Is debt keeping Ravens grounded? Lenders' restrictions are contained in terms of loans totaling $185M; Payroll 2nd-lowest in NFL; Finances, poor record unrelated, team says

THE BALTIMORE SUN

Ravens fans are eager to pinpoint the cause of the team's abysmal performance. Is it the injury-induced quarterback shuffle? Underperforming offensive linemen? A coach who has seen the game pass him by?

Actually, the truth may be much farther from the field. It could lie in the financial ledgers of a team that has, by virtue of its new stadium, become one of the richest teams in sports -- but isn't acting like it.

The team is suddenly generating more cash than nearly any other NFL franchise. But it is also paying more money to lenders, money that could otherwise be going to players, coaches and training facilities that can build a contender.

In a sweeping financial restructuring last year, the Ravens borrowed $185 million. That set a record for red ink by an NFL team and came with restrictions imposed by the lenders on what the team can do with its money.

The team -- which has amassed the worst record in the NFL over its three-season history -- says its playing woes have nothing to do with money. Its borrowing was done with an operating plan that calls for fiscal prudence and postseason success, officials say, and the Ravens' 2-6 showing on the field this season can't be attributed to lack of cash.

"What we're trying to do is spend intelligently. It's a team that's trying to operate prudently within a plan to produce the best team we can without sacrificing the future," said Jim Bailey, Ravens executive vice president/administrative and legal.

"It's not correct to say we're restricted by our financial arrangement," he said.

But the franchise is next to the bottom in the NFL in spending on players, according to a recent analysis by the players' union. The team also hasn't replaced its training center in Owings Mills, a complex deserted by the Colts when that franchise moved to Indianapolis in 1984.

Although the role of money in building a winning team is less crucial in football than, say, baseball, spending does matter in the NFL. And a team as debt-burdened as the Ravens could find itself paying banks money it would prefer to pay quarterbacks, said Marc Ganis, a sports financial consultant and president of SportsCorp of Chicago.

"By not having that money around, you might not be able to pay that stud linebacker or key defensive tackle you need," Ganis said.

That may explain why the Ravens have developed a reputation for budget-mindedness when it comes to player salaries, he said. "They are not perceived as one of the big spenders, that's for sure. But they are not perceived as one of the most miserly teams, either," Ganis said.

Also restricting the Ravens is that the team owner, Art Modell, lacks the wealth of the billionaires who have bought into the league in recent years and can subsidize their teams.

"Organization is the key to success of an NFL team: coaches, scouting and administration. But if you don't spend money on a long-term basis on players, it will come back to haunt you," Ganis said.

Cash-poor or prudent?

Several agents say the team has shown a reluctance to pay that could indicate a lack of cash or a newfound frugality.

"The Browns always went after it," said local agent Tony Agnone, who represents Ravens linebacker Jamie Sharper, among other NFL players. But since the Cleveland Browns became the Ravens in 1996, Agnone sees them as "being much more fiscally conservative.

"You don't know if it's a change in coach and philosophy or them having less money," Agnone said.

Player agent Michael Azzarelli, who represents Ravens tight end Brian Kinchen and former Ravens quarterback Vinny Testaverde, said the franchise has treated players fairly in contract talks but hasn't been throwing money around. "They are not a Dallas or a San Francisco," he said.

The team paid Testaverde his guaranteed $1.5 million when he was cut last June even though the money was not technically due for another year. But in other matters, the team has sought to defer spending to later years -- a tactic to conserve cash, Azzarelli said.

"I think they have been really cash-strung. It looked like they were trying to defer a lot of money. I think they had to divert a lot of money to debt service," he said.

There's no question the Ravens are making money. The team appears to be generating cash at a furious rate of $128 million this year, with an operating profit of $51 million, according to an analysis by The Sun. Engorged with money from network television deals and a new, taxpayer-financed stadium downtown, the team could be worth more than $400 million if sold, experts say.

