How Marlins owner Jeffrey Loria continues to outfox us all
Few people on Earth know how to game the system in which they operate better than Loria
Ponder, if you will, the savviest investments of the past 20 years. Think of the venture capitalists who got in early on Google. The angel investors who took a leap of faith with Uber. Sean Parker finagling his way into Facebook right before it exploded was enough to get a Mickey Mouse Club member to play him in a major motion picture.
Jeffrey Loria laughs at all those fools. On Dec. 9, 1999, Loria made his first investment in a Major League Baseball team, buying a 24 percent stake in the Montreal Expos, in the process becoming the team's managing general partner. The cost? A mere $12 million.
On Thursday, Forbes reported that Loria is now floating a sale price for his Miami Marlins. The cost? $1.7 billion.
Look hard enough, and you can probably find some lucky ground-floor Google or Facebook investor who got more bang for his buck than a $12 million investment that could pay out $1.7 billion 17 years later. But even with the past decade's boom in TV money and other revenue streams, sports franchise ownership doesn't typically deliver the same astronomical gains that you'll find in Silicon Valley.
Adjust for the more conservative playing field in which he toils, and Loria is on the kind of roll we'll rarely see in our lifetime -- from any businessman, in any field. For that, we can thank a little bit of luck, and also this: Few people on Earth know how to game the system in which they operate better than Jeffrey Loria.
Start with that very first investment. On one hand, you could describe any attempt to buy into the downtrodden Expos back then as a disaster waiting to happen. Seagram's magnate Charles Bronfman selling the team to a consortium of local owners in 1991 set off a calamitous chain of events that effectively killed the franchise. After kicking in a few million dollars each to buy the team, those corporate owners ignored basic factors such as salary inflation and an aging ballpark, causing both the team and Olympic Stadium to fall apart. Greedy owners and the weak and enabling commissioner Bud Selig torpedoing the 1994 season, followed by Quebec's government refusing to pay for a new ballpark, led to Loria hopping on board.
Where some optimists saw Loria as a potential white knight, the truth was he was an opportunist. He did try to help a bit, at first. Loria tried to convince one prominent local radio station to pay something approaching market value to broadcast Expos games. The station manager replied that he would gladly put Expos games on the air ... if Loria paid him $1,000 per game. Thanks to years of neglect, the team had no hope. With no momentum toward a new ballpark, no chance for significant local media revenue and a once-fruitful farm system that had crumbled under a skeleton crew front office, Loria knew he had to get out. Realizing that his new partners would be just as uninterested in anteing up to keep the team going as the previous owners had been, Loria exercised his rights as managing partner, issuing a series of cash calls. Within two years, he went from owning 24 percent of the team to 94 percent.
Next came the Great Franchise Switcheroo of 2002. The Expos were on their way to being wiped out, either by contraction or relocation. Meanwhile, John Henry wanted out of Miami, having been unable to acquire a shiny, new, taxpayer-funded ballpark. So Selig engineered a franchise swap, one that saw Henry shadily gain control of the Boston Red Sox (despite not being the highest bidder), MLB take over the Expos and Loria get the Marlins.
Loria's sale price for the Expos? One-hundred and twenty million dollars, 10 times his initial investment. Loria's buy price for the Marlins? One-hundred and fifty-eight (point-five) million dollars. That money was simply a parlay of the $120 million Loria had snagged from MLB for his supposedly distressed asset, plus another $38.5 million coming from MLB itself in the form of an interest-free loan.
Total out-of-pocket funds Loria needed to complete the ownership transfer? Zero.
He was just getting started. With highly lucrative local TV deals still the dominion of just a few big-market teams, the best way for an MLB owner to grab a bunch more cash was to convince local government to bankroll a new ballpark. At first, those attempts failed. So Loria and his stepson/team president David Samson (backed by Selig) started threatening to relocate the Marlins to another city unless their demands for a new stadium were met. Plant even a seed of possibility that the Fish might move to San Antonio, and politicians would capitulate.
