, Beeston scrawled a list of candidates on a piece of yellow lined paper and handed it to an aide. The list included the Expos, Minnesota Twins, Toronto Blue Jays, Oakland Athletics, Marlins, Tampa Bay Devil Rays and Anaheim Angels.
Throughout that summer, baseball officials met in the 31st floor executive conference room at Major League Baseball's headquarters at 245 Park Avenue in Manhattan. From the beginning, according to a former baseball official who participated, there were discussions about whether baseball had the legal authority to unilaterally eliminate teams. The contraction meetings were referred to by euphemisms such as "baseball issues" or "ownership issues." Participants sometimes were told not to take notes or to hand in their notes at the end of meetings, said the official, who spoke on condition of anonymity because of an ongoing federal racketeering suit filed by the former Expos limited partners.
Calautti and Schweitzer were asked to attend to help baseball gauge the potential reaction on Capitol Hill. With the Minnesota Twins in the line of fire, Calautti brought up potential objections by North Dakota's Dorgan, her former boss and the ranking Democrat on the Senate Commerce Committee's sub-committee on competition, foreign commerce and infrastructure.
"He's not going to go for that," Calautti warned.
Calautti said she did not recall bringing up Dorgan but said she raised concerns about a number of potential pockets of resistance, including the Minnesota and Florida congressional delegations.
A scheduled meeting for Sept. 11, 2001, at Selig's Milwaukee office was postponed because of the terrorist attacks on New York and the Pentagon. Within two weeks, according to Selig, owners were again clamoring to liquidate franchises. Selig told the owners he would wait until after the World Series.
On Nov. 6, 2001, baseball's owners, meeting in Chicago, voted 28-2 to contract. Only the Expos and Twins opposed.
But lingering in the air was a fundamental question: What about Washington?
"The Washington/Northern Virginia area was obviously very aggressive in pursuing a club, and we'll be very sensitive to their issues as time goes on," Selig told reporters.
Inside Major League Baseball's offices, Washington was an issue that seemed to hover in the air without ever being addressed head on. "It was amazing what a sticky point Washington was," said the former baseball official. "Anytime it got brought up it was like Ralph Kramden and the hummana, hummanas. Almost every time the discussion would eventually come around to, 'What about Washington?' "
Most believed Loria would have jumped at the chance to move the Expos to D.C. or Northern Virginia. "I think he always had his eye on Washington," said a baseball executive who worked closely with him. But that was out of the question. Around baseball, Loria's brief ownership was already viewed with disdain. He had quickly alienated his Montreal partners, which included some of the most influential businessmen in Canada. His stepson, Samson, was widely regarded as abrasive and disrespectful.
The former MLB official said DuPuy, Selig's closest adviser, told him more than once that the chances of Loria getting Washington were nil.
According to the former official, DuPuy conveyed the message, "It'll be over Bud's dead body before he lets that [expletive] have Washington."
DuPuy denied speaking pejoratively about Loria, with whom he said he had a good relationship. But he said the "sentiment" was accurate.
Power Move
Loria, who declined requests to be interviewed for this article, and Major League Baseball were on a collision course.
As the owners moved forward on contraction, Loria was systematically assuming total control over the Expos, the team in baseball's crosshairs.
Loria's plans for the Expos were unclear. When he bought the team, the deal included a critical second step in which Loria would put up an additional $38.8 million toward a new downtown ballpark.
Before the 2000 season, though, he had failed to negotiate a new local television deal and alienated sponsors. Plans for the ballpark evaporated. At the first meeting of the new partnership, Loria's chief financial officer, Joel A. Mael, stunned the limited partners by announcing a possible capital call -- a demand for cash to support operations.
Loria was an absentee owner, commuting from New York while Samson, his then-31-year-old stepson, ran the team. A former private wealth manager at Morgan Stanley with no previous baseball experience, the 5-foot-5 Samson grated on the limited partners, one of whom pushed him into a wall during a meeting. He came to be known around the Expos' offices as "Little Napoleon."
Soon, Loria and the limited partners were at war. After Loria issued a cash call on March 17, 2000, they staged what amounted to a coup. They told Loria they would give him back his $12 million if he would step down.
"They basically put a check on the table and said, 'Bugger off,' " said a source familiar with the meeting. Loria instead initiated another series of cash calls. If the limited partners failed to come up with the money their shares in the team would be diluted. Within 17 months Loria had gone from owning 24 percent of the Expos to more than 93 percent.
Asked why the partners failed to meet the cash calls, their lawyer, Jeffrey L. Kessler, said, "All they knew was that this was a destroyed team" run "by a general partner who they thought was totally out of control. . . . It was impossible for any sane investor, and Loria knew that." The move gave Loria the power to do basically whatever he wanted with the team.