The team, like most sports franchises, does not open its books for public inspection. To determine the Ravens' financial status, The Sun estimated the annual profit by calculating predictable revenues and expenses.

Not included in the operating profit figures, however, is loan repayment. Like a new homeowner facing stiff mortgage payments, the Ravens could be getting squeezed by the cost of repaying loans -- known as "debt service" in the banking world.

"We do have a big debt service to pay. That's factual," Bailey said. But he said it hasn't hampered the team on the field.

As for the new training center, he said the team has simply been too busy opening its stadium, and that planning may resume after this season.

Bailey declined to comment on The Sun's estimates or to reveal the team's annual interest and principal payments. But borrowing on the scale of the Ravens should cost about $20 million a year in debt service, according to experts.

And the Ravens' payments might be even higher. Bailey said the team is repaying its loans in fixed annual amounts as well as

mandatory payments of principal that are tied to the team's profitability. To save money, the team is trying to rapidly pay down principal with an eye toward refinancing.

The Ravens' big-scale borrowing came with strings attached. The NFL has the right to step in and "cure" any default before a bank moves to foreclose. Options include taking over the team, paying off the loans and lining up a buyer, according to two sources familiar with the arrangements who spoke on the condition of anonymity.

The Ravens cannot negotiate a change in their lease with the Maryland Stadium Authority without obtaining the banks' approval, according to stadium authority documents.

Bailey said the financing deal occupies five thick volumes and contains parameters within which the team must stay. But they are not burdensome, he said. "They've obviously put controls on us, but as long as we operate as we said we would, it's not been restrictive," he said.

Red ink from Cleveland

The team's debt is the legacy of years of heavy borrowing and spending in its previous home, Cleveland. There it was paying hundreds of thousands of dollars a year to maintain an ancient stadium.

The team had cash problems then, said NFL commissioner Paul Tagliabue. In a 1996 report to the league, he said the Browns were making an operating profit but had "experienced substantial cash-flow problems that raise issues about the team's continued competitive viability."

The move to Baltimore brought on more costs, and debt. Modell bought out two former part-owners, Alfred Lerner, for $32 million, and Robert Gries, for $41 million. Modell also paid the league a $29 million "relocation fee" and gave Ohio officials $12 million to settle a lawsuit over his alleged breaking of the lease on Cleveland Stadium.

Some of the cost was offset by about $60 million in revenue from permanent seat licenses, the one-time fees the team charged most season-ticket holders here. But most of it was covered by the team's new loans.

Even with heavy debt, the team is still better off in the new stadium, said Martin Klepper, a partner with the Washington-based law firm of Skadden, Arps, Slate, Meagher & Flom.

Klepper, who helped arrange the private financing of the new homes of the Washington Redskins, Wizards and Capitals, among others, said interest on the Ravens' $185 million debt would be about $18 million to $20 million under ordinary circumstances. The new stadium is surely generating at least that much more than the franchise's Cleveland home had been, he said.

"They are getting that and more," he said.

In fact, the skyboxes and club seats alone generate about $21 million a year, after taxes and the visitors' share are deducted, according to The Sun's projections.

Shopping spree unlikely

But do riches flowing from a new stadium mean that a team can afford every superstar free agent it desires? That has been the case for the Orioles since Peter Angelos bought the team in 1993, at the end of its second season in Oriole Park.

But the Ravens probably cannot do the same, according to people familiar with the club and NFL finances. In fact, the Ravens have actually pared their payroll while moving into the new home.

Even though all NFL teams are constrained by a pre-determined cap on total player salaries, individual franchises have considerable latitude in how they structure the pay. Teams with the most cash can enhance their offers with signing bonuses and other goodies that don't increase the total payments to the player but are often the difference between getting a star or losing him to another team.

Such bonuses don't immediately count against the salary cap. They can, for cap accounting purposes, be spread out over the term of a player's contract. But a team has to have the cash to pay them.

The players' union keeps track of each team's annual payroll in two ways: salaries counted against the cap, and the amount actually paid out when bonuses and deferrals are included.