The gambit worked perfectly. The Marlins agreed to pay just $125 million of the stadium's $634 million in construction costs, plus another $35 million via an interest-free loan from Miami-Dade County. Add interest charges and other costs, and the total cost to taxpayers is expected to hit $2.4 billion over 40 years. To date, the stadium has been the subject of an SEC probe and the cause of numerous other problems.
Loria keenly understood that far too many city and county leaders are either stupid and gullible, corrupt or all of the above. Present some flimsy arguments about supposed benefits to the local economy, make vague relocation threats and presto, a shrewd owner like Loria can make your elected officials capitulate. Never mind that the arguments put forth by such owners are lies, rebutted by study after study for decades.
I've written about Loria's Machiavellian genius before, back in 2012. That was the year the Marlins moved into their new ballpark, fresh off a gigantic spending spree the previous winter. The team lost 93 games in a nightmarish season, then traded away many of their most expensive players a few days after the World Series ended. From a pure baseball standpoint, the bloodletting made plenty of sense. The Marlins acquired some intriguing young talent, while shedding payroll and setting themselves up for a theoretical run at contention later on.
That hasn't happened. The Marlins have lost an average of 90 games in the five years since Marlins Park opened for business, finishing below .500 every year. And the hits keep on coming. Loria's team continues to pocket tens of millions of dollars a year in revenue-sharing money, despite playing in the eighth-largest metropolitan area in America. By successfully extorting their new ballpark from the county, the Marlins have avoided the fate of the Oakland A's. The A's are another large-market team that had been collecting huge revenue-sharing checks for years, only to have the spigot cut off by the new collective bargaining agreement because they weren't as deft as Loria was in squeezing a new ballpark out of the local dopes. They should have taken some business pointers from Loria's 1969 book about Peanuts. Seriously. He wrote a book called, What's It All About, Charlie Brown?
Now, four years after conning fans into believing the team would spend real money and win more games, we're seeing the latest iteration of Loria's cunning at work. Samson continues to tell everyone within earshot that the team is losing money. This despite the big additional revenue streams generated by the ballpark, the revenue-sharing money that keeps flowing in and the lucrative national media deals which filter down to all 30 teams. Like every other team, the Marlins refuse to open their books for scrutiny, so we have no way to verify such claims of money-losing. Or at least we didn't, until Deadspin in 2010 published the financial results of several MLB teams, including the Marlins. That exposé confirmed that Loria and Samson had been lying for years about the team's financial situation. Their claims of financial hardship ring even hollower now.
And yet, all of this could pay off spectacularly, very soon. The explosion in media revenue for sports leagues has supercharged franchise values throughout MLB, as well as in the NFL and NBA. The Marlins make just $20 million a year in their local TV deal with Fox but that contract expires in 2020, offering an opportunity to negotiate a much larger new agreement. A lucrative new naming rights deal for the ballpark reportedly could arrive by next summer. Even the payroll bump we've seen in recent years is something of an illusion, with Giancarlo Stanton's salary in his record-breaking 13-year deal bloating from a reasonable $14.5 million in 2017 to $25 million in 2018, with his employer then on the hook through 2027.
Meanwhile, a clause in the contract struck between the Marlins and local government in 2009 would have forced the Marlins to share a massive 70 percent of the proceeds from a franchise sale the next year; that figure dropped all the way to 5 percent by 2014, and would amount to a fraction of that now, according to last week's report by the Miami Herald. In essence, Loria engineered a deal that handcuffed Miami into supporting him at all costs for five years, followed by him being able to sell the team thereafter with the city and county deriving almost nothing from the sale.
The stage is now set. The Marlins will host the MLB All-Star Game in July 2017. Loria will be 76 years old. He will have owned controlling stakes in major league franchises in four different presidencies. He has a World Series ring. He has a shiny, new stadium in a large market, and the untouchable status that comes with owning one of 30 franchises in MLB's cartel, one protected by an antitrust exemption, with revenue streams and franchise values surging, year after year. He will have thrust himself in position to make more money than even the sharpest business minds could ever dream of reaping from one series of transactions -- let alone while doing so in professional sports.
For nearly two decades, Jeffrey Loria has outfoxed everyone in his path, en route to gargantuan riches. Maybe the next time a benevolent sports owner comes along, we won't be so easily duped.