Some major league clubs have advantageous leases that offer flexibility but shackle their communities. Others carry stadium-related debt.
A typical approach by those who believe they can personally motivate St. Louis Cardinals ownership into increasing their player payroll is to reverse-engineer estimates for revenue, expense and profit, thinking they can do a better job than financial experts like Forbes.
One area the critics almost always overlook is the debt assumed in the construction of the new Busch Stadium. In a recent presentation to faculty and business students at Webster University, Cardinals president Bill DeWitt III showed this debt represents between 13 and 15 percent of the club’s annual expense.
Chairman Bill DeWitt Jr. has been even more specific, noting their borrowing of $300 million of the $365 million required to build the ballpark requires them to pay more than $20 million annually in principal and interest.
That is $20 million not available for other purposes, including paying players, which is the largest single expenditure for the organization, representing about half their annual spending, according to DeWitt III.
The purpose of bringing this up is not to show pity for the DeWitts and their partners, shrewd businessmen all. Let’s face it. Had they been able to convince the taxpayers of St. Louis to fully finance the stadium, one can assume they would have been more than delighted to accept the handout.
That is precisely the train wreck that has hit a number of other cities, including in National League Central rival Cincinnati. In a Sunday article, The New York Times paints a sobering picture of numerous municipalities, scared of losing their teams, having funded shiny new facilities only to later realize their basic revenue assumptions to repay the debt incurred are unattainable.
After tax increases foisted upon local citizens didn’t prove to be enough and the MLB Reds and especially the NFL Bengals unwilling to alter their “sweetheart” lease terms, Hamilton County, Ohio is left with no choice but to cut basic services to taxpayers and deplete a bond reserve fund. This takes money away from necessities such as schools with no plan for paying it back.
Similar problems were cited with publicly-funded sports venues in Indianapolis, Milwaukee, Columbus and Glendale, Arizona. Back-end loaded interest payments are identified as a common problem, the risks ignored at the time the original commitments were sold by wide-eyed officials to the citizenry.
Trying to squeeze more out of the Cardinals for his prize free agent Matt Holliday, spinmaster extraordinare Scott Boras recently took his personal struggle of the rich versus the richer to the people, many of whom are hard-working taxpayers and ticket-buyers alike.
The agent drew a parallel between the Cardinals and the Phillies, the latter having a payroll about 30 percent higher than St. Louis despite the two franchises being similarly valued, according to Forbes. Boras apparently neglected to mention that Philadelphia’s Citizens Bank Park was state-funded.
One can only hope the self-deputized St. Louis payroll police understand and appreciate the bullet taxpayers avoided by ensuring the owners of the Cardinals were kept on the hook to pay the vast majority of the freight for their baseball palace – just as it should be.
Folks must also realize there is no free lunch. Someone has to cover the expense. It is only common sense that having debt service when a number of other clubs do not may mean the Cardinals have less in their coffers to pay players as a result.
That shouldn’t keep fans from expecting to see a competitive team on the field, but it seems the organization deserves some leeway in how the end is accomplished.
Specifically, if the Cardinals do not overpay for Holliday and he is lost to another organization, some will expect them to quickly re-allocate every dollar to other free agents, whether mediocrities or not.
Instead, if the club decides to stash some additional cash for signing the four extra players in the early part of the June 2010 draft awarded as compensation for the losses of free agents Holliday, Mark DeRosa and Joel Pineiro, some vocal critics will not accept it.
If the organization chooses to hold back money to acquire veteran players in-season to help the 2010 club down the stretch (“dry powder” revisited), there will be those who will not believe it until they see it, despite the club having done just that in 2009.
They will instead chalk up the actions of the winter to greedy owners who had no intention of re-signing Holliday, but craftily used Boras’ delay to purposely let all the good alternatives land elsewhere before doing nothing. These same owners continue to be vilified despite bringing Cardinals fans nine winning seasons and seven playoff teams during the just-completed decade.
So it goes in the annual winter of second-guessing.
Follow me on Twitter.
Some fans believe in bashing their team for not spending more money on veteran free agents. The rationales for this can be diverse. Maybe they think it redistributes money from the bosses to labor. Maybe it owes to media hype about free agent contracts. Maybe some think spending big shows a commitment to fans, at least for the next season, even though many useful Cards players have risen via the minors (Pujols, Molina, Schumaker, Ryan, Rasmus). If the Cards do elevate someone from the minors, this is labelled cheap by those who bash the team (and delight us readers here with their nattering nabobs of negativism drivel).
