Opportunity knocks

If at first [pre-trial mediation] she doesn’t succeed, she’ll try [postpone her ruling so that Miami-Dade County’s megaplan will be dependent on a coming Florida Supreme Court ruling] again. Charles Rabin of the Herald described Tuesday’s ruling in his article:

Miami-Dade Circuit Court Judge Jeri Beth Cohen on Tuesday tossed a late, surprising wrinkle into Norman Braman’s attempt to derail a Florida Marlins stadium, declaring she won’t rule on a significant count for more than a month.

Cohen said she’ll wait to make a decision on a key remaining count until the Florida Supreme Court finishes work on a case involving the use of public money without a vote. The justices are on break until the end of August.

When Marlins attorney Sandy Bohrer told the judge she had an obligation to rule and city of Miami attorney Henry Hunnefeld said there was no guarantee the Supreme Court would rule anytime soon with three members set to retire by year’s end, Cohen said she resented the pressure.

”This is about me doing what is intellectually honest. They’re going to make this opinion before these justices leave. I have an obligation to wait,” she said. “I have a Supreme Court that is in flux.”

Cohen, also up for election in August, is stuck on Braman’s highest-profile count: That the funding plan for a $3 billion face-lift in downtown Miami is illegal because it uses millions of dollars of community redevelopment money without a public referendum.

Can a judge recuse themselves due to an upcoming election? I had an earlier post, which speculated that the judge would have to deal with the perception that the ruling from her courtroom was either an indictment or endorsement of the county’s megaplan. Clearly she wanted no part of either perception. I just didn’t realize that her election was right around the corner. In retrospect, it’s a miracle she didn’t flee the country when the first judge, Pedro Echarte Jr., bailed.

Judge Cohen began the trial by asking both sides to attempt to reach a settlement. Nothing seemed to come from that initial mediation attempt, but there was an indication as to the type of compromises which would placate Braman [South Florida’s version of Hillary before the final primaries]. Again, from the Herald’s Charles Rabin’s July 10th article:

Some close to the mediation said items being discussed included the possibility of building a community center near the planned ballpark, or awarding more public access to the facility. Such moves may help satisfy Braman’s quest for more public benefit from the megaplan.

Others said the standoff — being mediated by former judge Bruce Greer — hangs on whether the Marlins will give back some of the concessions the team received in December’s Baseball Stadium Agreement [BSA] engineered by Burgess.

Though the county would own the stadium, the Marlins would receive all monies from its naming rights, which is worth hundreds of millions of dollars to some Major League Baseball teams.

The Marlins & MLB likely felt that they had the upper hand and refused to compromise at that time. It is doubtful that they remain that confident today. I like what the judge has done. Even if the Marlins had won, everyone expects that Braman would proceed with appeals, guaranteeing further uncertainty. The best possible outcome for our community is one in which the Marlins and MLB go the extra mile and compromise. Bringing someone with Braman’s track record on-board would effectively eliminate any additional political hurdles.

In reading about various testimonies throughout the trial – see the Sun-Sentinel’s Sarah Talalay’s blog – it was amazing to see how every government witness proceeded to give ‘expert’ testimony that they were clueless as to the finances of their partners in the stadium venture. [If this blogger jumps up and down in cyberspace, does anyone … never mind, I’ve seen my Google analytics, the answer is no]. If there is a stadium, those guys deserve box seats for their performances. Hell, they should be in the dugout.

The Marlins & MLB are asking a lot of our community and compromising with Braman would constitute a much needed act of good faith. Their initial $158 million investment has grown in just 6 years to a self-acknowledged $250 million [see pg 11 of BSA] and would likely continue increasing with the additional revenue streams a new stadium would entail. This without probably even having to come out of pocket for their portion of the stadium construction costs [$120 million], thanks to their disciplined hoarding of revenue sharing monies.

