Braman, Petards and Hoisting

Turns out a petard is a small bomb.

During Braman’s testimony in the trial yesterday, there was the following exchange as reported by Charles Rabin in the Miami Herald:

Auto dealer Norman Braman opened his lawsuit against Miami’s megaplan Monday by sparking a short, but fiery, debate over the financial well-being of one of the project’s prime recipients: the Florida Marlins.Braman lost the skirmish, but his opening salvo gave a glimpse of what will likely be a bitter fight over the plan that would bring a new stadium to the Marlins and reshape Miami’s urban core.

The judge had already ruled the ball club’s money issues had no bearing on whether the use of $395 million in public money to help build a stadium served the public good.

That didn’t stop Braman from going to the heart of his argument — which brought a string of objections and triggered something of a disjointed appearance by the wealthy businessman in the crowded, stately Miami courtroom.

”I know as a matter of fact that the Marlins do not have the financial capacity,” was all the 75-year-old former owner of the Philadelphia Eagles could utter before he was cut off by Marlins attorney Sandy Bohrer, who also represents The Miami Herald in unrelated matters.

”Has he seen their financials?” Bohrer asked Circuit Court Judge Jeri Beth Cohen.

Cohen sided with Bohrer, not allowing a document Braman said he received during a 2003 visit from Marlins President David Samson that he claims shows the team was more than $150 million in debt. Braman also said Marlins owner Jeffrey Loria tried to persuade him to take on partial ownership at the time.

In my dream movie version, when Braman was asked if he had seen their financials, he would have produced a copy of the 2008 Forbes Business of Baseball magazine and David Samson would have suddenly appeared, snatched it from him and thrown himself through the nearest window – invoking Law #11 of Cartoon Thermodynamics – no real injuries would have ensued.

I love this stuff. I can’t wait until Tom Wolfe or Carl Hiaasen writes about it. But for now, please note the following points:

  • Braman must know that the Marlins operating results have vastly improved since 2003 [see the Marlins P&L since 2002], given their salary cutbacks, the increase in revenue sharing monies and MLB Central revenues, but since the Marlins are always crying poverty in order to get the stadium, they are in no position to counter his argument. Hence, Braman is the ‘hoister’ and the Marlins brought the ‘petard’ to this relationship.
  • Whatever document Braman was presented to encourage his investment, it is extremely unlikely that the Florida Marlins debt would have been a significant factor.  Although Loria purchased the team for $158.5 million in 2002, $120 million of that price was the value ascribed to the Expos franchise which was exchanged for the Marlins.  So the maximum debt the Marlins could have incurred at time of purchase was $38.5 million owed to MLB.  However, we also know that $15 million of that loan from MLB would be forgiven if the team did not secure a stadium deal within 5 years.
  • According to Forbes, the Marlins had operating loses totaling $26 million for 2002 & 2003 – let’s say Forbes was off about 10% and round it off to $30 million in loses for those two years. So the Marlins would have had debt totaling approximately $68.5 million in 2003, $15 million of which was eventually forgiven by MLB.
  • According to Forbes, the Florida Marlins operating profits from 2003 to 2007 have totaled approximately $59 million. Goodbye debt. Hello stadium fund.

So how could a significant debt have arisen and survived the great salary dump of 2005?  Perhaps the document Braman saw also included monies which Loria had invested in the Montreal Expos franchise – estimated at $30 million. An excerpt from that article below documents how Loria got control of the Expos:

He then initiated capital calls on the other owners in 2000 and 2001 to fund rising operating expenses. When they chose not to meet those calls, Loria funded them himself with about $18 million. That triggered a clause in the partnership agreement that allowed him to dilute the interests of other owners down to 6%. Loria thus gained 94% of the Expos for roughly $30 million. He would soon sell the team for four times that amount [value given for Marlins – JC].

But even that $30 million, properly understood is not a debt to the Marlins, but rather represents Loria’s investment in the Montreal franchise which he subsequently sold for $120 million. The resulting difference represented a taxable capital gains to Mr Loria. But MLB ownership is the gift which never ceases giving to Mr Loria. There is a special IRS provision which allows sports franchise owners to amortize 50% of their purchase price over the first five years after the purchase. So Mr Loria was the beneficiary of about a $78 million tax write off which served to offset the capital gains tax from the estimated $90 million dollar profit related to the sale [or exchange] of the Montreal franchise.

His initial investment in the Marlins for $158.5 million is now acknowledged [see pg 11 of BSA] to have grown to $250 million. Further, any consideration of Loria’s or the Marlins financial viability, should really factor in that the owner was able to donate $20 million to Yale University as of 2007. If someone donates $20 million, what would be a reasonable estimation of their net worth?

Bottom line, the Marlins and Mr Loria’s investment in them are doing just fine. But in a reminder of Aesop’s [not Hee-Seop’s] boy who cried wolf classic, they cannot admit financial well being when they most need to.

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About Jorge Costales

- Cuban Exile [veni] - Raised in Miami [vidi] - American Citizen [vici]
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