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June 25, 2012 at 10:59 AM

Pending sale of Padres could drive Mariners franchise value up beyond $800 million

We’re done with another season of interleague play in which the American League once again throttled the National League in an annual series of unbalanced-schedule contests that seem to prove less and less meaningful each year. Unlike previous seasons, the Mariners were unable to use their schedule against the weaker NL to pad their overall record, finishing below .500 for the first time in 13 years.
For me, the only thing interesting to emerge from the Padres series over the weekend — other than Ichiro finally starting to hit a bit — was news that two bidders in the pending sale of the San Diego franchise have put up $800 million offers for the club. That’s huge news if you happen to be an owner or part-owner of the Mariners.
You’ll remember that we spent much of the winter filling you in on the news that, despite continued payroll cuts designed to keep the M’s books balanced on a yearly basis, the projected value of the franchise keeps skyrocketing. And the eventual value of the team is projected to go much higher than the $585 million that Forbes recently placed on it in the second-highest jump by any MLB team from its 2011 valuation by that magazine.
Not that this is news to Times readers.
You might remember that, when we covered the Chris Larson divorce trial last December, two experts in franchise valuations placed the worth of the Mariners at somewhere between $551 million and $750 million. The expert hired by Larson himself came in on the low end, while the one retained by his ex-wife, Julia Calhoun, offered up the high end figure.
The judge in the case eventually settled on a $641 million valuation for purposes of the divorce settlement.
But now, events in the real world outside of the courtroom are on-pace to blow those figures out of the water. And the Mariners could wind up topping that $800-million figure thrown around in regards to the Padres.
Photo Credit: AP

One thing that has to be understood throughout any attempt to place estimates on a team’s value is the increasing demand for owners to renegotiate new regional sports network (RSN) television deals. The Mariners can opt out of their deal with ROOT Sports by 2015 and can actually begin new negotiations any day now — if they haven’t already — because such contracts need to be finalized well ahead of their actual start dates.
Thus, the Mariners are sitting on a huge financial windfall. Industry sources have repeatedly suggested to me that the team’s current deal is already more lucrative than the oft-reported 10-year, $450-million figure that’s been tossed around for years. Network executives and team officials do their utmost to keep such figures secret, so there’s no telling how much higher any new deal will go from what’s already been reported. Three times more? Four times? We’ll see.
But the one thing you got out of the Larson divorce case — and which industry experts are pretty consistent about — is that the Mariners are worth more than the Padres.
Mary Ann Travers of Crowe Horwath LLP, the appraisal expert hired by Larson, came in with the low-end figure at trial but still conceeded the Mariners were still worth somewhere between the $480 million the Padres sold for in 2009 and the $593 million fetched by the Texas Rangers in 2010.
Don Erickson, of Erickson Partners LLC, the franchise valuation expert hired by Calhoun, argued that the Mariners compared more favorably to the recent $610-million sale of the Houston Astros, as well as the $593-million Rangers sale. In other words, well above the Padres.
And King County Superior Court Judge William Downing agreed with Erickson, stating in his ruling that: “The Court has reviewed the details of transactions involving the Houston Astros, Texas Rangers, San Diego Padres, Chicago Cubs and Atlanta Braves. The Court would find the May 2011 Astros transaction and the December 2010 Rangers transaction to be the best comparables due to their recency, similar attendance and other factors. The Seattle Mariners’ on-field performance probably slides in between the two but, from a business point of view, they enjoy a superior demographic.”
So, no one is arguing that the Mariners were worth more than the Padres.
What’s happened since?
The recently-completed $2.15-billion sale of the Los Angeles Dodgers, for one. A deal in which the value of the team’s upcoming TV deal played a huge role. The Dodgers TV rights are up for renewal after 2013 and the new owners can potentially launch a new RSN of their own or leverage the value of it to drive their rights fees sky high.
This is a boom period for baseball franchises and the ones lucky enough to have TV deals up for renewal are those who will cash in while the getting is good.
The Padres sale is said to involve roughy a $600-million pricetag for the team itself, plus an additional $200 million for an ownership stake in the team’s new $1.2-billion TV deal with FOX.
Now, again, just because the Padres are getting this sale price doesn’t automatically mean the Mariners will get more.
But in theory, as long as the Mariners don’t mess things up, they should be able to get more in any pending sale if everything remains equal.
In other words, don’t start racking up yearly deficits and continue to maintain the best debt load of any team in the majors. Keep shedding the salaries of pricey veterans like Ichiro this year, with Milton Bradley and Jack Wilson being dumped last year. Wait for Chone Figgins to run out next year.
Your attendance might drop in the interim as fans tire of seasons of 90+ losses.
But as long as the bottom line remains free of red ink — and remember, the M’s would have turned a profit last year had they not put in new scoreboards as a Safeco Field upgrade — the M’s look to be perfectly positioned to reap big money in any sale. Sure, the TV numbers are not as big as they could be if the M’s were to say, contend for something. But it’s not as if the Padres are doing anything big on the field, either. And their revenues are not very strong at the moment.
All things being equal, from what the experts have already said, the Mariners should be worth more than the Padres. And right now, the Padres are said to be worth $800 million.
That’s a hefty increase — in terms of sports franchise growth — from the initial $100 million purchase price Hiroshi Yamauchi, Chris Larson and company, first paid for the Mariners back in 1992. Even when you factor in the additional $112 million that Larson testified the owners have had to shell out in addition to their initial costs.
Remember, this isn’t a mutual fund. It’s owning a sports team and all the tax breaks and prestige that comes with it. So, we don’t calculate return on investment as we would a mutual fund over 20 years — and those haven’t been so hot lately, in any event.
What does this mean to the team and its long-suffering fans?
Well, it might help explain why the Mariners continue to avoid pricey free agents in favor of the longer, slower rebuild. Unlike the Angels, who keep spending and rebuiding on-the-fly with youth like Mike Trout, Mark Trumbo, Peter Bourjos and others.
In the longer run, the value of renewed TV rights might provide the cash windfall this current owner group seems willing to wait for. Maybe it eventually lets the team offer a contract extension to Felix Hernandez by the 2014 season. Or, maybe a new owner willing to pay such a large amount for the team will secure an ownership stake in any new TV deal and use the cash influx from that to re-invest in the team.
Whatever the result, don’t let anyone convince you of the myth that the Mariners are a “small market” team and poor. You don’t make your money owning sports teams on a year-by-year basis. You make it when you cash out. If they want to, the M’s owners are poised to cash-out big and can sell when they want to.
Remember, Larson tried to sell a 10 percent stake in the team three years ago. The only reason he didn’t was because he didn’t like the valuation of his shares and chose not to sell. He’s free to go ahead and sell right now if he wants to and should get a much better price.
It won’t change anything regarding the team this season. But better to be informed about what’s really going on when somebody tells you about rebuilding “the right way” and that the Mariners have no choice but to maintain the status quo.
There is always a choice. This is the one they’ve chosen. And not merely for on-field reasons.

Comments | Topics: Chone Figgins


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