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December 19, 2011 at 10:32 AM

How one Mariners owner used stake in team to generate up to $50 million in available cash at time of need

One thing many of us have seen since the financial markets melted down in 2008 is how difficult it can be to come up with cash in a time of need. Mariners minority owner Chris Larson is no exception to that.
Larson, who owns 30.6 percent of the Mariners, was in serious financial trouble in 2008 after a longstanding strategy of borrowing against his vast Microsoft stock holdings in order to finance a lavish lifestyle. That strategy worked real well in the 1990s, when Microsoft stock value kept rising.
But the trouble began right around the time of the tech crash in 2000, when Microsoft share prices fell but Larson’s expenses kept rising. He was embarking on a plan to renovate his newly-purchased estate in The Highlands and the pricetag for that would eventually come in at around $160 million according to testimony in his current divorce trial.
Anyhow, by 2008, he was selling off those shares rapidly at their falling prices to pay down debt accumulated from all his big ticket purchases, earning less and less dividend income in the process. Around this time, he had a new whopping “variable prepaid fund” debt come due and Larson decided to pay for it by taking out a $50 million line of credit with JP Morgan in June 2008.
The folks at JP Morgan weren’t just going to give the struggling Larson money without some serious collateral being put up. To that end, he offered up several pieces of fine artwork valued at well over $100 million.
He then drew $43.5 million on the credit line in June 2008 and used it to pay off the prepaid fund debt that had recently come due. Larson could have sold off his Microsoft shares to generate the cash, but had hoped to hold on to those for future income-generating.
But the markets weren’t getting any better in 2008 and by August, the artwork used as security for the credit line wasn’t enough for the bank. They wanted more. Something valuable they could turn to in addition to art if Larson couldn’t repay the loan.
And Larson had just the thing: his stake in the Mariners.
Larson pledged his company, Mudville Nine Inc. — formed by him to buy his Mariners stake in the 1990s — as secondary security on the $50-million line of credit just before the stock market went into meltdown mode late in 2008.
But Larson’s plan to use the credit line to pay his debt and hold on to the bulk of his Microsoft stock wound up backfiring when the market tanked. Larson had to sell more of his Microsoft holdings to keep paying down other debt while he now had this $50 million line of credit that was pretty close to maxed out and needed to be serviced with six-figure payments for monthly interest.
Larson tried to get out of that mess by selling off a 10 percent stake in the team — a third of his Mariners holdings — to fellow owner John Stanton in 2009. He’d hoped selling that parcel would pay off all of the $43.5 million borrowed on the line of credit, but alas, an appraisal of the stake came back far less than he’d hoped. One reason was that he’d be selling a minority interest, not a controlling stake in the team, so the value of it was discounted.
Instead of selling, Larson held on to his stake. A year later, he filed for divorce from his wife, Julia Calhoun, introducing a whole new set of financial concerns to his docket.
JP Morgan this year lowered the line of credit to a $45 million limit and forced Larson to pay it down so that $40 million remains owed. That debt is the largest listed by Larson as a personal liability in his divorce, though he and his wife have $185 million in joint debts from a separate account with Goldman Sachs.
The Mariners share is still being used by Larson to secure the line of credit.
This is just one way that baseball owners can use their ownership stake to benefit themselves financially in ways other than selling it. While it’s true that Larson’s plan with the line of credit didn’t quite work out, he could have saved himself millions of dollars in future Microsoft stock dividend earnings had the market not tanked in 2008.
In any event, the team shares helped him gain quick access to up to $50 million in cash based on their perceived value.

Larson has testified that — as the Mariners have long told us — he has not generated any income off his Mariners holdings in terms of annual profit taking. The Mariners have made a point of noting that owners have not received any disbursements since buying the team in 1992.
Larson has stated in court documents that owners have put a combined $212 million into the team. Two appraisals of the team’s current value, done in conjunction with the divorce trial, came back at $551 million and $750 million.
While not receiving any yearly payouts from the Mariners, court documents filed in the divorce case show that annual tax losses produced by the team in the 1990s were netted by Larson against millions of dollars he’d earned on Microsoft dividend income during that time.
The documents also show that, as an owner, he would travel to Mariners road games with expenses covered by the team.
So, once again, there are more financial benefits to owning a baseball team than merely selling your shares at the end of the day. And how those shares can be used for financial gain or benefit in the interim.
Still awaiting word on the Mariners and any free agent signings or trades. We’ll try to keep you updated.



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