CNN/MONEY: MLB hiding money

[Old School]

Here's an long but interesting article from CNN Money.

NEW YORK (CNN/Money) - Commissioner Bud Selig testified last month before Congress that Major League Baseball had operating losses of more than $300 million in 2001, but he heads into negotiations with the players union bolstered by hundreds of millions of dollars tucked away in a little-known central fund.

The fund, which never shows up in baseball's recent financial reports, could give Selig a way to keep owners united in the coming battle with the union, giving him resources to help financially struggling teams make debt payments should owners lock out the players, whose contract ended last month. But the fund raises yet more questions about the validity of the league's cries of financial distress.

The nest egg comes from national revenue, such as television contracts and merchandising rights fees, collected by the league but not paid out to its 30 teams.

The league's own public figures show that since the end of the 1994-95 players' strike, total national revenue has come to $3.6 billion. National revenue payments to the clubs have come to $2.5 billion.

Most of the $1.1 billion difference pays operating costs such as umpire salaries and payments to the players' pension funds. But according to numbers the MLB provided me, there is about $53.3 million left over in the most recent season, or more than the payroll of 11 of the league's teams.


And that $53.3 million is on top of what was in the fund coming into the season. While baseball officials won't disclose the exact amount of money in the fund, it appears there was about $44 million retained by the fund in 2000, and somewhere north of $200 million since 1995. Rob Manfred, MLB's executive vice president of labor relations, confirmed to me this week that the fund is in the nine-figure range.

"The central fund holds a tremendous amount of cash," he said "It can be $200 million to $300 million at any point. It's not $800 million."

One former baseball executive has told me that if baseball does move ahead with contraction, the initial payments to the owners being bought out would come from resources of the general fund, not from each of the remaining 28 teams. The costs of buying out franchises are likely to rise to more than $100 million per team, although some payments could be deferred.

But hardly anyone following the business of baseball expects contraction in 2002. The more immediate need could come if MLB and the players union find themselves in yet another work stoppage.

Baseball's arcane accounting process actually means that the money being held in the fund counts as part of the "losses" reported by 25 of the sports' 30 franchises.

The spreadsheet released by Selig at the hearing shows the teams splitting all of the $720 million in national revenue in 2001, or about $24.4 million each for most of the teams, rather than revenue sharing payments they actually received, which averaged $17.8 million. But the $53.3 million difference that stayed in the central fund in 2001 is actually counted as part of the $1.6 billion that baseball identifies as a cost described as "national and other local operating expense."

This isn't the only example of baseball's game of Find The Money. Hundreds of millions in expansion fees paid by the Tampa Bay Devil Rays and Arizona Diamondbacks, who started play in 1998, don't even show up in the seven years of financial data that were included in a recent "blue ribbon panel" report on the economics of the game.

Baseball has some financial problems, true enough. But the way the owners and Selig bury their numbers weakens their case by leaving questions unanswered that do not need to be unanswered.

A couple of weeks ago, for instance, I questioned the fact that the Atlanta Braves listed less than $20 million in local broadcast revenue, even though the team has a television contract with cable station WTBS, which carries their games across the country.

Since the Braves and WTBS are both owned by AOL Time Warner Inc. (AOL: Research, Estimates), (as is CNN/Money), I raised the issue of whether the Braves were being paid less than market rate, thus making the team's losses seem worse than they are. But I couldn't get anyone from baseball to answer my questions.

Once my column was published, MLB's Manfred finally explained to me that most of the money from WTBS is classified as national broadcast revenue, which is split among 30 teams, rather than local revenue retained by the Braves.

Getting even that partial view of baseball's financial picture confirmed was like pulling teeth. Meanwhile MLB has gone to court to stop the state of Florida from getting copies of studies it has done on the game's finances, and it has threatened to sue the players' association if it discloses financial data that owners had to provide under the current labor agreement.

Baseball officials need to realize they're not doing themselves any favors blocking access to their numbers like Ivan Rodriguez guards home plate.

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