How Loria Took Money For Personal Use

The Miami Herald on Sunday, in an article by Charles Rabin and Adam Beasley, did a good job of summarizing the issues surrounding the web site Deadspin’srelease of the financial statements for various MLB teams. In addition, they got the Florida Marlins team president David Samson to admit the following:

  • “Some” of the money [5.4 million over 2 years] reported as a ‘Management Fee – Related Party’ to the company Double Play, covered expenses for architects and engineers. This also then means that “some” of the monies represented actual management fees paid to Loria. This is in direct contrast to Samson’s assertion earlier in the week – see Jeff Passan’s column – ‘that not $1 had gone into Loria’s pocket.’ What are the odds that if the portion of the $5.4 million which had gone to expenses represented all or most of the $5.4 million, that Samson would have failed to note that?
  • That Loria collected $16 million from the team in the past 2 years in repayment of loans [interest was not noted, but probably should have been]. My own attempt to quantify the monies which Loria had collected from the Marlins through Double Play came to $14.2 million — see my earlier blog post.
  • Samson refined his ‘not $1 in Loria’s pocket’ defense to “Loria has never taken money from the team for personal use.”

Given Samson’s track record, it would not be unreasonable to try and analyze that assertion. Other than having enough money to donate $20 million to Yale in March 2007, not much is know of Loria’s wealth as far as I can tell.

Why Management Fees = Taking Money For Personal Use

We don’t need any special insight to know that any monies paid to a company Loria controls, like Double Play, should be considered funds that are at his disposal, net of any expenses. As such, almost by definition, whatever amount “some” of the $5.4 million in management fees paid to Double Play which were not being used to cover expenses [architects and engineers] amounted to, those funds would end up at Loria’s disposal, or for his personal use.

Left unexplored is why any necessary stadium related expenditures would be handled through an owner controlled company instead of the Florida Marlins themselves. Lack of transparency is not some unfortunate by-product here, it is likely the main purpose of involving Double Play.

Here is how the Marlins will respond. When Samson said “taken” he did not mean to include Loria’s management fees [payments to an owner], which likely is most of the $5.4 million. Neither did he mean to include the $16 million of loan repayments and interest earned on those loans. He only meant the net earnings [or surplus in the case of a partnership] from the Marlins themselves.

Then let Samson and the Marlins say that — with all the caveats which that entails — rather than making cynical statements which imply that their owner has not benefited [income and cash flow well into eight figures] personally from the team’s finances during the two years exposed. The truth is that one of the purposes of a company like Double Play is that it allows owners to take monies from the main business, without appearing to be taking the money directly.

More left unexplored is how many owners of franchises preparing to build stadiums can use that time to pull monies out of their team instead of having to invest in a project which will substantially increase the value of their investment. Loria’s behavior is especially egregious when you factor in that the franchise increased in value by about $70 million during the two years covered, as per Forbes valuations, which have an excellent track record. No wonder respected MLB writer Buster Olney has called for a government investigation of the Marlins.

One of Miami’s best know journalists remains neutral on this issue. Elsewhere in the Sunday Miami Herald, it took Dan LeBatard about 1,300 words to conclude that this issue is really complicated. As evidence, he noted that he received unsolicited input from CPA’s which defended Samson. One was quoted as writing:

Few people understood then, and understand now, how poorly capitalized Loria is.

Unless that CPA was privy to Loria’s personal financial statements and or those of his company Double Play, the released Florida Marlins financials would not tell you how well or poorly capitalized Loria was or is. They tell us how leveraged the Florida Marlins were, not Jeffrey Loria, an important distinction. The fact that Double Play lends the Florida Marlins money, is evidence that Loria keeps his money elsewhere. The one concrete observation about Jeffrey Loria’s personal finances which can be made after reading the Florida Marlins financials [and the Rabin and Beasley article], is that his cash flow increased by at least $16 million [plus “some” management fees] during the two exposed years.

Maybe it’s time for some solicited opinions?

Even more left unexplored. How does a team with operating income of $134 million [according to Forbes – hey, we’re done with the whole Forbes just makes it up spin no?] since Loria purchased the team in 2002, end up in debt with a partners’ deficit? Just think of it this way, if 2008 and 2009 resulted in a total of $52 million in operating income, what would make 2006 and 2007 any different in terms of profitability? What makes 2010 that much different [in terms of baseball operations]? Same bottom of the league payroll and same revenue sharing agreements in place since 2006. Where did all the operating income go? The amount of management fees paid to Loria during that time is probably a good place to start. At least we know the profits are not in the bullpen.

This whole issue reminds me of Malcom Gladwell’s observation on the need for journalists to be smarter [about accounting and statistics]. I would add that a willingness to go outside comfort zones could easily compensate for any industry specific or technical issues.

The Rabin and Beasley article referenced is copied in full at end of post.

Marlins saved millions in revenue-sharing deal

The Florida Marlins reaped more from Major League Baseball’s revenue sharing than the team paid for player salaries the last two years — a disparity fueling the $52 million in operating income the franchise pocketed in that time, previously secret financial records show.

The team secured its profit — which exceeded that of five other franchises whose books have also been leaked — as it won hundreds of millions of dollars in public money for its new stadium, the records show.

Critics chide the team for lobbying for $487 million in public money for its $642 million stadium as its own financial health was robust. The Marlins tell a different story: That the bottom line represents sound financial footing allowing the team to contribute $155 million to the structure rising in Little Havana.

Either way, there’s no disputing the bottom line:

“The Marlins are running a shoestring budget so they can turn a profit,” said Neil deMause, a Brooklyn-based journalist who co-authored the 1999 book Field of Schemes: How the Great Stadium Swindle Turns Public Money into Private Profit.