If the Phils got a government-funded stadium, Mr. Boras did not disclose that important fact!! Pennsylvania is a Big Government state, so it makes sense it would be building new stadia playthings for sports teams to make contracts for builders (who donate generously to local pols) and to make jobs for construction workers (whose unions also donate generously). A lot of shenningans: politicans, stadia, taxes, jobs, kickbacks and campaign contributions.
Oddly enough in Pennsylvania, there are not private liquor stores, but State-run-liquor stores where you must buy your hooch in-State. George Orwell would shake his head. More happily, there are abundantly stocked liquor stores in nearby towns in neighboring States. With all the make work public projects, campaign contributions and kickbacks, and taxes for frivolities, it would be understandable if some citizens turn to drink.
I have a restaurant size can of whoop-ass just sitting here waiting for a recipe. I trust there is a reason for our captain to be working the kitchen today. Sure makes me hungry, just guessing what he’s cooking up.
Fine job by Domeboys to catch Boras misleading Cards fans about the team’s ability to spend.
More information about the Cards finances has reached the public domain this year, thanks to Boras and the Union. They must have economists who study the finances of teams.
Stadium debt is a charade. Debt is just an option of financing. What if they had decided to pay for the stadium (finance) with equity? The Cardinals have an asset that they are paying for. After some years they will own the asset outright.
Anyone here holding stadium bonds? Anyone know anyone holding stadium bonds?
Or, they already do CC.
BDW is out of pockets to stuff the money into, he will have to off-load some.
BW>>>”If the organization chooses to hold back money to acquire veteran players in-season to help the 2010 club down the stretch (“dry powder” revisited), there will be those who will not believe it until they see it, despite the club having done just that in 2009.”
The Dry Powder in 2009 was made of ground “egg shells” and money that is a “pea” hiding under a speeding walnut shell in the 2010 payroll numbers. ………………………… Say, how much was the “or cash to be paid later number” to the Sox. I am dying to see that figure.
CC, I don’t see debt as a charade, as it is real. If the owners had paid for the stadium with their equity in the team, then wouldn’t someone else would be the majority owner? The owners say they borrowed $300 million. The franchise is worth $490 million or thereabouts, according to Forbes.
I do see your point about owning the asset down the road. Assuming it has value at that time, it should increase the overall value of the franchise, especially compared to teams that are bound to pay leases indefinitely. However, right now, it appears to be a drain.
There is an arguement to be made that whether a team owes money on a privately funded stadium or not is irrelevant. The $300M came from somewhere, and the owner of that $300M requires return on that money invested in that stadium. That is equally true whoever the owner of that $300M is. If it is 3rd party bond-holders, if it is the team owners who loaned the money through straw entities as Westy believes, if it came out of BDW’s pocket, that $300M will still need to earn a return. Of course, if the taxpayers subsidize the team by paying some or all of the stadium costs, whether directly or by providing money that doesn’t have to earn a return, then its a different story. If the Cards where to be able to sell ‘Matt Holliday Contract’ bonds, subsidized by the taxpayers, it would be the same thing as subsidizing a stadium.
Lets see…………. three player deal with Oakland nets MH and 1.5 million. A week latter, Oakland salary bails Cabrera, who is hitting 373 with 41 hits in the month of July , to the Twins for a single A shorts stop, and also having to kick in 500,00 of the 1.5 still owed to Orlando……………………The Cardinals were in the market for middle infield depth? Logo? who will end up costing 1.5 or 2 million………..differed of course…………… Right…………..this fits the Cardinal mold perfectly.
Best case scenario……………Pujols walks.
Worst case scenario…………. Pujols realizes his mortality and negotiates a 200mill extension before the glamor fades, and with no leverage plays out his career in St Louis which becomes a chronic underachieving second rate…….we were once great……….how can you beat the Bronx Bombers anyway, has-bins………………. like the rest of this pathetic division.
DeWitts looses 20% of his revenues but is raking in 45% more n higher profitability………………makes large contributions to the next Republican criminal……………gets his share………and life goes on. Oh yeah……beers are 10 bucks now………to help prevent excessive drinking!
We are right on the edge. If Carpenter goes off with an Elbow instead of an abdominal injury in April. The decision would have been made already.
They’re called season tickets BB.
Straw entities? Is that like the off shore mystery investors that kept Enron afloat till its reals owners could get to cover?
There has been enuf iffy economics, I feel liberated to join in.
The “value” of the franchise of $490MM is probably based on a bunch of guesses by Forbes reporters. Nevertheless, it would include and project the net value of the stadium as a financial asset after paying off loans.