But Major League Baseball had its own designs on the Expos. It wanted to buy out Loria and shut down the franchise, redistributing tens of millions of dollars in broadcast and licensing revenue, as well as millions of dollars the Expos received each year in revenue sharing.
Loria informed the owners he wasn't going anywhere. In January 2001, he stood up at an owners meeting in Phoenix and read an impassioned statement vowing to resist to stay in the game he loved. The drumbeats continued through the summer. "They were threatening us with a New York litigator virtually every conversation we had," said DuPuy.
The message: Loria would file an antitrust suit if Major League Baseball tried to muscle him out.
Shuffling Clubs
The "pushback" from Congress that Calautti and Schweitzer had predicted was fierce. Within a month, the House Judiciary Committee held a hearing that quickly turned ugly. Selig, slight and ashen, was seated next to Jesse Ventura, the former Navy SEAL turned professional wrestler turned governor of Minnesota.
Ventura accused baseball of seeking to extort a new ballpark from his state by threatening to shut down the Twins.
"Major League Baseball is really no different than OPEC; it controls supply and it controls price with absolutely no accountability," said Ventura.
Baseball struggled to find a way to placate Loria and shut down two teams. The process began to resemble real-life Monopoly, with baseball's powerbrokers bartering teams behind closed doors, unbeknownst to their millions of fans.
Under one scenario, Athletics owner Steve Schott would relocate his entire franchise -- including the players and front-office staff -- to Anaheim. Oakland would effectively dissolve and take over the Angels' territory in Orange County.
Under another, Loria was to move the Expos to Tampa Bay, where the Devil Rays would be folded. Under still another, Marlins owner Henry would fold his team and buy the Angels from the Walt Disney Co.
Henry emerged as the fulcrum around which baseball would bring order. The commodities trader was widely respected as a brilliant, honest broker who loved baseball and wanted to stay in the game -- just not in Miami.
As with most teams in line for contraction, the need for a new ballpark was the central issue in south Florida. Henry, who bought the club in 1998, had tried unsuccessfully for three years to get public financing. On April 25, 2001, Selig wrote a letter to the Florida legislature warning that the eight-year-old Marlins would be moved or eliminated if no stadium was secured. "Bluntly, the Marlins cannot and will not survive in south Florida without a new stadium," Selig wrote.
State Sen. Kendrick Meek, a Miami democrat, told the Miami Herald, "It sounds like Johnny Soprano writing that letter, trying to threaten and put pressure on us."
That summer Henry informed Selig he planned to sell. Selig asked him to stay in baseball. After his Angels bid fell apart, Henry contacted former Orioles president Larry Lucchino, who was now involved in a bid to purchase the Boston Red Sox.
"We're dialing for dollars," Lucchino told him. Henry asked if he could join forces.
For Major League Baseball, the timing could hardly have been more fortuitous. Henry, Lucchino and a third partner, television executive Thomas C. Werner, all were close with Selig and had impeccable reputations; in a sense, the group had been pre-approved. Henry denied the deal was a "bag job," as the Massachusetts attorney general alleged.
As baseball shuffled its deck of clubs, Loria found himself holding a flush. Spring training was weeks away. Henry's purchase of the Red Sox was predicated on selling the Marlins. After weeks of negotiation, baseball paid Loria $120 million -- a 900 percent return on his original Expos investment -- plus a $38.5 million loan tied to several conditions, including Loria's ability to get a stadium in south Florida.
On their way out of Montreal, Loria and Samson stripped the franchise. With them went computers containing scouting reports on every Expos player, dozens of signed home run balls, even life-size cutouts of the team's former superstar right fielder, Vladimir Guerrero. The Expos' limited partners, meantime, became unwitting owners of 6 percent of the Marlins. In July 2002, they filed a racketeering suit in U.S. District Court in Miami. It charged Loria, Samson, Selig, DuPuy and the Office of the Commissioner of Baseball of illegally conspiring in what the suit called an "Expos Elimination Enterprise."
The ongoing suit could complicate baseball's plans for the Expos. The limited partners have 90 days to seek an injunction if baseball tries to move the team.
Last October, Loria's Marlins miraculously found themselves in the World Series against the New York Yankees. "Can you imagine?" anguished one of the limited partners. "I'm sitting here. I'm an owner of the Florida Marlins. I'm rooting for the Yankees!"
And then, of course, the Marlins won.
This spring, nearly all the limited partners received World Series rings, even as they continued to sue Loria and Major League Baseball for racketeering in U.S. District Court.
A 'Prime' Indication
The day after the Red Sox deal was announced in Phoenix, Selig came to a news conference beaming. The previous weeks had been filled with criticism about contraction, questions about conflicts of interest and editorials calling for Selig's resignation.
