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12-12-01 12:33 PM #1
Rob Neyer on Bud Selig's Testimony to Congress
By Rob Neyer
Well, we're getting closer to something like the truth.
Last Wednesday, preparatory to Commissioner Allan H. "Bud" Selig's testimony before Congress, Major League Baseball released "detailed" financial information for each of its 30 franchises, and of course the numbers were not pretty.
Major League Baseball "opened the books," and the books reveal a massive $519 million loss, more than half a billion dollars ... in 2001 alone!
Well, sort of. According to MLB's own figures, the consolidated loss might be broken down like this:
$112 million Interest
$174 million Amortization
$232 million Operating Losses
Amortization is depreciation, which as you may know is a paper loss, a lovely tax loophole for a franchise that's been purchased within the last five years. Ownership is allowed to write off 50 percent of the player contracts for five years, which is one of the reasons you see franchises sold so often; when the tax breaks run out, it's time to unload the club. The interest payments are something that the owners generally choose, because there are financial advantages there. So the only number that has any relevance at all is the $232 million.
Now, the hearing of last Friday ... I feel like I've watched Bud Selig's testimony more times than Oliver Stone has seen the Zapruder Film. And I'm not sure which is uglier.
Here's a tidbit from Bud Selig's opening statement:
Selig: Since 1997, we have also provided the union with the results of the separate revenue-sharing audits that are done of each club's books each year by Pricewaterhousecoopers. Finally, the union has the right under our collective bargaining agreement to conduct its own audit of any of the club's revenues. It has never done so.
The people at MLB absolutely love to say this, that the Players Association has access to some of the books, and hasn't availed itself of the chance to audit the clubs' revenues.
But think about it for a second ... the issue isn't revenues, it's expenses. Anybody with a calculator and an Internet connection can fairly estimate MLB's revenues, because ticket prices and luxury-suite rentals and TV revenues are all, for the most part, a part of the public record. Similarly, everybody knew how much "Coming to America" made; where it got tricky was in how Paramount figured the costs involved with the film. And by the time Paramount's accountants got finished doing their numbers, "Coming to America" showed a small loss.
Early on, Representative John Conyers (D-Michigan) did ask a very pointed question, leading off a frustratingly fruitless exchange:
Conyers: Failure to open books. We got some information from you at six o'clock last night; they're really way too general for us to consider them to be detailed, audited records. With all due respect, and I know you've got some good accountants, Big Six guys, but would you reconsider to provide this committee with some real records about each team -- the breakouts, among other things, the salaries, consulting fees paid to club owners, their family members, the extent to which owners are earning interest on stadium loans they proved, and other related party transactions? And we'll give you a lot of time to get that together.
Selig: If I may, our figures are audited three different ways. Players Association gets all the numbers, including all related party transactions, all related party transactions. The Blue Ribbon Panel of the four gentlemen got the audited statements--
Conyers: Don't you know the union can't give these statements to anybody? You just sent a letter, your lawyers, that you'd sue Fehr if he released--
Selig: Congressman Conyers, you have the audited financial statement for six years; the only reason you don't have them for the seventh year, it's not over yet. You have all the information that Messrs. Volcker, Will and--
Conyers: What about the stuff I just asked for, sir? We don't have that ... We don't have any numbers. Staff keeps whispering in my ear, "We don't have the numbers, we don't have the numbers."
Selig: I'd like to know, since they've been audited three different ways, what information are you looking for?
Conyers: Didn't you hear me?
Committee Chairman James Sensenbrenner: The time of the gentleman has expired.
Thus, Selig was allowed to escape answering a question that he certainly did not want to answer, because it would look bad if everyone knew, for example, just how much money some owners pay themselves for playing with some of the biggest toys in the world.
Later, Representative Mel Watt (D-North Carolina) continued Conyers' line of questioning.
Watt: ... I have heard you say over and over that the system needs to be fixed. What are you waiting on to fix it?
Selig: Our negotiation with the Players Association ... After all, we can't share revenue without negotiation, and we certainly can't impose salary restraint without negotiation. Those are subject of collective bargaining.
Watt: So is there something you want Congress to do about that? ... Your testimony on the top of page five says over five years, only three teams ... were profitable. All the rest of the teams were unprofitable. So you're going to eliminate two this year, two next year, two the year after that, two the year after that ... I mean, at what point is eliminating teams going to solve this problem as opposed to fixing the system, which is what you said needs to be done? And if you have absolute authority to fix it now with an antitrust exemption, why have you not fixed it?
Selig: Well, I, well, I, uh, let me make two points in response, Congressman Watt.
Number one, I said it's going to take a myriad of solutions to fix the problem. Contraction is merely one of them. None of these will do it unilaterally. But two of these bigger issues that other sports have ... are subjects of collective bargaining. I can't do that by myself.
Watt: How does contracting the number of teams fix the problem? You said, "The system needs to be fixed." How does contracting the number of teams fix the system?