Yes, debt can be said to be a choice, though there are pros and cons about being highly indebted or less so. The choice is not irrelevant and those that have chosen to be highly leveraged have been among the first to crash in the great recession.
Debt service is a real cost to the business and reduces what would otherwise be available to spend on salaries.
I’m letting this die here Jumbo……….and I just blew the dust of the can. Consider this Jumbo. There are people out there that express their contempt for people that don’t see things their way. They justify stealing the resources of innocent people without blinking an eye, because they deemed it fair game. Just business………. Do you think they would be the least bit self conscious about taking a franchise to a higher state of profitability………..at the expense of competitive viability? What is it that you think Tony and Albert have been protesting? Just more money for themselves?
PS……..for those puzzled by the Orlando Cabrera analogy;
Best case……….he really helps this team
Worst case……….. he is another good player that is going to eat Brenden and Skip alive…. and he is going to be a second free agent that might endear himself to the Cardinal faithful… and cost money to extend………….which can be very embarrassing…………..and revealing. No Scott Boras to do the dirty work for you.
I take the Forbes number to be what the value is net of debt – so the real value is somewhere near $790 million with $300 million or so worth of debt. Once the team pays off the stadium, the value of the team will be $430 million + whatever the stadium is worth (assuming no other appreciation or depreciation of the rest of the team’s assets and value). In other words, as the team pays off this debt they are also building equity. I don’t think the Forbes value of the team went up by $360 million when they added the new stadium.
Jumbo, you sure do know a lot about Pennsylvania, for someone who doesn’t live here. Yes, the liquor situation is weird. But overall the state is far better run than the others I’ve lived in, including Missouri and California. In PA you don’t pay sales taxes on basic necessities like food and clothing, as you did in Missouri when I last lived there in 1991. (I don’t know if that’s changed.)
We have good schools and good public services. More to the point, the people who live here are basically satisfied with what we get for what we pay in taxes. And that’s with a state legislature that’s second to none in petty corruption and clueless incompetence.
I say this knowing that nothing I say about any topic, from baseball to climate change to everyday life in a state where I actually live, would ever shake your entirely unwarranted presumption of expertise in those areas. But I just wanted you to know that at least one of the readers of this blog finds many of your statements counterfactual, to say the least.
Happy holidays.
Hey there Lou, man you must have got a lump of coal for christmas to be in such a grumpy mood. Jumbo has a lot of knowledge about the minors, draft history, etc. that has been very helpful. I’m grateful he’s shared it. Also, as a Cards fan, bashing the Phillies home state seems like an ok thing quite apart from annoying details llike facts.
On the subject of expertise, I’d been hoping you would chime in on the McGuire thread last week. It would be interesting to hear your thoughts on what he should do now.
Also, I have a theory that PED use has no more effect on ‘the integrity of the game’ than crawford boxes and other short porch parks, which we are seeing more of these days. Here’s a quote you will be familiar with:
“The one area that’s infinite is what lies beyond the outfield wall. The fastest outfielder in the world can’t run past that wall.
So the biggest advantage any player on the field has lies beyond that wall — if he can hit it over, it’s a home run. Any other type of hit involves an element of luck — the hardest-hit ground ball or line drive might end up in someone’s glove.
Steroids give hitters that ultimate advantage: They help him hit the ball over the wall.”
So, you see what I mean, moving in the wall does the same thing.
The wall issue is a good point BB but we do have park adjusted stats in this day and age — do steroid adjusted stats exist? (I’m not ranting against roids – I think the whole roids thing is ridiculous.)
Here is an article from 08 with Holliday quotes on what he was looking for in a contract that he wasn’t getting from Colorado. It seems to still be the case, since I don’t think any of the offers he has now meet what he was looking for. More so than top dollar was length and no-trade, to give his family some permanance and stability.
http://www.rockymountainnews.com/news/2008/sep/15/krieger-holliday-pleads-his-case/?partner=RSS
CC: park adjusted stats is a new one to me, but makes sense. Can you provide a couple sentences on how it works.
Thanks, bb. I found the reader comments that follow equally interesting as the gamut of emotions were demonstrated by the Rockies fans. Fast forwarding to today, I imagine their feelings may be more consistent regarding what happened and who the perceived bad guys are. Looking at the current market, the Colorado offer seems even more fair than it did last year. Good luck to Holliday and Boras in their quest for eight years.
One thing I found especially interesting is that the article is still up on the Rocky Mountain News website. I had just been looking at the P-D site, stltoday, Sports-Cardinals, and towards the bottom is a section titled ‘Baseball Columns”. One is called ’10 ways to improve the 2010 cardinals’ by Dan O’niell. I clicked it and its not there anymore, even though it is advertised right there on the page. I have this mental image of a IBM 8086 with a monochrome screen and some crusty old newspaper guy frantically thumbing through the instruction book.