The frustrating and fascinating aspect of this trial has been all the misdirections. Braman’s lawyers attack the Marlins financial viability because they realized that the Marlins couldn’t counter that assertion, given their own false claims of poverty recently. But in reality, the essence of their case is that the Marlins got too good a deal from the county. Why else grill the county’s brain trust about how they never saw the Marlins financials or inquired as to their solvency? But if, as they imply, the Marlins suckered the county, that would seem to address their supposed financial woes.

Let’s keep a watch on the areas of compromise discussed during the coming negotiations. If the Marlins are requested to put up additional guarantees or letters of credit, then perhaps the Braman team really believed that the Marlins are in financial distress. But if the issues addressed relate to additional dates for the county, community centers and naming rights etc., we’ll know their trial strategy was a bluff. After all, if the Marlins were really almost insolvent, that would bolster their argument that they are unable, not unwilling, to compromise on the initial Baseball Stadium Agreement [BSA] with the county. The Marlins are very profitable and they can afford to compromise.

From the county’s perspective, Braman and Judge Cohen may not appear to be their allies, but they are. County manager Burgess has been handed a big stick to go back in and get concessions which he likely previously left on the negotiating table.

Let’s be clear – what stands between the Marlins & MLB to have a new facility built and paid for with 75% public monies, in an area with more financial difficulties than typical, is some combination of the following:

  • Allowing local governments more than 16 days a year access to the facility
  • A Community Center
  • Sharing a portion of the naming rights to the facility

My suggestions for changes would be the following:

  • Concrete language in BSA regarding the Marlins responsibility for construction cost overruns.
  • Disclose how the county would pay those overruns, if the Marlins manage to sue and win to avoid paying for those costs – over/under on date Marlins would sue is now October 2009.

The bottom line is that the Marlins & MLB can afford to compromise, local politicians already have [it’s like breathing for them]. If the Marlins & MLB don’t compromise, they will have hung those politicians out to dry and would then deserve to have their fates decided by the Florida Supreme Court. A court which is danger of giving the term, ‘flaming lefties,’ a bad name.

See no EBIT, hear no EBIT, speak no EBIT

Why would local government officials testify in a trial [or deposition] under oath and say things which no one believes? An article by Sarah Talalay from the Sun-Sentinel, describes testimony in the Braman trial yesterday:

Miami-Dade County Manager George Burgess admitted in Miami-Dade Circuit Court on Wednesday he has never asked for or seen the Florida Marlins’ financial statements or any proof the team can meet its obligations to finance a $515 million ballpark. 

It follows a similar admission by Miami-Dade County Mayor Carlos Alvarez during an earlier deposition. An article by Paul Brinkman from the South Florida Business Journal, describes his testimony:

Alvarez’s taped statements said he never saw financial statements for the Marlins before approving public funding for the stadium, and that he had no guarantees the Marlins could pay for cost overruns, as required. Alvarez also said in the recording that he never asked why the county couldn’t keep naming rights for the stadium, which were assigned to the Marlins, or why the county couldn’t retain scheduling at the stadium when the Marlins’ season ends.

The questions and answers are designed to lead casual observers to conclude that the respondent is either lying or incompetent. How could they not inform themselves of such basic information?

Braman’s lawyers know that MLB’s veil of secrecy would prohibit the sharing of financial statements exactly for this reason – lawsuits against any one of their 30 franchises could open the door to reveal financial data which involves all of MLB. For example, if the Marlins financials were made public, the amount of Central revenues which is derived from external sources and distributed evenly among all the teams [currently estimated at $40 million annually] would be disclosed etc.

Now there are many other documents and testing which could satisfy the County’s concerns about the Marlins financial viability, not the least of which is the credibility of the MLB brand in wanting to avoid one of it’s franchises leaving a local community holding their debt. The ultimate guarantee in these cases is the potential sale of all or a part of the franchise to raise funds, as Huizinga did recently with the Dolphins.

