So You Want to Own a Baseball Team? Baseball Financing 101

Categories: Baseball, Sports

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There are a lot of stories coming out about how the Astros are going to face a long climb to respectability. About how all of the team's problems can't be solved by spending money. About how we're just going to have to be patient while Jim Crane's baseball people rebuild the mess left behind by Drayton McLane and his merry band of incompetents.

That's all fine and good. I've been arguing for a long time that this team needs to rebuild through the farm system and that they shouldn't be wasting money on expensive free agents like Carlos Lee or wasting valuable cash on mediocrities like Bill Hall. So I'm really happy that this appears to be the route the new ownership regime will be taking.

But there's a hitch with this. From the stories that are now coming out, this approach isn't being taken because it's the right path to take. It's being taken because there's no other approach. Jim Crane and his group might not actually have the money needed to make big, immediate improvements to the club.

The stories from yesterday were all about the purchase price of $680 million. That seemed to be a really excessive amount of money for a franchise recently valued at about $450 million. Especially for a team with aging players, bad contracts, an awful farm system and no real prospects for the future.

And if that price seems excessive, just think of how excessive it could be in a few years if MLB ends up assuming control of the franchise, like they've recently done with the Los Angeles Dodgers. Yet that could be a very real possibility.

The news from Forbes.com is that nearly half of the purchase price, $300 million worth, is being financed by debt. Most of this debt financing is being provided by a loan from MLB. And since the Astros only had an operating income of $14 million last season, the Astros will be, if the deal is approved, in default on MLB's debt limits.

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Could Bud Selig end up running the Astros, too?

MLB is currently running the Dodgers because of the financial problems being experienced by owner Frank McCourt, problems arising partly out of a contentious divorce and problems partly arising out of McCourt's having leveraged everything to the gills to pay off the debt he accumulated to purchase the Dodgers. It was just last season that MLB was running the Texas Rangers because Tom Hicks couldn't meet his debt obligations and defaulted on his loan obligations.

Hopefully things won't get to this point with Crane, who we're told is a good businessman with baseball knowledge since he played baseball in college -- though I'm not too thrilled by one of Crane's buddies telling us we'll love Crane because he'll be an owner like Jerry Jones. But you've got to question just how good a businessman Crane really is if he's so willing to overpay for this franchise.

And if some of this financing really is coming from MLB, then what is to stop Crane and his management team from being beholden to the financial dictates of Bud Selig? One of McLane's problems as an owner was that he let Selig dictate what could, and couldn't, be paid for draft choices. That's how the Astros lost guys like Drew Stubbs, with the result turning into one of the worst farm systems in baseball.

It's a good thing that Crane is talking about taking the long view, because taking the long view toward building this team isn't something that's been done by the Astros since Bill Wood set out around 1990, under the direction of John McMullen to cut salaries, to build the nucleus of the team that carried the Astros through the `90s and `00s. Drayton McLane's idea of the long view was trying to figure out just how to scam a new stadium out of the city and just how high it was that he could raise ticket and concession prices before fans revolted.

The Florida Marlins have been rebuilt repeatedly by focusing on the draft and the farm system. The San Francisco Giants have made some very bad deals for the likes of Miguel Tejada, Aaron Rowand and Barry Zito, but the nucleus of that club has come from the farm system. The Minnesota Twins have flourished by focusing on player development, and so have the Tampa Bay Rays, Oakland A's and Texas Rangers. There's no reason that the Astros, with some smart people finally running the team, can't do this, too.

But for this to happen, the Astros are going to have to be able to spend the money on players in the draft. If Jim Crane is too busy paying off his debts and getting his loan from MLB paid off, then he might not have the money to sign the best players available and might have to go the McLane route of drafting guys willing to sign cheap. And that could result in the Astros under Crane being just as mediocre as the Astros under McLane.

I hope I'm taking too negative of a view. But let's just say too much has gone wrong in MLB lately because of highly leveraged deals and I'm really hoping that recent history doesn't repeat with the Astros.

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furioso ateo
furioso ateo

Rule of thumb is that a company is worth its annual gross income. How the fuck does this team get valued at 40 times theirs?!?

the_birds
the_birds

Totally agree with Hill, I'm guessing the Comcast contract at least quadruples the 14M yearly figure.  Comcast deal is also why the franchise was valued at 680M instead of 450M.  Couple that with ditching Lee's contract eventually and the Astros will be easy making 50M/per year profit.  

Hill
Hill

The 450 million dollar figure came out before the Astros/Comcast deal was finalized.   Speaking of, how much is that deal worth?  the Rangers got 1.6 BILLION for 20 years.  If the Astros have a similar deal in place, the 14 million income goes up drastically. 

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