Here is a Dan O’Dowd interview (COL GM) from last November, stating his best offer to Holliday was in the spring of 2008 for seven years, $107.5 million. Boras may have a very difficult time saving face. He may get a slightly higher AAV, but fewer years.
Thanks for the video Brian. Refreshing…………….. couldn’t help but notice the Holiday interview that came up at the bottom at its conclusion. Even more interesting……….. “We were both disgusted”
A Mo quote. Very revealing in hindsight.
Here is the Holliday video from the day of the trade, July 24. I was sitting in the second row on the left between Derrick Goold and Jayson Stark. The “equally disgusted” comment was by Mo explaining how both he and Billy Beane felt after the negotiation.
If the 7/107.5 offer had no-trade protection and MM/SB rejected it, then Boras is in trouble sinse he will never get that offer now. If it didn’t have a no-trade, then the rejection is consistant with Matt’s stated interest in stability, etc. Is it known if the Cards or Red Sox offered a no-trade?
Brief article on current state of moneyball-scout vs stats thing, also pointing out that defense has been the hot item this winter.
http://www.fangraphs.com/blogs/index.php/the-new-moneyball-approach/
2/12 for DeRosa, is truly a bust for the Cardinals. At what point do they start taking responsibility for their motivations and results……………. they have made him a very expensive example of their cash flow economics. He was dying to come back here. Those were some of our better prospects going to Cleveland.
At the time Beane and Mo were mutually disgusted, we can see by the A’s evaluation of Wallace, the realization of their fears. being well founded…………. they were up against a wall. Everyone knew Holiday’s future. Be honest, didn’t we also know. There is a collusion going on at this point without question. Other players and agents are just trying to get work. Boras will surely loose Holiday as a client if he is stranded………… be honest, The Yankee’s have had a long dry spell, the cry’s of we aren’t spending don’t hold so well when they can become a prohibitive favorite in the east with Holiday…………………………… The Cardinals know this……..everyone knows this. At what point can you or anyone deny that the DeRosa and Holiday signing were the means to an end, which at this point was cashing in prospects for a bunch of added revenue.
The openness and sincerity of the Colorado GM was refreshing. He is right up front. Mo, not so much. I do not fault him. He is not the man. Considering how the interesting players are dwindling, and who we are turning down…………what do they have in mind? What is plan C…….besides 81 million.
Another thought;
Even if I am being very pro-Cardinal……..you have to admit that it was us, that set the Market value on these guys. If you look at these guys without prejudice to our motivation, it was the Cardinals that sacrificed so much just to gain a few months of their services and abilities. The non pursuit of DeRosa is a joke really on a 2yr deal. So peculiar is that move and its affect on the Holiday situation, which is moot at this point anyway…………..my mind wanders toward the joyful emergence of Ruben Gotay as the Cardinals future utility man.
Westie, i didn’t buy it last time but try again to sell me on your math of how raising payroll with Derosa and Holliday increased cash flow.
Increased gate, concessions, advertising, playoff revenue, self righteous justification for mishandling 2010 preseason.. 1.5 from Oakland……some cash from
Cleveland I think.
Using the advance cash on the Lugo contract allowed them to cover all contingencies, all else(above) was liquid………….they will (are) stealing that money back as we speak in the guise off “dry powder”…………………………. “We just didn’t see a fit”. If you buy it last time, why not this.
If you value Pujols, this is all he asked, was the this crap would stop…
Loosing DeRosa isn’t bad if he is replaced………….he won’t be. Penny (Lohse) Gotay (Thurston). These are mirror moves. They will not front Shu (Tony/Lugo), Brendan Ryan is your shortstop. There aren’t many 3rd baggers cheaply lying about. I have made informed predictions. They are all become your present.
Simple solution 5/90 to Holiday….one week………………… That move would then subject them to criticism on their open market decisions from then on…………..to be avoided at all cost apparently.
Added though……………Rockies GM affectionately looked at all his players. Didn’t mention Oakland adds very much……….called Cards a mid-market franchise…………They never even considered the Ludwick/Shumaker/ pitcher? seriously. I still smile at that. Ankiel/ Greene/Joel/Welly……..all unemployed……….. According to our own projections, we aren’t a very good judge of talent……….amongst other things.
Relax Westie, we’ve known for some time that DeRo would sooner go play for the Yokazuka Canned Hams than return here. What are the chances SF gets $6M out of DeRo next year? And another $6M the year after that when he’s what, 37? Bring on Tyler Greene, the next Brendan. Time is on our side.
