|Thursday, May 30
Updated: May 31, 7:48 PM ET
Numbers reveal teams not nearing bankruptcy
By Doug Pappas
Special to ESPN.com
Commissioner Bud Selig recently told the Los Angeles Times that without major changes in Major League Baseball's economic structure, "I would say six to eight [teams] can't exist another year, another year and a half. We're talking about the immediate future. There's a lot of clubs that simply can't survive the status quo."
Selig didn't identify those six to eight teams. Since his announcement, no owners have come forward to declare that their clubs are teetering on the brink of bankruptcy, while several of the likeliest candidates have denied they were in financial difficulties.
The April 15, 2002 issue of Forbes contains estimates of each club's net worth, debt-to-value ratio, and operating income for 2001. The first two of these figures can be used to compute the owners' equity in each club. Then for each club that lost money in 2001, an estimate of when the club will run out of money can be made by dividing the value of the owners' equity by the amount of its 2001 losses. Using Forbes' numbers, every club has enough equity to survive at least five more years. Only the Devil Rays (5½ years) and Blue Jays (nine years) have less than a 10-year cushion.
But Major League Baseball vigorously disputes the accuracy of the Forbes figures. While Forbes concludes that the 30 clubs turned a collective operating profit of $76.7 million in 2001, MLB's own numbers show a $232 million operating loss -- a difference of more than $300 million. Since Commissioner Selig was surely thinking of the "official" MLB figures when he spoke, the table below uses MLB's reported operating income and interest expenses to estimate when each club could become insolvent without significant changes in the club's strategy or baseball economics (all figures in millions).
Not counting the Expos, who are already wards of MLB, if MLB's figures are correct only the Diamondbacks and Devil Rays are in imminent danger. The Diamondbacks have since raised additional capital and insist they're financially stable. The Devil Rays have also addressed their problems, slashing their Opening Day payroll by $20 million.
The difference between Forbes' estimates of profitability and MLB's official numbers is especially large with respect to many of the teams the table suggests might be at risk:
Team Operating profit Operating profit (MLB) (Forbes) Difference D-Backs ($36,584,000) ($3,900,000) $32,684,000 Dodgers ($54,450,000) ($29,600,000) $24,850,000 Blue Jays ($43,097,000) ($20,600,000) $22,497,000 Rangers ($24,433,000) ($6,500,000) $17,933,000 Marlins ($9,180,000) $1,400,000 $10,580,000All the people in America who seriously believe the Los Angeles Dodgers could go broke within five years -- as forecast by MLB's profit figures -- would fit comfortably into a phone booth at the corner of Hollywood and Vine. If the Forbes figures are anywhere close to accurate, the others on this list appear safe as well.
Other than the Expos and Devil Rays, the Detroit Tigers are probably in the worst shape. Owner Mike Ilitch borrowed heavily to finance the team's contribution toward Comerica Park, but Tigers' attendance fell more than 20 percent in the park's second year and is down again in 2002. Even the Tigers, though, won't run out of money as fast as Commissioner Selig predicts they will.
In short, believe the owners, not the commissioner. MLB is not facing a wave of bankruptcies.
Doug Pappas is an attorney with New York's Mintz & Gold LLP, and is Chairman of SABR's Business of Baseball Committee. You can check out more work from the team of writers of the Baseball Prospectus (tm) at their web site at baseballprospectus.com.