But, behind closed doors at the Arizona Biltmore Resort & Spa, the owners who had elected Selig commissioner and paid his salary stood behind him. "These were the best two days I've had in a long time. Make of that what you will," he told reporters.
And then, in the middle of the news conference, Selig was asked where Washington fit in to baseball's baffling jigsaw puzzle. Would the nation's capital finally get a team?
Perhaps Selig's mood got the better of him. "I'd have to say that given the demographics of the area and all the people who want it, they are the prime candidate," he said.
Relocation, Selig said on Jan. 17, 2002, was coming "in the near future."
Staff researchers Julie Tate and Margot Williams contributed to this report.
© 2004 The Washington Post Company
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On The Cover/Top Stories
Hardball
Nathan Vardi, 04.26.04
Jeff Loria has outmaneuvered foes in two countries and on the baseball diamond. Now he's trying to pull off a clean sweep.
When Florida Marlins owner Jeffrey Loria arrived at the team's spring training ballpark, the fans treated him like a conquering hero. They clamored for his autograph and a look at his 120-gram championship ring (240 diamonds, one with a rare teal hue, and 12 rubies) and to thank him for not dismantling their World Series champs as billionaire Wayne Huizenga did a few years ago.
Baseball has never seen an owner quite like Loria. The 63-year-old art dealer has shrewdly turned a relatively small investment into a potential windfall--and made more enemies than George Steinbrenner. Even now Loria is fighting his former partners (who are suing him), grabbing for controversial tax breaks and maneuvering to get all sorts of help from Major League Baseball. But he is always steps ahead of the competition both off the field and on it. "The so-called experts still don't think we can win," says Loria, watching his team play the St. Louis Cardinals from behind home plate. "It's fine for them to dismiss us again."
Baseball and dealmaking are in Loria's blood. His attorney father twice pitched to Lou Gehrig while in high school and regularly took young Loria four subway stops from home to Yankee Stadium. Loria won a city championship in high school, playing second base. He majored in art history at Yale and later hooked up with actor Vincent Price, hired by Sears, Roebuck to hawk art to the masses. In the 1960s Loria was Sears' youngest buyer. While the venture fizzled, he turned the experience into Jeffrey H. Loria & Co., buying and selling works by the likes of Léger and Picasso for an Upper East Side Manhattan clientele.
By the late 1980s Loria had turned his attention to baseball. He bought the Oklahoma City 89ers, the AAA club of the Texas Rangers, for $3.8 million in 1989, won a championship and sold the team for $8 million in 1993. In the 1990s he tried unsuccessfully to buy major league clubs, first in Montreal, then in Baltimore, where he lost a bankruptcy auction for the Orioles to trial lawyer Peter Angelos.
His break came in 1999. The partnership that owned the moneylosing Montreal Expos was without a managing partner, and the 11 Canadian limited partners, including telecommunications giant BCE and the investment bank BMO Nesbitt Burns, were looking for outside investors. They turned to Loria, who wangled a 24% stake for $12 million and became managing partner. Stephen Bronfman, a member of one of Canada's richest families, and Canadian billionaire Jean Coutu hopped on board, too.
Loria says he nearly doubled payroll to $31 million, which led to increasing losses. He then initiated capital calls on the other owners in 2000 and 2001 to fund rising operating expenses. When they chose not to meet those calls, Loria funded them himself with about $18 million. That triggered a clause in the partnership agreement that allowed him to dilute the interests of other owners down to 6%. Loria thus gained 94% of the Expos for roughly $30 million. He would soon sell the team for four times that amount.
And enrage his limited partners. They refused to meet the capital calls, they allege in a federal suit, because Loria "misrepresented important facts in an effort to destroy Major League Baseball in Montreal." They cite his decisions to pull the Expos off local radio and TV (lousy deals, says Loria) and to stop free tickets to sponsors. They also claim he torpedoed plans for a new stadium for which they'd secured real estate, $5 million a year from the Quebec government to cover interest on a planned $67 million bond and $8 million in annual tax relief. Irrelevant, says Loria's lawyer, since there's nothing about the stadium in the contract.
The federal suit additionally claims that Loria conspired with Baseball Commissioner Allan (Bud) Selig, who is also a defendant, to take control of the team and move it to another city. After Selig decided to eliminate the Expos and the Minnesota Twins in 2001 in order to apply pressure on players in labor negotiations, the commissioner agreed to provide another team to Loria, who had threatened to sue Major League Baseball if he lost his team. No evidence of a conspiracy, says Loria's lawyer.
In any event, the Canadian partners will have a tough time winning the case. Loria appears to have operated within the boundaries of his contract with them. Indeed, he has already convinced a federal judge in Miami to stall the suit and have an arbitration panel in New York hear the case this May, per a stipulation in the partnership agreement. The contract also permitted Loria to increase player salaries and contained provisions for the Expos to be sold or relocated. Loria says the Canadian partners were simply unwilling to invest in the Expos.