The previously confidential information came to light last week when the sports website released the private financial statements of the Marlins and five other teams: the Tampa Bay Rays, Pittsburgh Pirates, Seattle Mariners, Los Angeles Angels of Anaheim and the Texas Rangers.

The documents covered the 2007 and 2008 seasons for the Pirates, Rays and Mariners, and 2008 and 2009 for the Marlins, Rangers and Angels.

While that makes it impossible for an apples to apples comparison, the records provide the first comprehensive look at MLB’s financial doings.

And, they show how the Marlins separated from the pack in the amount of money it collected from revenue sharing and income it earned:

• The Marlins reported the largest operating income over a two-year period, at $52 million. Next came the Pirates at $38 million, the Rays at $36 million, the Angels at $23 million and Mariners at $6 million. The Rangers were the only team to record a net operating loss, of $8 million.

• The Marlins also collected the most net income, at $33 million, followed by the Pirates at $29 million, Angels at $18 million, Rays at $15 million and Mariners at $13 million. The Rangers, meanwhile, were $23 million in the red.

• The team secured its largest financial advantage in revenue sharing, in which big-market teams share their wealth with smaller franchises.

In the two years, the Marlins received $92 million in revenue sharing, enough to cover the team payroll in that time with close to $20 million left over to go toward ballpark construction or other costs. Earlier this year, MLB called into question the team’s payroll practices.

The Rays collected $75 million from revenue sharing, the Pirates $69 million, and the Rangers $29 million. The other two franchises paid more than they pocketed, with the Mariners reporting a loss of $24 million and Angels $31 million.

The numbers also show the Marlins were last in concession sales and next to the bottom in television and radio revenue, ahead of Tampa.

On the flip side, the Marlins — who have remained competitive on the field despite being at or near the bottom of payroll in baseball — devoted the largest share for player development, at $60 million, according to the sports business website The Pirates were next closest at $44 million.

Ultimately, the records reveal a franchise turning a healthy profit.

“It should come as no surprise — and, in fact, a great comfort — that the team’s balance sheet reflects the wherewithal to honor its commitments,” County Manager George Burgess wrote Friday.

Of the Marlins’ share of stadium costs, $120 million will be a direct contribution and $35 million a loan the team will repay the county through yearly rent. Bond deals are bankrolling the public end of financing, and interest costs could ultimately send the tab above $2 billion.

“The deal is so one-sided, it’s really sad to see this community obligated for 30 years,” said art collector Marty Margulies, who campaigned against the use of public money for a stadium set to open in 2012. “At the end of the day, the people who voted for this . . . are to blame.”

In March 2009 the Marlins won a decades-long battle to secure financing for the stadium now reaching skyward and visible miles away.

Team owner Jeffrey Loria landed the deal through commission votes in Miami and Miami-Dade, beating back a lawsuit from billionaire auto magnate Norman Braman and a legal effort to show the public its books.

Loria and Marlins President David Samson said the information was proprietary, convincing a judge local government didn’t need to see the records to award the money.

Though the team never released its financial records, Samson said it allowed elected leaders to speak with the Marlins’ bankers.

Some county and city commissioners are trying to reopen negotiations over the stadium and parking contracts, citing the franchise’s bottom line.

“Now, Mr. Samson on the record says that at the time, city officials in Miami knew everything about their finances — and yet on the record before the city commission they refused to disclose their records,” said Miami Mayor Tomás Regalado, who voted against the stadium as a commissioner and is trying to get the parking deal restructured.

Whether that will happen is yet to be seen, but Samson said city and county leaders were aware of the team’s financial shape. “You may disagree on how we run the team. But I didn’t lie. The documents are right there,” he said.

The president also said Loria has never taken money from the team for personal use.

That may be so, but in 2008 and 2009, the Marlins paid $5.4 million to Double Play Company, whose partners are Loria and Samson. Samson said some of that money covered expenses like the hiring of architects and engineers.

Also, the documents show Loria collected $16 million from the team the past two years. Samson said that represented repayment of a loan Loria provided the team to help with stadium costs.

“The team needed money,” Samson said. “Jeffrey lent the team money and the team has to pay him back.”

Samson said the ballclub used revenue sharing to shore up its bottom line so lenders would feel more comfortable that the franchise could cover its end of the stadium cost.

When the revenue-sharing system was adopted in 1996, broad language was written into the collective bargaining agreement between the union and baseball owners that allowed a team to use the proceeds “to improve its performance on the field.”

The Marlins received a public slap on the wrist earlier this year from Major League Baseball and the players’ union. Though the league never said why, it’s been reported the team wasn’t spending enough on payroll. The team later signed All-Star pitcher Josh Johnson to a multi-year contract.

Still, the position of MLB Commissioner Bud Selig is that, over time, the franchise has been in compliance with the use of revenue-sharing.

“It is always possible to take a club’s financial statements in a given year and make an argument that they spent less on payroll than they could have,” said MLB executive vice president for labor relations Rob Manfred.

“But with a lower-revenue club, you have to look at it over a number of years.

“When you think about the revenue sharing system, you have to focus on the system as a whole, and it has been very successful in improving the level of competitive balance.”

The Marlins have won two World Series, most recently in 2003 when the club toppled the big budget Yankees — ironically, a team contributing a share of Miami’s payroll.

Since then, the ballclub has jettisoned accomplished players, including Miguel Cabrera, Dontrelle Willis and, this year,Jorge Cantu and Cody Ross.

Opening the 37,000-seat, retractable-roof stadium will strengthen the Marlins’ long-term financial health, said MLB’s Manfred. The roof is sure to draw fans wary of rain or scorching heat.

And, the Marlins will reap more from concessions as the contracts stipulate the team collects almost all the revenue from a new ballpark.

Read more:

About Jorge Costales

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