MLB financial reports leaked: How owners are defrauding revenue sharing and taxpayers

1 Jan

Major League Baseball is entering a new era of scandal – financial scandal. Roger Clemens and Barry Bonds along with their steroids can take a back seat for awhile as everyone is trying to find out who leaked revenue documents for a handful of MLB teams. While two teams involved in the leak – the Angels and Mariners – come out smelling clean with no impropriety evident, if anything they being the ones that got stiffed, three teams take it in the shorts. The Rays, Pirates, and Marlins are all teams that have cried poverty, and now the world knows without any doubt that just isn’t so.

The basic area of sensitivity here is that the MLB has a revenue sharing policy in which the rich help carry the poor. The richer the team is, the more they pony up. The poorer a team is the more they receive. It’s a simple formula. The problem is some owners have been content grab as much of that money as possible only to put that money into their own coffers by employing some extremely creative accounting principles. All the while, each team has complained that they can’t compete because they don’t have enough money, or a new stadium to generate new money, or whatever their complaint is that month.

The Rays have lost their ability to complain about revenue too much – or so one would think – by having one of the best 4 or 5 teams in baseball. Not a chance, they still claim they can’t afford to sign their players to competitive deals because they can’t make any money – even with their new stadium. The Pirates have been an abortion of a team to be blunt. Calling the Pirates a team is even stretching it, they are more like guys in matching clothes. The Marlins…Ahh the Marlins…Jeffry Loria is perhaps the biggest swindler in baseball if not sports – and you’ll see why.

Going by the numbers, take a look at what each team reported as their income, and what their income actually was:

* In 2008-2009 the Marlins netted $49 million. Those figures are undisputed. Their payroll was $22 million in ‘08, and $37 million in ‘09. The increase only came after a complaint was lodged by the Player’s Union.

* In 2007 and 2008 the Rays were the recipients of $74 million in MLB revenue sharing money. During those two seasons however it was shown the team posted a profit without that money anyway of a combined $15.1 million.

The Angels and Mariners actually paid into the revenue sharing pool more than they actually made – in essence going into debt in order to help other teams pad their profits. The Pirates made around $30 million, but they still got some sweet revenue sharing money anyway.  This goes to demonstrate that there is not a truly equitable sharing program in place.

The bigger problem is that these specific teams receiving revenue sharing have not been fully honest when it comes to disclosing their financials to taxpayers. The reason that is important is because these are teams that leveraged their creative accounting practices in order to get taxpayer funding to build new stadiums. Take for example the deal Marlins owner Jeffry Loria pulled.

Loria threatened the city stating he would leave if the Marlins could not secure a new stadium. For some unknown reason, the city fell for it. The total cost of the stadium will $634 million – construction costs that is. Of that total, Loria is only putting up $155 million. The city is footing the bill for the other $479 million. But that is only a part of the story.

The city will be paying that loan off until 2047. They made a horrible deal balloon payments that from 2041-2047 will cost $118 million annually. A single loan of $91 million from JPMorgan will wind up costing about $1.2 on its own.  All told, the project will cost the city around $2.4 billion when it is fully paid off. The thing that is even sadder than that is by the time the stadium is paid off, it will be considered antiquated and in need of serious upgrades or replacement – assuming the Marlins are even there still. Given the history of drawing fans, it is doubtful that the Marlins new stadium will draw fans beyond the debut season.

Then there is the case of the rays. In 2007, the Rays reported their cash and cash equivalents at a laughable $37,626. Nobody could take that figure too seriously but they threw it out there anyway. A year later, that sum was suddenly $32,521,742. What changed – nothing really, because the previous year the actual cash and cash equivalents total was $31.7 million. Yes they made more money, had a better profit margin than many teams, and still somehow reaped revenue sharing money instead of paying in.

Paul Beeston who is the former MLB president had the perfect line to sum this all up, “Under generally accepted accounting principles, I can turn $ million profit into $2 million loss and I can get every national accounting firm to agree with me.”

Is there a solution to it all? Of course there, multiple independent annual audits. While that will never happen unless Congress gets involved and threatens the antitrust status of the MLB, it is a simple solution. The MLB is a $6 billion a year industry, they can afford bringing in Price Waterhouse and Deloitte and Touche for instance to make sure everyone is playing fair. Instead of looking for an answer to why teams are getting away with defrauding the league and more importantly taxpayers, the MLB is instead looking for who let the cat out of the bag and let fans and taxpayers know what was going on.

It is just another day in the Kingdom of Selig.

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