April 16, 2012

Bizball

Why the Seattle Mariners Could Be Sold

by Maury Brown

Before Howard Lincoln, Chuck Armstrong, and fans from the Pacific Northwest begin calling, the Seattle Mariners are not for sale. I’m not saying they are. I haven’t even heard a mere rumor to indicate as much. So if the Mariners do issue some kind of statement saying they are “unequivocally, absolutely not on the market” and that “Maury Brown is engaging in the worst kind of journalism,” everyone can point to the 90 words in the first paragraph of this article where I made sure to say they aren’t.

If you were to profile a club that was a prime candidate to be sold, however, the Mariners would be right there at the top of the list, very much looking the part of a club for sale. They are perfectly positioned. They have owners that seem to be in need of selling. And they’re sitting within a near-perfect atmosphere to be unloaded in the wake of the Dodgers sale. The Mariners may not be on the market at this time, but you’d be hard pressed to find a team more suited for it.

The Owners That Could Be Primed to Sell
Hiroshi Yamauchi is the largest stakeholder in the Mariners. Ranked as the 11th richest individual in Japan by Forbes, the man that is the largest shareholder of Nintendo Corp. has never been to a Seattle Mariners game. Even with the team playing at the Tokyo Dome—all of two hours from his home in Kyoto, Japan—when the A’s and Mariners started the season, the man that owns more of the Mariners than anyone, did not attend. Yamauchi is no spring chicken. At 84, it may be that Yamauchi’s decision to watch on television from home was due in part to his health.

To add to this dynamic, Yamauchi has taken a hit to the wallet as the global economy has soured. One day in July of 2011, Nintendo stock plummeted 20 percent on sour sales of the 3DS. Yamauchi, who owned 14.17 million shares (or 10 percent) of Nintendo lost $300 million on that day alone. While Yamauchi is still ranked by Forbes as the 11th-richest person in Japan, before the Nintendo crash he was ranked sixth.

Yamauchi reported in court documents that since the purchase of the Mariners in 1992, Nintendo (the named ownership of the Mariners) has pumped $65 million into the club to cover losses, some of which were associated to the cost of constructing Safeco Field.

So either due to his advancing age, his financial hit, or the fact that he does not fit the mold of other owners that are more directly attached to their teams, Yamauchi will be getting out of owning the Mariners either soon or not too long after. It’s just a matter of when it happens.

It’s not just Yamauchi that is in financial trouble either; Chris Larson, the Mariners largest minority partner and former high-placed programmer at Microsoft, is as well. According to court documents, Larson owns 30.63 percent of the Mariners. The trouble is, he’s in the midst of a divorce and, like Nintendo, Microsoft stock has taken a hit in the last decade. While up considerably since 1992 when the Mariners were purchased, Microsoft has dropped dramatically since 2000; after selling at over $57 per share back then, it closed at just a hair above $32 on Friday.

In a report by Geoff Baker of the Seattle Times, Larson was quoted as saying in court documents that "during the current recession, our net worth has been severely impacted by the decline in the stock market and other factors and we have had to sell assets to pay down debt."

While Chris Larson is not Frank McCourt, he is in the same predicament that Padres owner John Moores faces in that he needs a sale to happen in order to cover the divorce settlement. So when Yamauchi bows out, an internal sale to Larson appears to be out of the question. This also places the Mariners in a situation where seeking investments in the form of cash calls to try and keep up in the free agency space with the Rangers and the Angels seems a long-shot, at best.

All told, between the financial hit and the changes in the market, Yamauchi and Larson may see that now is a good time to get out of owning the Mariners.

Mariners and Zero Debt/Value Ratio
A key factor in any sale is the amount of debt that the club is saddled with. Whether it’s been the Dodgers, Astros, Cubs, or Rangers, the recent sales that have occurred in MLB have all seen substantial debt associated with them.

The Mariners are in a different position, however. While investments in Safeco Field are still being made ($7.3 million in capital improvements were reportedly made last season), the bond obligations for public subsidy of Safeco’s construction are now completed. According to Forbes, the debt-to-value ratio on the Mariners is now zero.

Shedding of Player Payroll
The Mariners are not stingy when it comes to player payroll. We can talk about whether they have spent money wisely on player payroll all we want, but the fact is they have spent more than others.

Yes, they shed a bit of player payroll recently—Opening Day payroll for the Mariners dropped 5.25 percent this season, down to $81,978,100 from $86,524,600 in 2011—but they are in a good position to spend more in the future, should they so choose.

The largest payroll obligation that the club holds is starting pitcher Felix Hernandez. The 2010 AL Cy Young award winner will receive $19.7 million in salary this season, $20.7 million in 2013, and $21.2 million in 2014.

Ichiro Suzuki, now 38, becomes a free-agent at the end of the season, and questions abound whether the club will try to make him a Mariner for life. In his final year of his current contract, he’ll make $18 million.

Chone Figgins will pull in $8 million in 2013 and has a $9 million vesting option for 2014 that is based on his ability to see 600 plate appearances. Since coming to the Mariners from the Angels, Figgins has posted WARPs of -0.5 in 2010 and -0.8 in 2011. Early in the 2012 season, he’s tracking at a -0.1 WARP.

With a similar contract structure, Franklin Gutierrez will make $7 million in 2013 with a $7.5 million club option for 2014.