Selig: It's one of the things that when we've looked at it, and talked about it, it's one of the things that helps fix the system--
Watt: You've got two less teams that are unprofitable, but the other teams are operating under the same system, and all of them except three are losing money, according to the testimony.
Selig: But the two teams that finally get contracted are two teams that are subsidized by the other teams, because of revenue sharing. And in a system where you're losing $519 million, Congressman, the industry doesn't have the luxury any more --
Watt: You told me revenue sharing was part of the fix.
Selig: It is. It is, but we need to negotiate that with the Players Association. We're not doing enough revenue sharing today, Congressman. We don't have enough salary restraint.
As Selig noted -- and as I just learned last week, when talking to a representative of Major League Baseball -- revenue sharing is subject to collective bargaining with the players; the owners cannot unilaterally institute a revenue-sharing formula of their choosing.
If you'll allow a brief aside, I think baseball needs to a achieve a sort of paradigm shift when it comes to "revenue sharing." Essentially, I think that very term is, or should be, inaccurate. There is much discussion of the rich teams "sharing revenue" with the poor teams, but what if it weren't theirs to share? What if the issue were "revenue keeping" instead?
Let me explain ... In 2001, the Yankees pulled in something like $56 million in local broadcast revenue, and most everybody agrees that it's necessary for them to "share" that money, to give some of it to other teams. But gosh, that doesn't seem fair, does it? Why should the Yankees be compelled to fork over their own money?
Well, they shouldn't. But it's not their money. In a way, that money belongs to every team that plays against the Yankees, thus allowing the Yankees to sell their broadcast rights for $56 million (a figure that will increase greatly next year with their new YES network).
Right now, MLB is saying to the Yankees, "Thank you for earning all that money, now let the rest of us have some of it."
Instead, MLB should be saying to the Yankees, "You're lucky to reside in the biggest market in sports, but you did pay for that market and your expenses are considerable, so we'll let you keep half of the local revenues you and your opponents generated. You will, of course, still enjoy a sizeable financial advantage over your competitors."
Frankly (one of Bud Selig's favorite words), the New York Yankees should be thrilled with that arrangement, because they'd still be the 600-pound gorilla outside a banana factory guarded by kindergartners. Financially, at least.
Of course, you still have to get the Players Association to agree. But the truth is that everything is negotiable, with the exception of a salary cap.
Watt: You've given some financial records to the union. You've given some financial records to this committee. Have you given us the same records that you've given to the union?
Selig: The same audited financial statements? Absolutely.
Watt: The same financial records, not audited financial statements.
Steve Fehr: Can I get in on this?
Watt: Yes, Mr. Fehr.
Fehr: I believe you have received a fraction of what the players have received over the years. But as I indicated in my statement, things are not as simple as they appear. You don't need just a bunch of numbers dumped on you, you need some analysis of them.
Watt: [Addressing Selig ...] So the question is, could we get ahold to the same information you've given the players over the last five years?
Selig: The only thing I'm told that we haven't given you, uh, you have all the same information now that the Blue Ribbon Committee had--
Watt: Well, the problem is the Blue Ribbon committee guy is now trying to buy into baseball ...
Again Selig is telling a Congressman -- and by extension, us -- that we should all be happy with the information that we've been given. It's all that we need, and why can't we just trust the owners?
A bit later, Representative Anthony Weiner (D-New York), after some intelligent commentary, tried again.
Weiner: Let me ask just one final question. Will you waive the confidentiality agreement you have for the purpose of this hearing to allow the representative of the players to freely discuss information he has about the financial numbers? He has stated in his testimony he has been prohibited from doing that ... in the interest of full disclosure, would you free up the players to speak freely in this hearing?
Selig: We have given you everything they have except many of our discussions with negotiations relative to many of the subjects that are at hand right now during our negotiations--
Fehr: I respectfully don't think that's quite right.
Selig: --Well, I can only tell you what our people have said. In the meantime, you have audited financial statements for every team ... You have all the other information, and I can't imagine what other information is necessary.
Fehr: I've known Mr. Selig for a long time, with all due respect we didn't get an answer to the question.
And indeed we didn't, which left Maxine Waters (D-California) to make one last effort ...
Waters: Commissioner, you have a federal exemption, and you have a responsibility to cooperate with us. Will you give us the information that the union has in its possession?
Selig: We have given, as I said before, this is, no American sport has ever given this kind of information--
Waters: Commissioner, will you give us the information that Mr. Fehr just alluded to, the information that's in his possession.
Selig: The only information that we have not given has to do with what we believe are collective-bargaining issues that we believe there should be confidentiality on.
Waters: So you will not give us the information that you have given the union. Will you permit the union to give us the information?
Selig: That's something that has to go on between our lawyers, but they have a confidentiality agreement, and I think that things that went on, are going on during collective bargaining should not be disclosed ...
