By Jeff Barker, The Baltimore Sun
9:37 PM EDT, June 3, 2011
The Orioles have showed up on a list of major league teams with debt beyond what baseball permits. But experts said Friday that the finding doesn't mean the team is financially unsound.
The Orioles were among nine teams in violation of MLB debt service rules, according to information presented in a confidential briefing at the owners' meetings last month and confirmed to the Los Angeles Times by three people familiar with the presentation.
The club declined comment on the report. But officials with varying degrees of familiarity with the Orioles, owner Peter Angelos and other teams said debt service is not an indicator — at least not by itself — of economic difficulties.
For one thing, experts said, debt is complicated to measure. For another, there are certain sorts of debt that don't concern baseball as much as other kinds.
"You can't just take a one-year snapshot because it can vary from year to year," said John Moag, chairman and CEO of Moag & Co., a Baltimore-based sports investment banking firm. "I don't have any doubt the Orioles are in solid financial shape and don't have onerous debt."
Moag said team owners often fill in financial gaps themselves. "If a team has cash calls, often an owner lends money to a team and the debt would actually be owned by the owner. Mr. Angelos could do that in the form of debt owed to him by the team. That is not the debt the league is worried about."
But other forms of debt have long been baseball concerns. The sport negotiated a rule in 2002 generally limiting a team's debt to 10 times its annual earnings before interest, taxes, depreciation and amortization. The rule has been credited with lowering debt levels and providing an indirect brake on player salaries. There are different standards for teams financing new stadiums.
"If you take on debt in order to make your stadium a facility where you can make more revenue, then that wouldn't necessarily be a concern to baseball," said Andrew Zimbalist, a Smith College economics professor. "So it depends for what purpose are you taking the debt on, and are you using the team as collateral?"
Under the debt service rule, Commissioner Bud Selig could take action against non-complying teams. The rule lists 16 possible courses Selig could take, among them an order that a team raise equity, a requirement that all team expenditures be approved by his office and the suspension of the team owner.
Rob Manfred, baseball's executive vice president of labor relations, would not confirm the number of teams in violation and said: "We are not concerned about the overall economic condition of the industry."
Said Moag: "The good news in the story is it's only nine teams technically out of compliance. Five-to-seven years ago, the number was much higher. The league has actually done an excellent job of policing the debt."
For years, Angelos said he worried about the long-term viability of the Orioles only if a team were placed in neighboring Washington. Before the Nationals began playing in Washington in 2005, Angelos negotiated for the television rights to Nationals games. The Mid-Atlantic Sports Network is owned primarily by the Orioles, with the Nationals having a minority stake.
Besides the Orioles, the other teams on the Los Angeles newspaper's debt list were the Los Angeles Dodgers, New York Mets, Chicago Cubs, Detroit Tigers, Florida Marlins, Philadelphia Phillies, Texas Rangers and Washington Nationals. The financial struggles of three of those teams have been exposed to public view — the Dodgers in divorce court since 2009, the Rangers in bankruptcy court last year and the Mets in the aftermath of the Bernie Madoff scandal over the past few months.
The Los Angeles Times contributed to this article.
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