Too Much Debt

The Dodgers are carrying too much debt, according to MLB rules:

The rule, designed to ensure teams have the resources to meet their financial obligations, generally limits debt to no more than 12 times annual revenue, minus expenses. The Dodgers were not profitable in any of the first three full seasons under new ownership, co-owner Todd Boehly said last year. Their debt is believed to be in the hundreds of millions.

Guggenheim’s spending — from the assumption of a quarter-billion in contracts to get Adrian Gonzalez in 2012 to the sport’s first $300-million payroll in 2015 — raised eyebrows throughout the industry. The New York Yankees led the major leagues in payroll every season from 1999-2012, but the Dodgers have led in every full season under Guggenheim ownership.

“The Dodgers blew past the Yankees like Grant through Richmond,” said Ron Fowler, executive chairman of the San Diego Padres.

Manfred said the Dodgers’ five-year waiver from the debt service requirements was authorized by the collective bargaining agreement in place at the time of the sale.

Debt is an interesting animal. The ability to service debt depends on lots of factors, including the value of the property financed, the interest rate, the credit worthiness of the debtor, and the liquidity of the lender. Is the interest rate fixed or variable? Can the loans be called?

I suspect that with the value of the Dodgers being in the billions and the debt in hundred of millions, Guggenheim can service it just fine. This rule is more about preserving competitive balance than worrying about the financial health of the Dodgers.

from baseballmusings.com http://ift.tt/2g6qEXJ