Tuesday, November 25, 2008

Baseball's Vigorish to Increase

Everyone talks about the prospect of lower ticket sales cutting into the teams' ability to spend on players and stuff, but there are other factors in play too. Such as the league's big line of credit expiring and teams having to actually start borrowing money like everyone else:

Major League Baseball is the latest sport to confront the harsh reality of the global credit crisis, with the league’s $1.5 billion credit facility set to expire Dec. 8. The NFL last month decided to let its loan pool terminate, automatically converting it into debt with accelerated principal payments. But unlike the NFL, whose first payment is not due until 2011, if MLB does not refinance, it will have to begin making some principal payments as early as next month, finance and baseball sources said . . .

. . . MLB briefed its owners on the situation last week and updated the teams’ chief financial officers a week earlier. Bank of America, MLB’s lead lender, has been trying to refinance the credit facility into a seven-year loan that would push the first principal payment off to 2014, the sources said. That loan would carry rates 2 percent to 3 percent higher than what teams are charged through the current credit facility, banking sources said.
I'm a finance moron, but my guess is that 2 to 3 percent is worth at least a couple of relief pitchers.

(thanks to ShysterBall's Minister of Finance, Pete Toms, for the heads up)

4 comments:

Maury Brown said...

Maybe we need to get Pete and Craig in go fix the credit crunch?

Maybe I've grown numb on the economic decline. Either that or I'm looking at central revenues and MLB's holdings and not seeing anything "doom worthy."

With MLB Network, the WBC, and new facilities for the Mets and Yankees, the worst I could see happening to the league would be revenues flattening. It is interesting, however, that the league would look to a new loan at higher rates. Maybe Bud and Bob are sucked into the whole subprime allure -- the idea that MLB will have more revenues to play with in the future to offset the interest rate hike.

Still... I vote for Pete and Craig as part of Obama's transistion team.

Craig Calcaterra said...

I agree that things aren't gloom and doom for baseball. All things considered, I'd rather have my fortunes staked to baseball than to most other sectors. I think it's just a matter of belt-tightening. Belt-tightening that will serve as an explanation to fans when they ask why the bullpen didn't get fixed, or why we have no bench and a fat guy is playing centerfield.

As for the Obama team, I think I'm DQ'd for being a total financial idiot. Pete is probably dq'd due to citizenship concerns. I mean, if we let Canadians into our government, our precious freedoms, or fabulous health care system, and our Strategic Donut Reserve will be all but lost.

Anonymous said...

APBA Guy-

Didn't Boras just say there is no evidence to suggest the economy will have an impact on baseball?

Then why worry about an increased cost of 2-3% on borrowing? Spend, spend! The great and powerful Oz, I mean Boras, has spoken.

Pete Toms said...

I thought it was interesting that Mr. Kaplan thinks the increased cost of borrowing ( I prefer buying, borrowing is a misnomer ) money will most impact the small market teams.

“There will be less money available to pay players, especially for teams that are at or near the debt ceiling,” he said. “The top players with the top-revenue teams will not be as impacted as the small- and midsized market clubs that are much more dependent on cheap available debt.”

I don't know if that's true or not but I do know that Mr. Kaplan knows a whole lot more than me about it.

But this is a good example of why I follow baseball biz stuff. Most sports fans I know don't "get" why I'm curious about it. My interest in the subject stems from my interest in the game, the actual on the field game. If Kaplan is right, this will have an impact on the quality of teams small markets will be fielding.

As for the credit situation, I'm interested to see what transpires when the Marlins have to "buy" some money to fund their share of their new stadium construction. ( The Chuck Prophet song "Credit" is running through my head )