Braman lawyers question the Marlins financial viability, but would oppose the stadium irrespective of the Marlins finances. In fact, a case can be made that their opposition would be even more strenuous if the Marlins admitted to their profitability. On the Marlins side, they have been very profitable in the past 3 yeras, but have pretended otherwise to solicit public funds for the stadium. Nothing is what it appears.

I recently saw the movie Disclosure, directed by the great Barry Levinson. I wonder if the County manger is getting anonymous emails late at night which say, ‘nothing is what it appears, solve the problem.’ The main problem with the stadium deal is the coming cost overruns in the construction, which the Marlins are supposed to pay, but with which there is much [earned] concern that the Marlins will avoid doing so at all costs – based on legalities, not financial solvency.

Braman and the local governments may be sitting at different tables at this trial, but their incentives – getting a better deal for taxpayers – are more aligned with each other than with the Marlins ownership & MLB. I hope the leverage this trial is granting them will allow the government to get stronger and more concrete language in the agreement regarding the likely construction costs overruns.

*EBIT = Earnings before interest and taxes. Also called operating profits.

Braman, petards and hoisting

Turns out a petard is a small bomb.

During Braman’s testimony in the trial yesterday, there was the following exchange as reported by Charles Rabin in the Miami Herald:

Auto dealer Norman Braman opened his lawsuit against Miami’s megaplan Monday by sparking a short, but fiery, debate over the financial well-being of one of the project’s prime recipients: the Florida Marlins.Braman lost the skirmish, but his opening salvo gave a glimpse of what will likely be a bitter fight over the plan that would bring a new stadium to the Marlins and reshape Miami’s urban core.

The judge had already ruled the ball club’s money issues had no bearing on whether the use of $395 million in public money to help build a stadium served the public good.

That didn’t stop Braman from going to the heart of his argument — which brought a string of objections and triggered something of a disjointed appearance by the wealthy businessman in the crowded, stately Miami courtroom.

”I know as a matter of fact that the Marlins do not have the financial capacity,” was all the 75-year-old former owner of the Philadelphia Eagles could utter before he was cut off by Marlins attorney Sandy Bohrer, who also represents The Miami Herald in unrelated matters.

”Has he seen their financials?” Bohrer asked Circuit Court Judge Jeri Beth Cohen.

Cohen sided with Bohrer, not allowing a document Braman said he received during a 2003 visit from Marlins President David Samson that he claims shows the team was more than $150 million in debt. Braman also said Marlins owner Jeffrey Loria tried to persuade him to take on partial ownership at the time.

In my dream movie version, when Braman was asked if he had seen their financials, he would have produced a copy of the 2008 Forbes Business of Baseball magazine and David Samson would have suddenly appeared, snatched it from him and thrown himself through the nearest window – invoking Law #11 of Cartoon Thermodynamics – no real injuries would have ensued.

I love this stuff. I can’t wait until Tom Wolfe or Carl Hiaasen writes about it. But for now, please note the following points:

  • Braman must know that the Marlins operating results have vastly improved since 2003 [see the Marlins P&L since 2002], given their salary cutbacks, the increase in revenue sharing monies and MLB Central revenues, but since the Marlins are always crying poverty in order to get the stadium, they are in no position to counter his argument. Hence, Braman is the ‘hoister’ and the Marlins brought the ‘petard’ to this relationship.
  • Whatever document Braman was presented to encourage his investment, it is extremely unlikely that the Florida Marlins debt would have been a significant factor. Although Loria purchased the team for $158.5 million in 2002, $120 million of that price was the value ascribed to the Expos franchise which was exchanged for the Marlins. So the maximum debt the Marlins could have incurred at time of purchase was $38.5 million owed to MLB. However, we also know that $15 million of that loan from MLB would be forgiven if the team did not secure a stadium deal within 5 years.
  • According to Forbes, the Marlins had operating loses totaling $26 million for 2002 & 2003 – let’s say Forbes was off about 10% and round it off to $30 million in loses for those two years. So the Marlins would have had debt totaling approximately $68.5 million in 2003, $15 million of which was eventually forgiven by MLB.
  • According to Forbes, the Florida Marlins operating profits from 2003 to 2007 have totaled approximately $59 million. Goodbye debt. Hello stadium fund.

