MLB’s owners: Capitalists in good times, Socialists in bad times

If the MLB owners hadn’t gotten rich in whatever field enabled them to buy a baseball team, they could all start their own PR firms — or be politicians. Reading the cries of poverty by multi-billionaire owners around short-term cash flow issues leaves me cold. But somehow, some way, they get mainstream media to go along with the notion that pandemic-induced cash flow problems are the players’ problem, and that the players have to be the ones to bridge a large share of the cash flow gap suffered by the clubs in 2020. So, in rough times, you effectively ask your creditors (read: players) to restructure their debt to help cushion your pain. Oh, and you use the court of public opinion to put pressure on your creditors to restructure or else they’re “greedy” or “ungrateful”. Conversely, in good times, you simply pay your creditors what you owe them and give them -0- of the upside associated with the rising tide. Tails, you lose. Heads, I win! If I was an owner I’d like this game, too.

Let’s hear from Tom Ricketts, the owner of the Cubs:

“The league itself does not make a lot of cash. I think there is a perception that we hoard cash and we take money out and it’s all sitting in a pile we’ve collected over the years. Well, it isn’t. Because no one anticipated a pandemic. No one expects to have to draw down on the reserves from the past. Every team has to figure out a way to plug the hole.”

Real sorry you’re running a business there, Tom. It’s not just the owners of baseball teams that are struggling right now, but every mom-and-pop in the country not to mention tons of multi-billion dollar businesses to boot. And they don’t have a team valued at $3.2 billion or a family net worth of $2.2 billion. Don’t come here for sympathy. It’s called the responsibility of being an owner. And further, in the absence of open books I have no reason to believe that what you’re saying is true. So do feel free to open them up to back up your assertion.

Tom seeks to pull on the heartstrings even more with these bold entreaties:

“The scale of losses across the league is biblical,” Ricketts said. “The timing of the work stoppage, the inability to play was right before the season started. We’re looking at 30 teams with zero revenue. To cover the losses, all teams have gone out and borrowed. There’s no other way to do it in the short run. In the long run, we may be able to sell equity to cover some of our losses but that’s in the long run.

“Who would invest at the moment?”

Wow, now it actually sounds like you’re running a business. To cover losses, teams have gone out and borrowed. Gee, like every other major company on the planet during hard times? Have you heard of bank loans? Bond sales? Securitization of future cash flows? And you even acknowledge the sale of equity as a possibility, but assert that no one would want to invest. Really? Have you made 10 phone calls to your friendly billionaire pals? And also, given that you ran an electronic trading business, I’m sure you know that of course there are people who would want to invest — they just might not want to invest at your desired price. But that doesn’t mean there’s not a market for your shares — I can guarantee that there is. You just have chosen not to make one because it doesn’t fit the narrative that the players should help fund the gap. And as an owner that’s your choice — as long as you come up with the money to pay what’s owed.

Then Mr. Ricketts goes further in describing what equity owners of a business do — invest in the business. As if this is something to be applauded.

“We put about $750 million into the ballpark,” he said. “And the dollars spent were to create the best place for players to play and the best place for the fans to watch the game.

“[Boras] doesn’t have any insight into our balance sheet, and as we have been investing in the ballpark, we’ve been spending more on the field. We’ve been one of the top spenders in the league while we were fixing up Wrigley Field. We don’t take money out of the team. Most owners don’t. We’re investing in the future of the club and the current team on the field.”

And this investment is paying off in spades. After buying the team and related assets for around $845 million in 2009, today’s $3.2 billion valuation equates to an annual rate of return of around 14%. Not too shabby. But if they have to take on some additional debt to make good on their creditor-like obligations to the players while preserving the equity upside of being owners, that is all a cost of doing business. But Tom and the owners would have you believe that the players should be subsidizing these losses while receiving none of the future gains. Capitalism in good times, socialism in bad times.

I’m sure if you were to poll the owners and say “You’re behaving like socialists” they’d freak out and act righteously indignant. But this is the stark reality. In my business companies will operate at significant losses for years as they work to build great products, sell them well and accrete significant equity value. How do they do this? By selling equity to investors at (hopefully) progressively higher prices to reflect growth and de-risking of the business. If the owners want to enjoy the benefits of ownership, then learn to live with the risks of being an owner. If you can’t handle the downs that invariably come along with the ups, you’re in the wrong business. But make no mistake, it’s not for you to turn to your creditors and ask them to restructure without incentives for doing so — otherwise, you’re acting like a socialist, plain and simple.