MLB to likely profit from Expos' investment
A stadium deal is expected to help Major League Baseball turn a big profit on the Expos-to-D.C. move.
When Major League Baseball owners purchased the Montreal Expos for $120 million, most who approved the deal couldn't have anticipated that it would take 31 months for the sell-off to finally take place.
But despite criticism over continuous delays in determining the right city, the investment is likely to pay off in the end, thanks in large part to what appears to be a sweetheart stadium deal.
|“||Right now, it's not important whether baseball will make $20 million or $30 million on this deal. What is important is that they didn't pay attention to the public pressure, they didn't rush to find a solution and they arrived at the right deal in the right city. ”|
|— Financial adviser Chuck Greenberg|
And that's even including a deal with Baltimore Orioles owner Peter Angelos, who will receive various financial guarantees and perhaps an equity stake in a regional sports network.
The Expos-to-Washington deal includes the city's financing the $440 million stadium, paying for the land the stadium is built on, as well as giving the new owners complete ownership of stadium naming rights. On game days, the owners are also keeping all the local parking revenue generated from a 1,100-car parking garage. The deal, at least in principle, also provides that the city will make $13 million in renovations to RFK Stadium, where the team will play temporarily until a ballpark is built.
The owners will be paying approximately 16 percent of the new stadium cost, according to projections made by Neil deMause, author of "Field of Schemes: How the Great Stadium Swindle Turns Public Money Into Private Profit."
That's including the rent of $5.5 million per year and the new taxes -- worth $3 million to $4 million per year -- that will accumulate from sales of tickets and souvenirs, according to deMause.
"It's too soon to tell exactly how good of a deal this will be, but it looks like it's a return to the deals of the '90s," deMause said.
In order to get the final projected contribution percentage, deMause discounts the $2.5 million he projects the new owners can make off stadium naming rights.
That number could actually be low, according to one stadium naming rights insider, who has worked on behalf of many teams and sponsors to secure deals in recent years.
"They can easily get $100 million for 25 years," said the expert, who requested anonymity.
In the bidding war, Major League Baseball could leverage the naming rights deal to get a higher final price. Because the value of an established naming rights deal certainly wouldn't be as high as the amount projected for a new stadium in Washington, baseball could argue that the franchise is worth more since it provides that enhanced revenue stream to the owner.
An asset also included in the sale, which is expected to raise the asking price, is 1/30th of a share of ownership in MLB.com, which sports finance experts say is worth tens of millions of dollars.
"Right now, it's not important whether baseball will make $20 million or $30 million on this deal," said Chuck Greenberg, a partner who heads up Pepper Hamilton's sports practice and is CEO of PlayMaker Sports Advisors LLC, which advises potential owners on sports financing issues. "What is important is that they didn't pay attention to the public pressure, they didn't rush to find a solution and they arrived at the right deal in the right city."
The league could also come out on top if the Washington team becomes a "have," instead of the "have-not" that the Montreal Expos became. A solid television contract should help the team shift from being the greatest taker in revenue sharing to, perhaps, a giver.
"If the Washington, D.C., team becomes a 'have,' that will be a major accomplishment because it will free up millions of dollars to give to another team that needs the money to survive," said Marc Ganis, president of SportsCorp Ltd., a sports consultancy firm.
Although Ganis believes Las Vegas is the ideal city for a moving franchise like the Expos, he said the league got the best deal possible in Washington because of the stadium deal.
Those working on behalf of the prospective bidders could argue that the late timing of things will cause them to lose a bundle in the short term. The bidding process is expected to take about three months, timing that would cause the new owner to miss some of the free-agent signing period. It has been speculated that Major League Baseball will start selling tickets for the franchise before a new owner is named so that projections for first-year losses won't be so high that they deter potential bidders.
New bidders can also contend that they can't pay top dollar until the lawsuit against former Montreal Expos owner Jeffrey Loria and Major League Baseball is settled. In the suit, 14 limited partners of the Expos claim Loria, now the Marlins owner, and president David Samson diluted their shares in the team in order to eventually move the team from Montreal. The limited partners are expected to file an injunction to temporarily block the move to D.C.
Darren Rovell, who covers sports business for ESPN.com, can be reached at email@example.com.