And speaking of franchise value . . .

by
March 26, 2009

The dynamics described in the previous post (i.e. diminishing franchise value freaking owners the hell out) are on display with this news item as well:

Padres chairman John Moores will spin the front-office carousel yet again Thursday when the club expects to announce that Jeff Moorad will take over as CEO, with Sandy Alderson stepping down from that position. What makes Moorad’s arrival different from that of the other four CEOs or presidents hired by Moores since he fired Larry Lucchino in 2001 is that Moorad heads a small group of minority investors and, in time, is expected to succeed Moores as controlling owner. Per complicated negotiations on the club’s phase-in sale, worth more than $400 million in present-day value, Moores will remain majority owner for a number of years . . .

. . . “John is still in control,” said a major-league executive who spoke on the condition he not be identified. “Jeff, though, has a huge amount of money involved. It’s a strange thing. In baseball, you normally wouldn’t have an announcement about a guy buying a minority interest. I guess it’s because there will be a new CEO who, from what I understand, will eventually become controlling partner. I assume Jeff has been approved by the other owners.”

Here the crisis precipitating the sale was not the real estate market, but rather, Moores’ divorce. Here’s what I think happened: With his money tied up in other ventures, there was no way for him to pay the soon-to-be-Mrs. Moores for her share of the Padres, so he needed cash and needed it fast. Enter Moorad, a willing buyer who appeared almost immediately after Moores need to sell and who, amazingly, had the full and immediate support of Selig and the other owners. It’s almost as if someone had orchestrated this in order to keep Moores from having to sell the Padres on the open market where, if the Cubs’ example is of any value, would be a far more protracted and far less-lucrative experience than anyone expected. Someone who was distressed at the notion of a team selling at fire sale prices.

Thankfully for Moores and the other owners, that’s not happening now, as with Moorad’s unique rent-to-own scheme, Moores is given the money up front in order to turn over to the missus, and gets to keep control of the team for the time being. Oddsmakers in Vegas have taken “Moores decides to buy out Moorad in a few years when his financial fortunes turn around” off the board.

Query: how many Jeff Moorads are out there, ready to swoop in and save the day the moment some distressed owner needs them? I can’t imagine there are many. If more divorces or other calamities happen, it’s only a matter of time before some owner is going to have to sell his team to the highest bidder on a real open market, at which time I suspect some serious losses are in the offing.

UPDATE: and now a third installment about all of this. The third part is the best part, I think, so unless you’re utterly sick of this, you’ll want to click through.


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Jason @ IIATMS
13 years ago

Last I checked, there were many mega-rich left standing, even with the market, Madoff, TARP, AIG, etc.

There will always be someone willing to belly up to the bar for a chance at owning a baseball team.  Never underestimate the power of ego when combined with mad riches.

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MooseinOhio
13 years ago

Gotta love having an anti-trust exemption.  The ownership shell game that Selig plays makes three card monty look legit.

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J. McCann
13 years ago

The point is: of course there are plenty of rich nerds out there who would love a team, but very few who MLB can trust not to go on a spending spree and otherwise shake things up.

(See: Marc Cuban)

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Craig Calcaterra
13 years ago

J.—Mark Cuban may be the luckiest man that the old MLB Boys’ network is in existence.  While most people have assumed his offer was a big cash bid, post-bid accounts (the links to which I don’t have handy at the moment) have suggested that his bid was a huge, debt heavy thing not unlike Sam Zell’s, with the added bonus of shooting a bit too high price-wise to account for the “outsider” thing.  If that had been accepted, he could have taken a worse bath than Zell is in the face of falling revenue and tough debt service obligations.

So maybe Cuban should thank Selig for saving him from himself.

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Fritz
13 years ago

It actually already happened. Peter Angelos purchased the Baltimore Orioles in a bankruptcy court auction when owner Eli Jacobs filed (or was forced, I can’t remember) for bankruptcy. The auction ended up in a bidding war between Jeffrey Loria, Angelos, and Bill DeWitt. Angelos and DeWitt joined forces to outbid Loria. I believe the winning bid was contingent on MLB approval but it was a bidding process open to anyone.

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kendynamo
13 years ago

mooseinohio: how would selling a privately owned franchise thats part of a privtaely owned conglomerate consistute a violation of the sherman anti-trust act?

i’m not trying to be flip and i’m not saying this isnt a shady selig deal, i’m just genuinely curoius as to how MLB’s anti-trust exemption comes into play.

