With the baseball industry at a standstill over the past few months because of the coronavirus pandemic, Major League Baseball owners have been claiming billions of dollars in losses due to a lost or shortened 2020 season.
In a presentation to the players' union last month, MLB indicated that a majority of teams were likely to be in violation of the debt service rules in the collective bargaining agreement and team debt was set to increase by 40%. We've seen teams make cuts to minor leaguers to avoid paying small stipends while furloughs and pay cuts to team employees across the board have been commonplace.
MLB teams are having trouble. But what happens if it gets worse? At what point will MLB step in and do something? The organization's history is replete with examples of owners getting in over their heads, and MLB traditionally does what it can to protect its franchises and its business.
In June 2011, Frank McCourt, then the owner of the Los Angeles Dodgers, filed for bankruptcy. McCourt purchased the team in 2004 and he and his wife, Jamie, racked up nearly a half-billion dollars in debt backed by their ownership in the team. Issues came to light in 2009 when the McCourts headed for a divorce. In December 2010, Jamie McCourt won a key court battle invalidating a prenuptial agreement that would have given the Dodgers to Frank McCourt. After Frank McCourt took a personal loan from Fox to make payroll in April 2012 -- after a team loan was disapproved by the league -- commissioner Bud Selig stepped in to manage the club's finances.
McCourt made one last attempt to try to keep the Dodgers, agreeing to pay Jamie McCourt about $130 million to settle their team ownership dispute. Then he attempted to secure a long-term deal with Fox, paying $3 billion over 17 years with an upfront payment of nearly $400 million -- with half that money going to Frank McCourt, personally. The league refused and McCourt filed for bankruptcy. The Dodgers eventually would sell for more than $2 billion and the team subsequently reached a television rights deal worth more than $8 billion over 25 years.
The combination of debt, divorce and selling TV rights for below-market value to get cash quickly undid the McCourt ownership and required league intervention, but it wasn't the first time a divorce caused the league to intervene. In 2008, John Moores and his wife, Becky, divorced after 44 years of marriage, with each entitled to half of their 90% interest in the San Diego Padres. The divorce came on the heels of a significant downturn in the economy, and determining the club's next owner proved to be a lengthy process.
Jeff Moorad and a group of investors slowly bought shares in the Padres and Moorad ran the team for a time, but when it came time for ownership approval in 2012, Moorad was rebuked. Like the situation with the Dodgers, it appeared that he intended to use upfront money on a new television contract to make the final payment to Moores. The league blocked that deal. Ultimately, another member of the group, Ron Fowler, stepped forward and was met with ownership approval on a final sale price of $800 million, 10 times what Moores paid for the team several decades earlier.
Sometimes, it's simply too much debt that puts a team in trouble. In 2009, Tom Hicks, who owned the Texas Rangers, Dallas Stars and was the part-owner of Liverpool's Premier League team, defaulted on a half-billion dollars of loans. He failed to make interest payments and entered bankruptcy proceedings. MLB loaned the Rangers money and then urged the finalization of the sale to the group led by Chuck Greenberg and Nolan Ryan for close to $600 million, though Greenberg would be forced out within a year.
The Rangers weren't the only team sold to satisfy creditors. When Peter Angelos bought the Baltimore Orioles in 1993, his sale was overseen by a bankruptcy judge to satisfy the creditors of Eli Jacobs. The other business interests of Jacobs didn't work out, and though MLB did vet potential buyers, they let the bankruptcy process play out. Buying a franchise out of bankruptcy also is what brought Bud Selig into the ranks of MLB owners -- he first bought the Milwaukee Brewers when the then-Seattle Pilots went bankrupt.
Then there's the unprecedented case of the Montreal Expos, where MLB got even more directly involved. MLB purchased the club in 2002 to facilitate John Henry's purchase of the Boston Red Sox and his sale of the Marlins to Jeffrey Loria, the Expos' owner at the time. After plans for a new stadium fell through in Montreal, MLB had purchased the team with an eye on contraction. A suit by Minnesota lawmakers to protect the Twins (and their stadium lease payments) effectively ended MLB's contraction plans, MLB moved the Expos to Washington and sold the team to the Lerner family for $450 million, making a healthy profit on their transaction.
It would be unfair to speculate which current franchises might be most at risk with a potential downturn to baseball's business and the economy as a whole. Divorce and death are often unexpected, but could lead to a splitting up of a franchise thought to be stable. Outside business investments could wreak havoc on an owner's overall portfolio and cause their outlook with the team to change, as we've seen with the Wilpon family and the Mets over the past decade.
One thing we do know, however, is that based on MLB's history, the commissioner and the remaining owners will intervene when necessary to protect their own investments and the sport. Whether that means providing loans, preventing bad TV deals or preventing a buyer who might not be in their favor, MLB will actively intercede for an at-risk franchise. It might guide an ownership group through a difficult time, facilitate sales to new ownership groups or simply buy a franchise outright if it is seen as troubled enough to require industry intervention.
The events of 2020 could result in an owner needing help. Given its track record, MLB is likely to provide it to ensure that the sport is as healthy financially as it can possibly be.