added 11/17/2003 by Willie B. Lakey
As difficult as it is, I try very hard not to confuse the game of baseball with the business of baseball. For the most part, my effort is successful. When I get to a park to watch a game, my focus is on the next pitch, the last great defensive play, the arm on the right fielder and the heavy bat being swung in the on deck circle.
But invariably, the business part of the game comes up in conversation. Walk around any major league park these days and you’re bound to hear things like, “Did you know the shortstop is making $20 million a year?” or “That pitcher isn’t even worth the minimum.” A player’s contract terms or a team’s total payroll is in the news so much that a really avid baseball fan simply can’t ignore those figures any more than they can ignore OPS and strikeout-to-walk ratios.
This past Sunday in his column, Richard Justice, the chief hardball scribe for the Houston Chronicle, introduced most of us to a new phrase on the business side of baseball’s equation: Debt-Equity. Now understand first off that one reason the business part of the game doesn’t interest me that much is the simple fact I don’t really understand all of it. I spent a good chunk of my life writing technical documents and manuals for a few oilfield service outfits. Very seldom did the companies’ accountants and bookkeepers rush over to the documentation department with news and explanations of the latest accounting schemes for the capitalization of asset equipment.
But if I understood Mr. Justice correctly, baseball’s debt-equity rule essentially boils down to the idea that clubs are not allowed to borrow more than half the money owed to Alex Rodriguez and Manny Ramirez right now.
Seriously, the dept-equity rule in the majors “prohibits teams from carrying debt that is more than roughly 60% of the value of their franchise,” quoting Justice on that. In other words, my smarty-pants remark about A-Rod and Manny isn’t too far off.
Justice also tells us in his article that this rule hasn’t been enforced so far, though MLB commissioner Bud Selig is threatening to put it into practice beginning in 2005. This is why, according to Justice, just about all teams are looking to cut payroll right now before they are fined and penalized for exceeding the debt-equity ratio.
In theory, and I suspect in practice as well, we all have a dept-equity ratio that we operate under on a daily or annual basis. One of mine is I no longer will pay $25 for a seat in the left field bleachers when I can buy a $15 ticket and go stand in the concourse behind the Crawfish Boxes and have just as good a chance to catch a home run ball as the patrons who did pay $25 for their seats. My guess is that Drayton McLane and his front office staff didn’t consider my debt-equity rule when they raised most of the ticket prices to Arthur Andersen Memorial Stadium recently.
Speaking of Arthur Andersen, just about two years ago when the Enron scandal was first making the news and Martha Stewart was concerned more with decorating her foyer for the holidays instead of how she might look in an orange jumpsuit, I spent an afternoon with my father at a Houston drinking hole known more for skimpy orange shorts than anything else. Enron was a huge topic of conversation then, especially in Houston, and we naturally drifted to that subject while admiring some of the wait staff in the joint.
I was very interested in getting my father’s angle on the whole mess since there was so much I really didn’t understand. “Willie A,” as he is affectionately known behind his back, spent a lifetime climbing up the corporate ladder after beginning his career as a lowly mud engineer. That’s “drilling fluid” engineer for those of you who haven’t spent enough time in the oilfields to pick up on the industry’s vernacular.
My dad eventually made it to the top, [i]el presidente[/i], of a couple of outfits, and I knew he could educate me on some aspects of the corporate accounting world that either seemed too easy or too difficult when sorting through all of the information at the time. During our conversation, he kept using the phrase “generally accepted accounting standards,” a phrase I had either never heard before or always chose to ignore when I did hear it. He distinguished between what was legal and what was illegal when it came to accounting in large corporations.
As for myself, I could only look at it from the “right and wrong” angle. My father and I eventually had to leave the table agreeing to disagree on whether “right and wrong” or “legal and illegal” was the better course of action. That’s not to say my father doesn’t know the difference between right and wrong. It’s just that in “generally accepted accounting standards,” those two concepts are as different and separate as day and night. And just as with day and night, it’s the gray areas of dawn and dusk that are open to debate.
One of those gray areas reared its head for the Astros and their fans this last week. Just a few days after dealing the team’s greatest relief pitcher, Billy Wagner, to the Phillies in what was obviously an accounting-driven move, Houston raised the ticket prices for a majority of the seats inside the stadium that taxpayers built. If Astros brass had come out and said Wagner could stay, but only if the team raised ticket prices by a dollar or two, my guess is most Houston fans would have begrudgingly accepted the ducat increase. That would have seemed to be the [i]right way[/i] to conduct business.
But telling fans the team can no longer afford Wagner and keep a competitive team on the field while saying, “Oh by the way, we need more money to pay Wagner’s replacement, Octavio Dotel, even though we will pay him less next season,” well, that seems like the wrong way.
Granted, we don’t know all of the possible personnel moves Drayton McLane and Gerry Hunsicker have considered for this offseason. McLane hasn’t come right out and said the team needed to drastically cut the total payroll. But he also hasn’t come out and said anything about increasing it by even a dollar or two at this point. And bottom line, we really don’t know what the bottom line is or should be since we really don’t know what “generally accepted accounting standards” the Astros or the rest of baseball operate under.
Right now the owners think they have the players by the you-know-what’s with this debt-equity thing. They can all point at that in the latest labor agreement, even show them where Donald Fehr presumably signed his name on the dotted line, and tell the players, “Sorry, we just can’t afford to be as stupid now as we have been in the past.”
But this ploy will eventually cost them, maybe not in another collusion charge that the players are currently mulling. But it will cost them when it comes time to negotiate the next agreement and avert the next strike or lockout. With each new agreement comes more distrust for the owners by the players, and the fans, because of moves and schemes just like the sudden decision to implement the debt-equity rule and its penalties for violation.
Right or wrong, until the owners open their books and prove to the fans and the players they are as honest and forthright as they pretend to be, that distrust will remain and grow. And you can take that to the bank when you go ask for a loan this winter in order to buy a few tickets to ballgames next season.
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