Loria ended up in south Florida thanks to Selig and John Henry, a hedge fund manager. At the same time the situation in Montreal was deteriorating, the Boston Red Sox were put up for sale. Henry was interested, but he already owned the Marlins (no owner is allowed to control more than one team), so Selig arranged for Loria to swap the Expos for the Marlins. The deal called for baseball's other owners to buy the Expos for $120 million from Loria, who agreed to pay $158 million for the Marlins. The balance would come from a $38 million interest-free loan made to Loria by baseball's owners--a debt that will be reduced by $15 million or so if Loria can't get a new stadium.
Clever move, since it pushes other owners to side with Loria, whose support he would need to move the Marlins, if he can't get a new ballpark in south Florida. No wonder, then, that St. Louis Cardinals principal owner William DeWitt Jr. greeted Loria at a recent spring training game with the question, "How are things going with the stadium?"
The 2002 swap still nearly collapsed because the $700 million Henry and his partners bid for the Red Sox and 80% of its cable network was less than packages put together by cable billionaire Charles Dolan and New York lawyer Miles Prentice. The Massachusetts attorney general, concerned that "Major League Baseball was calling the shots," only dropped his intervention after Henry arranged for the charity that owned most of the team to get an extra $30 million.
Loria still remembers being pilloried after the Marlins ran out of hot dogs on opening day in 2002, six weeks after he took control of the team. But he soon started to make decisions that would lead to a World Series victory. While some low-revenue teams, like the Kansas City Royals, pocket the money they get from the league's revenue-sharing system, Loria used the $20 million or so a year he got from rich teams like the Yankees to hike the Marlins' payroll by 49% in his first two seasons to $52 million. He used the money to sign stars like catcher Ivan Rodriguez. "I didn't sit on my wallet," says Loria.
Amid much criticism he hired 72-year-old Jack McKeon as manager, even though McKeon had trouble at first remembering Loria's first name was not Jerry. Loria rightly thought McKeon, who'd been out of baseball for two years, could turn around the then-slumping Marlins as he once did with teams in Cincinnati and San Diego. Loria also took a gamble by not unloading salary by trading away expensive players before the 2003 trading deadline in July, despite the Marlins' unsure playoff chances.
Loria watched his Marlins win the World Series from his season ticket box seats at Yankee Stadium last fall. After game six he rounded the bases and, thinking of his late father, broke into tears crossing home plate. "To the extent that the Canadians thought I did not know how to run a baseball team," Loria says, "I guess the record speaks for itself." But will the victory help him in arbitration with his unhappy partners? Loria has offered them championship rings--they do own a sliver of the Marlins, after all. Twelve of 14 have accepted.
The World Series success, Loria says, also netted an extra $6 million. The victory certainly helped bump up the value of the Marlins this year by 27%, according to our calculations, to $172 million. Even accounting for the $37 million Loria says he has put into the team for working capital, he is still about $100 million ahead of where he started in baseball (not counting any exposure from the lawsuits). Presumably, he can also put the team's current losses to good use, offsetting income from his art business.
But for the series victory to really pay off, Loria and the Marlins need a new stadium. His plan is to build a $325 million ballpark somewhere in south Florida, with air conditioning and a retractable roof. This is supposed to happen by opening day in 2007. The new venue would give a boost to attendance, which, despite a 60% gain last year to 1.3 million, remains third worst in the business. The team currently plays in Pro Player Stadium, a football field owned by Huizenga that has fans sitting far away from the action on the field and suffering humidity and rain delays in the summer. A new park would also get the Marlins out of one of the most onerous leases in baseball. The team pays about $2 million a year in rent and other ballpark expenses but gets none of the revenue from luxury suites and only 37% of the parking take.
Will the state build it? Loria is committing $137 million from sources he declines to specify and has set a May 1 deadline to line up public financing for the rest. So far he has convinced Miami-Dade county to put up $73 million, leaving a $115 million gap. Florida Governor Jeb Bush is on board for a $60 million state sales tax rebate over 30 years for the Marlins, but the state senate is cool to the idea.
There is some urgency. Despite its championship the Marlins had $12 million in operating losses last season. "It's not okay when you write checks each year for $15 million--it's painful," Loria says. "I am not willing to continue to lose money forever."
But certain things are sacrosanct. Loria hasn't raised season ticket prices this year, becoming the first owner in years not to exploit fans after his team has won it all. And he's holding on to many of the team's best players--with a catch. Local hero Mike Lowell, a third baseman, agreed to a four-year $32 million contract that could be reduced to two years and $14 million if no stadium deal is reached by November. "They are using my face to help get a stadium, and I think that's legitimate," says Lowell.
Taxpayers won't chip in for the stadium? Loria might take his ball and go elsewhere.
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