Fehr: Could I make a point?
Waters: Yes, you may.
Fehr: For example, I believe based on the information that you have, among these enormous losses occurring in 2001 ... half of the losses come from four clubs: the Dodgers, the Braves, the Rangers, and the Blue Jays. All thought to be well-to-do teams, all teams purchased within the recent past by media conglomerates. Ought that not to raise some questions as to what those losses are? Would you not like an explanation as to how they can take such losses? We'd like to give it to you.
Now, this is a key point. As I've mentioned before, when the same corporation owns both a TV network and a baseball team, there's nothing to prevent, say, AOL Time Warner from paying less than market value for the right to broadcast Braves games all across the country via TBS.
So are the Braves and the Cubs really receiving fair-market value for their broadcast rights, from their corporate parents? Well, consider the following figures:
Tigers $19 million
Phillies $19 million
Braves $20 million
Orioles $21 million
Indians $21 million
Cubs $24 million
Rangers $25 million
Now, does it really make sense that the Braves and Cubs broadcasts, regularly shown on cable systems all around the country, would be worth approximately the same as the local broadcasts of Orioles and Indians games? It certainly doesn't make sense to me.
Continuing with Waters' interrogation of Selig ...
Waters: We'd like an explanation. Let me give you a quote, and I'll read it to you. "Anyone who quotes profits of a baseball club is missing the point. Under generally accepted accounting principles, I can turn a $4 million profit into a $2 million loss, and I could get every nationally accounting firm to agree with me." Paul Beeston, then a Toronto Blue Jays vice president, now baseball's Chief Operating Officer; this is 1979.
Now you see why we're pursuing this? ... You have a federal antitrust exemption and you want to protect it ... But what you're saying to us today is, despite the fact you have this exemption, despite the fact we're asking you for this information, you're not going to give it to us and you're going to sue the players if they give it to us. Am I to conclude that that's what you're saying to us today?
Selig: I don't believe I am.
Waters: What then are you saying?
Selig: I'm saying that we have given you all the financial information that all of us work with. You have all the numbers, all the statements have been audited except for this year --
Waters: Let me remind you that you're under oath.
Selig: You have audited financial statements for six years--
Waters: Let me remind you that you're under oath. I'm going to rephrase my question--
At which point Sensenbrenner broke in once again, because 1) Representative Waters' five minutes had expired, and 2) Sensenbrenner and Selig are both from Wisconsin.
Politicians may be corrupt and ill-informed at worst, or myopic and way too busy at best, but they're not generally stupid, and they sure as hell know when they're getting the runaround. And in the long and dishonorable tradition of Congressional hearings, Bud Selig spent much of his testimony giving his questioners the runaround.
You see what's going on here, don't you? MLB has supposedly provided Congress with the same numbers, the "audited financial statements," that they provided the Blue Ribbon Panel, but what does that mean? It doesn't mean anything at all. MLB has provided the Players Association with greater detail ... but the Players Association isn't allowed to share that information with Congress or anyone else. So what it comes down to is this: Major League Baseball has provided first the Blue Ribbon panel, now Congress -- and as it turns out, you and me -- with precisely the data they want us to see. And not a single number more.
And Selig never did answer another basic question, which is, "How does contraction" -- by the way, contraction would certainly cost the teams at least $500 million to implement -- "solve any of baseball's problems?"
As Governor Ventura said, "I cannot understand how eliminating the Minnesota Twins will help the Arizona Diamondbacks draw more fans, or prevent them from spending more money than they can afford on player salaries."
Anyway, after reading everything I could find and listening to Commissioner Bud far more than I'd prefer, here's what I think.
I think that baseball teams are losing money as a group, though the losses aren't anywhere near $519 million, and the real losses are somewhere south, quite likely far south, of $200 million. But I also think that most of those losses, and perhaps all of them, disappear each time a club is sold, generally for far more than its last purchase price.
I think that the owners have once again not negotiated in good faith with the players, once again leaving the owners in a precarious legal position. If press reports are to believed, the owners unilaterally broke off negotiations last summer.
I think that contraction has always been a negotiating ploy more than anything, intended to scare the players into concessions and the good people of Minnesota into ponying up for a new ballpark.
I think that if MLB does somehow overcome all of the many obstacles to contraction and exterminates two franchises in 2002 or 2003, within five years MLB will sell two expansion franchises for between $200 million and $300 million per franchise. This, my friends, is why Bud Selig and his pals aren't interested in moving a franchise; it doesn't make them any money, while expansion would bring each existing club somewhere in the neighborhood of a $20 million windfall.
And I think that the men who run Major League Baseball will, just has they have been doing for the last 30 years, continue to behave stupidly and dishonestly in their dealings with their employees and their customers. Frankly, they just can't seem to help themselves.
Rob can be reached at email@example.com, and to order his books, including the just-published Feeding the Green Monster, click here.
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