July 10, 2002

DuPuy Disinforms

Baseball America Talks to Bud's Right-Hand Man

by Doug Pappas

The Baseball America website features transcripts of lengthy interviews with the protagonists in the current labor dispute: Bob DuPuy, MLB's president and chief operating officer, and MLBPA head Don Fehr. Editor Alan Schwarz sat down with each man for an hour, asking tough questions and following up as appropriate. Each transcript runs over 6,500 words.

Unfortunately, not all of those words are accurate. While both men used the interview as a forum for presenting their positions to the public, one went further. DuPuy made several unambiguously false statements about the economics of Major League Baseball.

DuPuy: "[R]emember, 65 cents of every dollar that's generated right now goes to player salaries."

Fact: According to MLB's own December 2001 financial disclosures, last year the players received $1.971 billion of MLB's $3.548 billion in revenues. That's 55.55% of revenues, not 65%--a difference of about $335,000,000/year. Nor can DuPuy be referring to 2002 figures: Opening Day salaries rose 5.2%, so even if MLB's 2002 revenues haven't risen at all the players would be taking only 58.4% of the gross.

DuPuy: "Put aside interest. Put aside depreciation. Just in operations alone, the clubs last year lost over $300 million."

Fact: DuPuy exaggerated MLB's operating losses by at least 22%. Last year MLB claimed operating losses of $232 million, not $300 million. Meanwhile Forbes estimated that MLB actually made a collective operating profit of $76.7 million.

DuPuy: "Of the last dozen [franchise] sales, fewer than half recouped the investment, let alone the investment plus the losses."

Fact: Here are the last dozen franchise sales:

• 2002: A group headed by John Henry and Tom Werner buys the Boston Red Sox, together with Fenway Park and 80% of the NESN cable sports network, from the Yawkey Estate for $700 million. Highly profitable for the seller no matter how the sale price is apportioned among the assets.

• 2002: Pursuant to MLB's plan, Henry sells the Florida Marlins to Expos owner Jeffrey Loria for $158.5 million, the same price he paid for the club in 1998. Breakeven.

• 2002: Pursuant to MLB's plan, Loria sells the Expos to Major League Baseball for $120 million, the same price he paid for the club from 1999-2001. Breakeven.

• 2000: Disney buys the Anaheim Angels from the estate of Gene Autry, who had owned the club since its inception. Highly profitable.

• 2000: Larry Dolan buys the Cleveland Indians for $323 million from Richard and David Jacobs, who paid $35 million for the club in 1986. Highly profitable.

• 2000: David Glass buys the Kansas City Royals from the estate of Ewing Kauffman, who had owned the club since its inception. Highly profitable.

• 2000: Rogers Communications buys 80% of the Toronto Blue Jays for $112 million. Corporate takeovers and exchange-rate fluctuations make the earlier transactions difficult to value -- let's give this one to DuPuy.

• 1999: Carl Lindner buys control of the Reds from Marge Schott in a transaction which implicitly values the Reds at $181.8 million. Schott's group purchased the club in 1984 for $24 million. Highly profitable.

• 1999: John Henry buys the Florida Marlins from Wayne Huizenga for $158.5 million. Huizenga had bought the expansion franchise, which began play in 1993, for $95 million. Highly profitable.

• 1999: Jeffrey Loria buys control of the Montreal Expos, paying $50 million for 35% of the team. The deal implicitly values the Expos, who had sold for $86 million in 1991, at $143 million. Highly profitable.

• 1998: News Corporation buys the Los Angeles Dodgers from the O'Malley family, who had controlled the club since the 1950s, for $311 million. Highly profitable.

• 1998: Tom Hicks buys the Texas Rangers from a group headed by George W. Bush for $250 million. The Bush group had paid $46 million for the club in 1989. Highly profitable.

Of these 12 sales only three, the Blue Jays and the recent Expos and Marlins transactions orchestrated by Major League Baseball, can be considered breakeven. The other nine sellers received anywhere from a sizable to a stratospheric return on their investment. Furthermore, Forbes estimates that current MLB owners have enjoyed average franchise appreciation of 12%/year.

Thus even assuming that MLB's financial disclosures are accurate and meaningful, DuPuy exaggerated the players' share of industry revenues, overstated MLB's operating losses, and grossly understated the return on an investment in a major league baseball team.

Two of DuPuy's other remarks also deserve comment:

DuPuy: "I think the deal that we struck in '96 was the result of a lengthy work stoppage and came on the heels of that, and the problems that that had created, and exacerbated the competitive-balance problem which is key to these discussions and ongoing negotiations."

If I've parsed this sentence correctly, DuPuy blames the 1996 labor agreement as well as the strike for worsening competitive balance. But the only major substantive changes in baseball economics in the 1996 labor agreement were (1) greater revenue sharing, and (2) a luxury tax in effect from 1997-99. If DuPuy thinks this agreement exacerbated the competitive-balance problem, why are the owners again demanding greater revenue sharing and a luxury tax?

DuPuy, describing the Minnesota court decision ordering the Twins to play in the Metrodome in 2002: "One lawsuit where a court rendered a decision that can't be found anywhere else in United States jurisdiction--that somehow a tenant can't vacate on a lease and is responsible for living there rather than paying rent."

If DuPuy's a little sensitive about this issue, it's because he's the lawyer who, six weeke before the contraction vote, told Carl Pohlad to sign his lease for 2002 because the courts would never enforce it. That lease contained a provision stating:

"If the Team ceases to play major league professional baseball games for any reason, the Team shall have breached this Agreement and will be liable for such remedies as may be available to the commission at law or in equity, including, but not limited to injunctive relief, and orders for specific performance requiring the Team to play its Home Games at the Stadium during the Term hereof."

This language looks awfully clear to me... but in his appellate brief, Twins lawyer Roger Magnuson's blustered that "[n]o other decision forced a business to shoulder the burden of continued operation, merely so that the public can enjoy a ballgame," and that by holding the Twins to the terms of the lease they signed, the stadium commission "derides the free market system, blasts the fundamental policies of free enterprise and private ownership, and assures this court that government knows best."

Every group opposed to taxpayer-funded stadia should send these quotes from DuPuy and Magnuson to every legislator in its home state, and every voter asked to decide whether to tax him or herself to build a new park for the home team. They illustrate MLB's contempt for fans, taxpayers, local governments, and anyone else who dares demand that the owners answer to any authority higher than themselves.

Magnuson argued to the Minnesota courts that even if contracting the Twins would breach the lease they had just signed, then notwithstanding the language quoted above the stadium authority could not stop the Twins from contracting, but could only recover the rent they would lose as a result. This argument should be a warning to residents and local officials wherever MLB is abusing its monopoly power to extort a taxpayer-subsidized stadium: the more generous your subsidy, the easier MLB thinks it will be able to break the lease. If this argument had been accepted, a team that signed a 30-year lease on a new $250 million park for $1/year could walk away after ten years merely by paying the park owner $20.

DuPuy, a Milwaukee attorney, served as Bud Selig's personal counsel before Selig selected him to replace Paul Beeston as president of Major League Baseball. Late in his interview, DuPuy emphasized that "I came out of 25 years of client service. And having worked for Bud for 12 years, I understand the concept of a boss." Regrettably for those of us who care about both baseball and the truth, DuPuy seems to understand all too well what his boss wants.

Doug Pappas is an author of Baseball Prospectus. You can contact him by clicking here.