Another regular season is nearly at an end, and with that, one can roll up their sleeves and take stock in how MLB’s 2008 season has fared in terms of dollars and cents. For all intents and purposes, it’s hard not to say that MLB had one of its best years ever.
And really, when you factor in the massive hit the U.S economy has taken, 2008 may be the best year yet for Bud Selig and Co. If you haven’t noticed, other large industries haven’t fared as well this year (hello, Fannie Mae, Freddie Mac, AIG, etc.).
As we covered recently, MLB was on pace to have paid attendance (tickets sold, not actual turnstile clicks) come in below last year’s record setting mark. That has not changed, meaning there will not be a fifth consecutive year that the league attendance mark is broken. However, 2008 will be the second highest mark ever.
We also said that regardless of whether MLB broke another attendance record, gross revenues for the league would be another all-time high.
These two points, as well as some other important issues, were voiced by Commissioner Selig in an interview with FOX Sports’ Ken Rosenthal. Here are some excerpts:
Q: Let's talk about attendance. Your paid total of 79.5 million last season was a record for the fourth straight year. What are the chances that you will set another record this season?
A: I don't think we're going to make it. But we're still in very healthy territory. As my friend George Will said to me the other day, "You can't break an attendance record every year." Given the economy and the weather — and we've been really hurt by the weather — we're going to come awfully close.
Q: Any concerns about the decline, however slight it might be?
A: No, none whatsoever. The average team will draw 2.5-2.6 million. At worst, it will be the second-best year in history. Between the weather and the economy, most people are surprised (by the numbers). And the gross revenues for the industry will be stunning this year, higher than I thought. Which, in a greater sense, is actually more important.
Q: Mark Cuban, the owner of the NBA's Dallas Mavericks, reportedly is one of five finalists to buy the Cubs. Some, including myself, believe that the baseball owners never would approve a nonconformist such as Cuban to be a member of their club.
A: I've read that 1,000 times. None of that is true. People don't understand the ownership process. The ball is in the hands of the Tribune Company. They've got to vet a lot of people, as we do, then go through the bidding process. Then they will present anyone they want to us for approval.
(Tribune Co. CEO) Sam (Zell) knows what our economic rules are. We have a lot of 'em. We need 30 owners to approve it. We have had debates in the last 25 years about owners. Baseball has the authority to do that.
But it's a process. And (the Cuban talk) is way ahead of the process.
On Selig’s answers…
One can certainly tell that Selig is both a former owner and one that runs the league at the behest of the current ownership brethren. He outlines that revenue, not attendance, is the most important factor for the league. This explains, in part, why seating capacity for new stadiums is smaller and ticket prices have escalated. By creating a higher demand for tickets by downsizing seating capacity, there are lower construction costs, less overhead in staffing, and, as mentioned, the ability to raise ticket prices due to demand.
On the comments regarding the sale of the Cubs, Selig brings up a critical factor within the proposed sale: debt structure. As Selig said, “(Tribune Co. CEO) Sam (Zell) knows what our economic rules are. We have a lot of 'em.”
Selig is concerned – as are the owners – about the tax-avoidance structure that Zell is proposing in the sale. Zell can dodge $400 million or more in taxes by not making the sale a “sale”, but rather what is called a leveraged partnership. In 1981 Tribune purchased the Cubs for $20.5 million. Current estimates for the Cubs, Wrigley Field, and a 25 percent stake in ComcastSports Chicago are well in excess of $1 billion. As a straight sale, the taxes would be around the $400 million mark.
By having the Tribune Company retain minority ownership (less than 5%) – and through some other IRS reclassifications – the new owners wouldn’t start making heavy payments on the club until 10 years after the transaction is completed.
To make a complicated story short, with the deal structured this way, the new owners borrow money to make the purchase and only some cash is paid up front. With Tribune still having a stake in the Cubs (albeit no more than 5%), they assume a portion of the debt, which is why it technically wouldn’t be a “sale.”
This places a heavy burden on the new owners. As Selig mentioned, there are economic rules in place – most of which Selig put in place – to keep owners from putting themselves too far in debt. The 60/40 rule is one. In its simplest form, the 60/40 rule means that clubs are not allowed to carry more than 40% debt compared to their total assets. The Cubs deal could skirt right up to the edge of this rule.
MLB has been known to bend their rules depending on the particulars. For example, the same concerns were in play when News Corp. sold the Dodgers to Frank McCourt. The owners, however, approved that deal.
If you’re a Cubs fan, there are reasons to side with Selig’s concerns. An owner saddled with debt means less money to use for player payroll. The Tribune Co., in an attempt to go out a winner and break a 100-year World Series futility record, has pumped loads of greenbacks into player payroll, much of it in the form of backloaded contracts. The new owners will be taking on a hefty player payroll commitment, as well as the Cubs sale debt.
What does that mean?
If you live and die by the Loveable Losers, pray hard that the Cubs win it all this year, or in the next few. It may be a while before the new owners have their cash flow situation under control so they can be as aggressive in the free agency market as they may want to be.
All in all, MLB is as robust as one could expect given the heavy downturn in the economy. Next year (January 1, to be exact), baseball will launch the MLB Network, the biggest cable channel launch in history, thus creating another large revenue stream for MLB to tap in to. Add to that the new stadiums for the Mets and Yankees, and, short of something catastrophic, MLB should, yet again, see record revenues at the end of the 2009 season.