The only other money that is certain to be on the books for 2013 is the contract of Miguel Olivo ($750,000) and bonus money for Dustin Ackley ($1.5 million). That’s it. After that, there are only the increases in salary associated with players moving out of club control into salary arbitration years. Brendan Ryan will face his third salary arbitration year next season while John Jaso, Adam Moore, and Shawn Kelley will join him for the first time each. It’s not until 2014 that the Mariners are hit with a large number of salary arbitration players (seven, to be exact), but even then, the salary structure for the Mariners becomes exceptionally easy to manage. If ownership is not in a position to (or does not desire to) pour money into the roster with cash calls, the light and easily managed contract structures that the club has in place make it attractive to a would-be buyer.

Television Contract Up For Renewal as Early as 2015
If you’re a fan of the Mariners, you know that your AL West rivals Angels and Rangers have been spending lavishly in free agency thanks, in large part, to lucrative local television rights deals. Both the Angels and Rangers have seen 20-year, $3 billion deals reached recently that have translated to heavy spending.

Based upon Designated Media Markets (DMA), the Angels (which call Los Angeles home) rank second with 5,569,780 television homes; the Rangers (Dallas/Ft. Worth) rank fifth at 2,571,310 television homes. Seattle-Tacoma ranks 12th with 1,811,420 television homes.

But that’s misleading. The Mariners will be able to leverage far more since the club enjoys baseball’s largest television territory (see MLB’s TV map).

The current 10-year broadcast deal that the Mariners are now engaged in with ROOT Sports is for $450 million. It has an opt-out in 2015 that the club will likely exercise. If the Mariners use the current deals that the Astros (and soon-to-be Padres) are about to ink (not to mention the Rangers and Angels deals) as platforms to launch their own negotiations, it’s possible that a new deal could come in at $2-2.5 billion.

If the Mariners were going to hit the market, current ownership would want to make the broadcast rights available to potential buyers to negotiate. With television rights becoming so lucrative, they become a key aspect of any sale to would-be buyers. As a result, if the Mariners were to look to sell, it would likely be before that 2015 opt-out in their current broadcast agreement.

The Sale of the Dodgers and How it is Impacting the Market
The $2.15 billion sale of the Dodgers that will be completed two weeks from today has created a fervor over what MLB clubs are worth, although this sale is merely an aftereffect of the 2010 sale of the Texas Rangers.

Each year, Forbes values the 30 clubs in Major League Baseball, and every recent sale has gone far above those numbers. The Rangers, through the bankruptcy process, were auctioned for $561 million. What had Forbes valued them at? $451 million. The Astros sold to Jim Crane for $615 million. The Forbes valuation? $474 million. Even when Forbes had time to adjust their value based upon reports in the media, the sale of the Dodgers showed how much the market can fluctuate. In early March, Forbes valued them at $1.4 billion; they sold in early April at $2 billion (though a separate land deal for $150 million is in the mix).

Based upon this and projections that the Padres could be sold for $700 million, if the Mariners hit the market they’d figure to sell for far, far more than the current Forbes valuation of $585 million.

In fact, even valuations of the Mariners as part of the Chris Larson divorce will likely fall short. Forbes valued the Mariners at $585 million in their most recent report. As part of presenting Larson’s worth for the divorce, each side presented a valuation of the Mariners. As reported by Geoff Baker of the Seattle Times, “An expert put forth by Larson concludes the total value of the Mariners franchise is $551 million, while an appraisal done on behalf of his wife, Julia Calhoun, states the team is worth $750 million.”

Based upon market increases by way of the recent MLB sales, the appraisal done on behalf of Larson’s wife is more in-line with what the club is likely worth. Going back to the Forbes valuation and actual sale price, with the Dodgers being an outlier, the $750 million projection is well within reach. Here’s the actual sale price (in millions), Forbes valuation (in millions), and percentage of increase, adding in the projection for the Mariners:

Club	Actual	Forbes	Above Forbes
Rangers	$561M	$451M	24%
Astros	$615M	$474M	30%
Dodgers	$2000M	$1,400M	43%
Mariners	$750M*	$585M	28%

* Possible projected sale price

Adding It Up Shows Why the Mariners Could Be Primed to Be Sold
To repeat, the Mariners aren’t for sale. Maybe current ownership has no desire to sell at all. This article simply shows that given where the Mariners are at and where they will be, they are almost a perfect candidate to hit the market:

• Owners are in financial distress
• Majority owner is in mid-80s
• Largest minority owner going through a divorce
• The club is ostensibly debt-free
• Player payroll is set to be manageable
• Television deal is up for renewal
• Recent television deals have skyrocketed
• Club sales have been well above projected value
• Dodgers sale has redefined club value

Other things to consider:

• Safeco Field is a gem of a ballpark
• Beyond the Seattle Seahawks, the Mariners currently have no other competition for sponsorship dollars
• Attendance in 2011 was below 2 million for the first time since the Mariners moved into Safeco Field
• In 2001, the second full year in Safeco Field and a season in which the team won a record 116 games, the Mariners led the league in attendance with 3,507,507

The following are Seattle numbers based on Cot’s Contracts, historical Forbes valuations, and other sources:

Year	Payroll	Forbes Value	Forbes Rank	W-L	Att.
2012	$82M	$585M	12	???	???
2011	$93.5M	$449M	15	67-95	1.9M
2010	$93.5M	$439M	14	61-101	2.1M
2009	$98.9M	$426M	13	85-77	2.2M
2008	$117.6M	$466M	11	61-101	2.3M
2007	$106.4M	$436M	12	88-74	2.7M
2006	$87.9M	$428M	8	78-84	2.5M
2005	$87.7M	$415M	5	69-93	2.7M
2004	$81.5M	$396M	5	63-99	2.9M

 

Maury Brown is an author of Baseball Prospectus. 
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