The Ravens are about $1.8 million under the cap -- about average for the NFL, according to recent NFL Players Association figures.

But the team's actual spending on players is running $6 million under the cap and $10 million under the league average this season, according to a recent report by the players association. Only the Philadelphia Eagles -- who say they need a new stadium to be competitive -- are spending less.

Spending slowed with move

For the Ravens, it is the reverse of the situation in 1995, the franchise's last year in Cleveland, when it aggressively lured free agents with rich signing bonuses and hoped to make it to the Super Bowl. It paid $47 million to players -- $3 million more than the league average that year, according to the players association.

But the team cut its payout after moving to Baltimore in 1996. During its first season, it paid $38 million, well under the league's average of $46 million. At the time, the franchise was earning limited revenue from its temporary home, Memorial Stadium. It was also still carrying on its cap account the prorated payments already made to several big-contract players signed for the 1995 season but later cut.

Last year, the Ravens spent $42 million, slightly beneath the league's average of $43 million.

This year the gap is even wider: The team began the season committed to spending $46.1 million, not including benefits. That is more than $10 million under the league average. The Ravens are spending one-third less than the league's biggest-payroll team, the $70 million San Diego Chargers.

The Ravens were not major players in the free-agent market during the past off-season, but did acquire cornerback Rod Woodson and paid him a $3 million signing bonus.

They lost wide receiver Derrick Alexander and cornerback Antonio Langham and didn't match the offer for Quentin Neujahr, now the starting center for the Jacksonville Jaguars. The team acquired a quarterback in Jim Harbaugh, but he came with no signing bonus. The team assumed his $2.5 million salary.

'Learned from our mistakes'

David Modell, Ravens executive vice president and assistant to the president, said the team's relative spending should increase in coming seasons, but in a controlled manner.

A sign of that could be seen last month in the early signing of wide receiver Jermaine Lewis to a five-year contract extension worth $16 million -- a deal struck after the players association report was published.

"We're going to spend some money. But when we spend it, we want to spend it in the right place and get more bang for our buck," David Modell said. "We have learned from our mistakes."

The next year should be revealing. Coach Ted Marchibroda's contract is in its final year, and the pay of coaches doesn't count against the salary cap. That's one area where wealthy teams have a distinct advantage in being able to lure top talent.

Agnone, the agent, said he will be watching a few key player developments for evidence of how the team intends to spend. Contracts for the Ravens' three young and talented starting linebackers -- Sharper, Peter Boulware and Ray Lewis -- are all up at the end of next season, and the team's efforts to keep the players around should be a harbinger.

"I think after this year we'll have a pretty good idea," Agnone said. "Will they be like the Bengals, a team that is notoriously fiscally conservative, or will they be a team that will try and step up and go for a championship?"

Next for Ravens

Opponent: Oakland Raiders

Site: Ravens stadium

When: Sunday, 1: 01 p.m.

TV/Radio: Ch. 13/WJFK (1300 AM), WLIF (101.9 FM)

Tickets: Sold out

Line: Raiders by 2 1/2

A portrait of debt

The Ravens last year arranged a $185 million financial restructuring with Fleet Financial Group of Boston. The investment bank raised $90 million through partner banks, setting up a variety of loans and revolving credit facilities.

Fleet also arranged for the sale of $95 million in private notes similar to corporate bonds. The notes, which carry a 15-year maturity, were sold to institutional investors such as insurance companies and pension funds.

Furthermore, the team received an advance of $20 million from its concessionaire, Fine Host Inc., which the team is repaying by letting Fine Host keep a higher-than-ordinary percentage of money from the sale of food and other items, according to documents Fine Host has filed.

Ravens owner Art Modell had to obtain the permission of his fellow owners to exceed the league's limit of $55 million that that TC could be borrowed by a majority owner using a franchise as collateral. (The limit has since been raised to $100 million.) He transferred majority ownership to his wife, Patricia, to comply with NFL restrictions.

Pub Date: 11/05/98

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