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MooseinOhio
13 years ago

@kendynamo – The simplest explanation I have is by Darren Rovell of ESPN in the link below.  Essentially baseball gets to play by it’s own set of rules that no other business, even another private business, has to comply with.

http://sports.espn.go.com/espn/print?id=1290707&type=story

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kendynamo
13 years ago

appreciate the link but i get all that, however i don’t see how that allows them to play by thier own set of rules.  they still have to play by every set of rules that all other business do (they are quite a few out there), except the sherman anti-trust act.  here is a paper that argues how MLB’s exemption is meaningless.

http://works.bepress.com/mitchell_nathanson/3/

its long but there are a lot of footnotes so it goes quickly and its got lots of interesting baseball history as a bonus.

i agree with the author.  if i founded a wiffle ball league and i made the requirement for entry that no franchise could relocate without my permission i would certainly not be breaking any anti trust regulations or otherwise running afoul with the DOJ. for real life examples, the mls has much more restrictive franchise regulation with an exemption and the nhl has the same minor league system and restrictions without the exemption.

my theory is that congress just likes having the exemption to waive over baseball’s head when they want to call hearings and get on tv, and baseball likes having the distinction that no other sports league has, even though the practical implications are nil.  i’m waiting for an example of how it’s anything but PR bs.

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MooseinOhio
13 years ago

Will try to read it later today – appreciate the link.

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Craig Calcaterra
13 years ago

Ken—I don’t have time to read that document (I will when I get home tonight) but there is at least a sentiment—held by the owners—that the antitrust exemption allows MLB teams to control who can and who can’t buy a franchise from a willing seller. For example, if the Steinbrenners wanted to sell the Yankees to Microsoft and the other owners didn’t want it to happen, they could vote to reject the sale.  Being that, as a matter of law, the clubs are all independent businesses in competiton, such a thing is (I think anyway) collusion that would normally violate the antitrust laws.  In order to overcome that, the Yankees would have to sue MLB.

The Giants did this in 1992 and, at least preliminarly, won a ruling that the other teams’ rejection of their sale to Vince Naimoli violated the law.  They ultimately settled, but MLB’s position, in practice, is that they still have this approval right.  The only reason that it hasn’t been challenged is that no selling owner has felt like challenging it yet or found it in his best interests to go along with the scheme.

My view of the Giants ruling is that, no, MLB does not have some special right to violate the antitrust laws in this area, but the perception that they do—and the big expensive hurdle that a challenger has to get over in terms of litigation to overcome it—does serve as a practical benefit to the ownership groups.

All that said, I don’t think this applies to the Padres situation, nor would it, unless, say, Moores wanted to sell to Moorad and no one else would let him.

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kendynamo
13 years ago

Thanks, Craig.  I guess what I have a hard time reconciling (which probably makes the whole discussion moot, since its the opinion of the DOJ that matters, not mine), is the idea that MLB has a monopoly over anything, and that each team is a seperate entity and that the sum of them form a cartel.  Maybe back in the turn of the century through to WWII, when it was the only team sport that offered lucrative salaries in exchange for atheltic proformance, but to consider the MLB a monopoly now would be to completely ignore the vastly different sports entertainment landscape as it exists today.  The MLB is a single entity (in my mind anyway, as so many of it’s ventures and contracts are negotiated on a league wide platform, ie nationwide tv deals, MLBAM, the CBA, etc.) that competes with a host of other sports leagues and organizations for the same resources and revenue.  Any minor detail of franchise relocation or contract negotiation or whatever seems completely irrelavant to what anti-trust legislation seeks to inhibit (ie monopolistic industry practices to the detriment of the consumer). 

i look at the MLS and I see a league that has absolute control of franchise location and movement.  when you buy one of their franchises, you are agreeing to those rules.  surely after doing so an owner couldnt then sue MLS for breach of the sherman act?  I would think figuring out if the MLB has authority over it’s franchise would only involve the covenants agreed to by each team and the league as a whole and could and should leave the anit trust act completely out of the equation.

I know its a lot of legal minutia to slog though so I don’t expect a final answer, and until a solid challange to the act is brought up in court (most likely the SCOTUS would need to be involved) and a definitive verdict is reached, it’s probably impossible to say with certainty. 

anyways, just some nerdy food for though on a thursday evening.

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