Baseball's synchronized dive into debt.

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National writers have tackled issues related to the McCourt ownership with varying degrees of success. Certainly, folks like Yahoo! Sports' Tim Brown, ESPN the Magazine's Molly Knight and Sports Illustrated's Lee Jenkins have added a whole lot to the discussion through their reporting and insight. Joining their ranks are Forbes' Monte Burke and Nathan Vardi, who have written an excellent article detailing the massive debt loads shouldered by, among other franchises, the New York Mets and Los Angeles Dodgers. Of debt in baseball generally, they write: 

[Bud Selig], derisively known as “the Steroid Commissioner” for the blind eye he turned toward the artificial bulking up of the players throughout the 1990s and early 2000s, now faces the possibility of becoming known as “the Debt Commissioner” for the ballooning of franchise IOUs under his tenure and for letting teams sidestep league rules on debt limits. [...] MLB has a rule that prohibits teams from operating at debt levels greater than ten times operating income (Ebitda), but it’s enforced arbitrarily and is easy to get around. 

Let's take a break and reflect on what "enforced arbitrarily" means: the Commissioner can circumvent the rules to offer a life raft when he desires, but has written authority to deny the same if he so wishes. That, in a nutshell, looks like what has happened with the Dodgers this offseason. Going on: 

FORBES estimates that the Dodgers’ value has nearly doubled to a current $800 million under his ownership. But the debt increased, too, and now stands at 13 times Ebitda, a problem that came to light in late 2009 when Jamie McCourt filed for divorce. [...] [W]hat’s clear from the court documents is that Frank McCourt used the team as collateral to rack up $459 million in debt from 2004 to 2009.

Over that period McCourt took $108 million of the money in personal distributions and funneled it into the couple’s real estate purchases.

Now, we've known about this for a while. But one thing we haven't touched on too heavily is what the debt load means. While the ratio of debt to equity has decreased over time--which was just about a given, seeing as how the McCourts put little to no cash into the purchase of the Dodgers--it can still swallow revenue whole. Debt service appears so great as to leave little cash for the club to use or other purposes.

You'll also recall the Dodgers' practice of monetizing ticket sales revenue, in which the club took a cash payment up front in exchange for pledging future ticket revenue as security for that loan. It's, in many ways, similar to what Frank McCourt attempted to do with the Dodgers' TV rights. Both the financial information revealed through the divorce and the types of financing mechanisms the club has pursued indicate that there just isn't much free cash floating around.

Concerning the financial health of Major League franchises, Rob Manfred, an MLB vice president, had this to say to Forbes: “Nobody outside the game knows what was done or not done with respect to any individual club ... I don’t think anyone outside the game is in a position to make a judgment as to how the debt-service rule has been administered." I particularly enjoyed Craig Calcaterra's response at NBC's Hardball Talk:

Really? No “you’re wrong,” or “baseball ownership is healthy?” Forbes comes to you and says that it’s writing a story about how teams routinely circumvent the debt ceiling rules and are doing so at tremendous risk and peril, and you’re really going with “how would you know?” 

Yikes!

The problem with Manfred's response, as I see it, is what we do know. We know about the Dodgers. And the Mets. And the Rangers. And, to a lesser extent, teams like the Diamondbacks and Padres. I would like to think that somewhere--perhaps down the street from me in Minneapolis?--there is a franchise doing things the right way. But I think it's pretty telling--and plenty ominous--that only bad news ever comes from exposing an MLB franchise's books to daylight.

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