|Tuesday, August 15
Updated: August 16, 2:34 PM ET
Report: MLB co-signs Diamondbacks' loan
By Darren Rovell
The Arizona Diamondbacks borrowed $20 million from an unidentified bank in order to meet their operating costs, with Major League Baseball as the co-signer to the loan, according to Tuesday's Arizona Republic.
Since coming into the league in 1998, the Diamondbacks have made two cash calls -- requests for additional investment capital -- of $29 million in 1998 and $24 million in 1999 from the 29 limited partners. This in addition to the group's initial investment of $145 million.
The Diamondbacks declined to comment on the report. Major League Baseball spokesman Richard Levin confirmed that "there is a history" of MLB co-signing on team loans, but declined to mention specifics.
In other words, asking for more money is nothing out of the ordinary.
"The minority owners and (managing general partner) Jerry Colangelo had previous calls for money and that simply means investing more money in the team," said Andrew Zimbalist, professor of economics at Smith College (Mass.). "There should be no concern now because they have chosen to go outside and take a loan instead of giving away equity. If they tried to get a loan and couldn't get it, then there would be a concern."
Stephen Ross, professor of law at the University of Illinois, hinted that fans should not be concerned about the Diamondbacks' future as an organization simply because of their need for money.
"They had to build a minor league organization from scratch, they paid Buck Showalter top dollar and they paid Travis Lee $10 million (to sign)," said Ross. "The operating loss would reflect an organization that wants to be continuously contending and has built the team from scratch. So it doesn't surprise me (that they took out a loan). Companies take out loans all the time when they want to start the business and compete at a big-time level. It takes a long, long time before you stop losing money."
Those privy to the economic situation also say that the co-signing by Major League Baseball could have a wide range of meanings.
"Co-signing might mean that the lender isn't confident about the borrower's ability to pay back the assets," said Ross. "There is either an insufficient amount of collateral to be secured, or the lender decided that it would be much easier to sue the co-signer (if the loan wasn't paid back) than go through the process of recovering the assets."
Another reason why the lender (the bank) may request a co-signer is because the value of the three-year-old Diamondbacks may have been hard to determine.
"My kid is old enough to buy a car and he has demonstrated his earning capacity to buy it," reasoned Rodney Fort, professor of economics at Washington State University. "But because of the inability of the dealer to project what my son will make, he needs a co-signer. It may be because the Diamondbacks are young and therefore their future ability to earn is not known."
But the Diamondbacks benefit further by having a co-signer. With Major League Baseball's backing, there is a lower risk for the bank and thus lower interest rates for the Diamondbacks.
For public relations purposes, Major League Baseball's co-signing is a goodwill effort that tells other owners that it is willing to put its image on the line.
"It's a pretty cheap sign of good faith for Major League Baseball to demonstrate to its ownership group that we feel strong enough to support this (loan)," said Fort.
Despite the Diamondbacks' placing among the league's elite in advertising revenue, ranking a decent 12th in attendance, and putting a winning product on the field, reports say that they have been unable to make ends meet. One of the reasons might be that, as a recent expansion franchise, the Diamondbacks will not collect for another two years on the national television contract, which is worth $25 million per year.
Complicating matters, Arizona began the year with the majors' fifth-highest payroll at about $81 million and has surpassed the Orioles due to Baltimore's unloading of high-priced veterans and its trade for pitcher Curt Schilling.
Colangelo's spending habits have long been criticized within baseball circles. Before the Diamondbacks' initial season in 1998, he signed Matt Williams and Jay Bell, both 32 years old at the time, to questionable long-term contracts.
Bell signed a five-year, $34 million deal that then made him the game's highest-paid middle infielder. Williams signed a five-year extension worth $45 million.
The Bell signing in particular drew criticism from other owners, including George Steinbrenner, who said "this Colangelo guy" was throwing baseball's salary structure out of whack.
"We won't second guess how anyone else spends their money," Colangelo told the Arizona Republic at the time. "I don't think they should worry about how we spend ours. I will say one thing: We don't want a one-shot glass of champagne and then sell our players."
Those two signings paid dividends last season, as Williams and Bell both had career years to lead Arizona to the division title. However, after combining for 73 home runs and 254 RBI in 1999, the two have combined for 17 homers and 70 RBI this season -- while making $15.5 million.
Bell, who lasted just one year as a shortstop in Arizona before moving to second base, is signed through the 2002 season and Williams is signed through 2003.
Colangelo refused to make a specific comment to the Republic on the report.
"How I'm running the business is not everyone's business," Colangelo said. "I'm getting tired of it. I'll do what needs to be done. It doesn't need to be public information, whatever it is."
Darren Rovell writes on sports business for ESPN.com. He can be reached at Darren.Rovell@espn.com.