So how could a significant debt have arisen and survived the great salary dump of 2005? Perhaps the document Braman saw also included monies which Loria had invested in the Montreal Expos franchise – estimated at $30 million. An excerpt from that article below documents how Loria got control of the Expos:

He then initiated capital calls on the other owners in 2000 and 2001 to fund rising operating expenses. When they chose not to meet those calls, Loria funded them himself with about $18 million. That triggered a clause in the partnership agreement that allowed him to dilute the interests of other owners down to 6%. Loria thus gained 94% of the Expos for roughly $30 million. He would soon sell the team for four times that amount [value given for Marlins – JC].

But even that $30 million, properly understood is not a debt to the Marlins, but rather represents Loria’s investment in the Montreal franchise which he subsequently sold for $120 million. The resulting difference represented a taxable capital gains to Mr Loria. But MLB ownership is the gift which never ceases giving to Mr Loria. There is a special IRS provision which allows sports franchise owners to amortize 50% of their purchase price over the first five years after the purchase. So Mr Loria was the beneficiary of about a $78 million tax write off which served to offset the capital gains tax from the estimated $90 million dollar profit related to the sale [or exchange] of the Montreal franchise.

His initial investment in the Marlins for $158.5 million is now acknowledged [see pg 11 of BSA] to have grown to $250 million. Further, any consideration of Loria’s or the Marlins financial viability, should really factor in that the owner was able to donate $20 million to Yale University as of 2007. If someone donates $20 million, what would be a reasonable estimation of their net worth?

Bottom line, the Marlins and Mr Loria’s investment in them are doing just fine. But in a reminder of Aesop’s [not Hee-Seop’s] boy who cried wolf classic, they cannot admit financial well being when they most need to.

Forbes Marlins valuation was 97.4% accurate

I thought I had been following this issue closely, but in preparing a longer post regarding the stadium deal, I came across an amazing number in the Florida Marlins Ballpark Project Report issued on January 22, 2008 by Miami-Dade County Manager, George Burgess. In section 22 (i), Community Benefit Obligations, the Florida Marlins assumed team value is stated at $250 million.

Forbes estimated the team’s value back in March of 2008 at $256 million. In doing so for every MLB team, Forbes estimates each team’s operating profits, non-operating expenses [depreciation and the interest associated with their debt] and then applies its internally developed metrics [i.e. the hard part] to arrive at the team valuations. The point is that the revenues and expenses are the most straight forward aspects of the data they provide. The valuations themselves are subjective, short of a sale which would provide a benchmark. Or in the case of the 2008 Florida Marlins, a publicly issued document which was negotiated between local governments and the Florida Marlins in which the team ties itself to a reasonable valuation.

End of manufactured controversy. In being off just 2.4% [256/250], Forbes basically nailed the number on the head. Contrast that with Marlins President David Samson’s comments to the Sun-Sentinel’s Juan Rodriguez at the time the Forbes 2008 numbers were publicized:

‘Every year I continue to be surprised at the absolute inaccuracy that a so-called reputable magazine is willing to print,’ Marlins President David Samson said. ‘We’ve never gotten called by them. We’ve never been asked to verify, deny, confirm, nothing. It’s just a shame their readership is forced to read numbers that aren’t true. ‘I know the number they have for the Marlins is simply wrong. They have no information of any kind on which to base that article.’

Left unsaid is the fact that if Forbes had called, they would have been denied any information or confirmation as have all the local writers, that’s just how MLB & the Loria’s roll. Anyways, I had earlier posts which delved into why the Forbes numbers are credible and how Mr Samson has the unenviable task of trying to debunk perceptions as to the Marlins recent profitability. No need to speculate now. The Marlins, through Samson, are purposely being misleading about their finances and the county manager’s memo is the proof.