DeRosa was begging to come here BB………………………He will beat us when we play them…watch.
Cubs sure are busy………… Brewers the same……… this was going to be a cakewalk to the playoffs. Oh well………………… Someone what to guess at who the Cards do get?
Good thinking, Bling. The Cards do not need to outbid the Giants for DeRosa, anymore than they needed to outbid the Cubs for Aaron Miles. The Giants gave $18MM/2 yrs to Edgar Renteria last winter and about the same for Matt Morris. They like yesterday’s heroes.
Westie, we agree Gotay is a great signing! Why pay more? Everyone likes to be a smart shopper and find good buys.
Lou, I take your views about PEDs as well intentioned. There is a lot of misinformation floating around about this once trendy topic.
Regarding CO2 levels in the atmosphere triggering catastrophic global warming and drowning polar bears and all that other good stuff, this fear has been championed by some politicians. Being mindful of human imperfections, the revelations of malfeasance among UN climate scientists are not at all surprising to me.
Happy to hear you love Pennsylvania!!
Bench
“Please Mo, Please pay me 3/21, please please, I’m BEGGING you.”
You’re right Westy, I forgot about the begging.
He would take the 2/12 this minute BB.
Makes you wonder if there were really 8-10 teams interested in Derosa? Looks like his agent blinked. Boras will soon blink but in a different manner. He’ll put Holliday on hold until and hope the market improves. I thnk Holliday is going to sign for 2/35 — and not with the Cards.
I thnk Holliday is going to sign for 2/35 — and not with the Cards.
———–
I’d offer that in a heartbeat, or even go up to 2/36 or 2/38. The 2 is the beautiful number. If we assume Holliday’s projected 2010 value — about 4 wins above a replacement player — is accurate, that means he’s worth about $18 million next year. But those numbers are devoid of context. He’s probably worth at least $5 million per win to the Cardinals, because those 4 wins could be the difference between a division title and no postseason at all.
The problem is what happens after 2010 and 2011. (I know we all know this. I’m just typing.) Do we want to pay $16 million a year in 2012 and 2013, when he might be worth just 2 or 3 wins above a replacement player? Allen Craig might be a 2-win player in his late 20s, and he’ll come a lot cheaper.
Anything beyond 4 years is pure risk for the Cards, and the Cards according to reports have already offered 5 years. If it was anyone but Boras, I have to think we’d have our guy locked up by now.
I have been working on a post in this very area. Will get back to it today…
Maybe Mo is just trying to make Westy look smart for some demented reason. It will never work.
Maybe less delusional
2/36 is a virtual impossibility. 4/74 with a second yr opt out probably doesn’t keep Boras his job after it is signed.
Matt would only fire Boras if he thinks someone out there could have gotten him a better offer. With no one else out there getting big $$$ Holliday will realize it is the market and not Boras that is the problem. $100 bet to charity that Holliday is still a Boras client a year from now.
Whatever Matt signs for, he will think about how much of it Boras will get, then he will think about the 7/107.5 that Boras probably insisted he reject. He will make a decision based on whether Boras’s representation was worth the fee paid.
Another theory. It’s quite possible DeRo will have some health issues. Mo learned this past year that DeRo will play through the pain however bad the on-field results. Mo also learned that Tony will play DeRo however bad the on-field results. Solution-no DeRo.
It seems likely the Yankees, and maybe Red Sox are thinking ahead to Crawford and Mauer. Niether a Boras client.
Here is a list of what all the NLCentral teams have done so far. A lot of churning for nothing it looks like.
http://www.mlbtraderumors.com/2009/12/nl-central-moves.html
Brian,
If the Cards’ payroll of roughly $100M represents about half of the team’s total expenditures, $20M only represents about 10% of the total and not 13-15%. I doubt that DeWitt III would be down-playing the percentage it costs, so the numbers don’t seem to add up.
He said “more than $20 million”. More-thans times abouts divided by roughlys equal approximations.
Then my question is why didn’t he say “more than $25M” instead? That would seem to be about the minimum for any 13-15% area. Why would he downplay the amount if he was trying to make an excuse for not having a higher payroll?
DD17, maybe financial guys would know that $25M is too high a figure for debt service costs on the $300M. BDWIII would have been careful to construct his smoke screen with plausible figures, even if they don’t add up.
I’m sure some referrences are to interest only and others are referring to interest plus the part of the payment that goes toward principal repayment. Maybe eve BD himself confused the 2 numbers.