It would be too easy and counter-productive to conclude that Mr. Samson is a liar. In his role as Marlins President, it’s basically his job to deny what some casual fans may think and what is obvious to people who have familiarized themselves with MLB finances. The ‘why’ the Marlins, and most other MLB teams, with the recent notable exception of the Pittsburgh Pirates, feel it’s in their interests to mislead, even if it causes them to make absurd comments [e.g. Marlins have the highest marketing budget in MLB and (#2 on my fav 5) Forbes assumes that the Marlins don’t have any non-player expenses], is more interesting to me.

I think there are a couple of reasons:

The main reason I believe is that the job of asking for public monies [albeit not local taxpayer dollars] to build a new facility would be much more difficult if the public knew unequivicably that the Marlins, according to those wacky kids at Forbes, were in terms of operating profits, the most profitable team [$43 million] in 2006 and the 2nd most [$36 million] in 2007 – despite having the lowest revenues in MLB for both years. FYI, 2008 is looking good too. Toss in that the owner, Jeffrey Loria, recently gave a $20 million donation to Yale University, and you have the makings of a tough sell.

Now, once teams already have their stadiums built the incentive to mislead is significantly lessened. But to drop the facade has implications to their fellow owners, as I’m sure the Pirates recently found out.

The second reason is what they do with the revenue sharing [RS] dollars they receive from other MLB teams. What RS was meant to do, especially in the eyes of fans, was to help smaller market [lower revenue] teams compete with the larger market teams in being able to sign players. The language in the collective bargaining agreement, even states that it is intended to “improve on-field performance.”

But that language has proven to be no obstacle for owners like Bob Nutting in Pittsburgh or Jeffrey Loria here. In the case of the Pirates, paying down team debt was considered, and the MLB Commissioner’s Office and the Players Union implicitly agree [no protest has ever been filed as to the use of RS monies], to be a legitimate interpretation of “improving on-field performance.”

So who is left to complain if the Marlins financial strategy since 2006 is to attempt to break-even while ignoring the RS monies they are receiving in the equation. Instead they are accumulating those RS monies to fund their portion of the planned stadium construction costs of $120 million. From the incentives angle [i.e. who has the most to lose], it should be the Player’s Union, but they have been silent. Perhaps their silence is the last side effect from the steroids era.

Anyways, how does a MLB team remain very profitable despite having the lowest revenues? In 2008, a year where they can expect to receive around $75 from MLB [at least $35 million in Revenue Sharing and around $40 million in Central Revenues], their opening day salaries totaled $22 million. Imagine selling that at FanFest and you then have a better idea of why Mr. Samson makes nonsensical remarks regarding the Marlins finances and Forbes’ credibility.

Umpiring and the key ingredient of good citizenry

Watching the Marlins @ Padres last night, I saw a borderline bad call get overshadowed by MLB umpire Joe West’s subsequent imitation of the Federal Government – outwardly bloated with an impervious attitude. At the moment, I imagined terrible fates befalling Mr West with my enthusiastic assent, but in the light of day [and a Marlins win], I now thank Mr West for teaching me tolerance. Tolerance of mediocrity and the unions which shield them is needed in great supply – let’s just call it the Brian Runge challenge.

On June 29th, Mr Runge, in his 2nd game coming off a one game suspension for bumping a manager, lost count of a ball 4 to Orlando Hudson and then made 2 of the worst called strikes – the mind wanders to Eric Gregg’s glorious punch out of Fred McGriff in the 1997 LCS – imaginable in the same inning, one against each team.

As fans, we are aware that home plate umpires do make-up calls, but to watch him do it on pitches which were not close, essentially back to back [Mark Reynolds in the top of the 8th and Mike Jacobs in the bottom of the 8th], showed me how immune umpires feel to criticism. The NBA is not the only league with an officiating problem.

Jim McLennan, a Diamondback’s fan, took a poll to find out who might be the best & worst umpires – check out his blog.

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