To invoke the name of a 1949 baseball movie: it happens every spring. Well, two things actually happen, observes Jonathan Mariner, the executive vice president of finance for Major League Baseball: one glorious for the game, and the other not so hot.
Looking out at the potentially dire effects of the economic meltdown on the National Pastime, Mariner notes that his boss, Baseball Commissioner Bud Selig, likes to say that “hope and faith are what baseball is about. Every single team is a contender in March.” One need only recall last year, when the lowly Tampa Bay Rays, who never had a winning season before, won the American League pennant. “And so hope springs eternal,” the baseball finance chief says. And baseball sells nothing if it doesn’t sell hope.
At the same time, Mariner says, every spring there’s a scandal. He points especially to the fact that the scandal involving the Yankees’ Alex Rodriguez 2001-2003 use of steroids emerged “somehow or other” just as players were starting to populate the fields of Florida and Arizona to start pre-season training.
Mariner feels the ongoing story of how the Bay Area Laboratory Co-operative (BALCO) and others allegedly spawned steroid use by Barry Bonds and at least 104 other players has been overblown by the press and prosecutors. He admits, however, that the financial outlook may not be as brilliant for MLB as it has been in prior years. Just as you might expect, baseball’s Pollyannaish owners were late coming to the realization that there was a financial crisis afoot that could affect their optimistic predictions.
Mariner began picking apart those bright forecasts, and owners have responded with cost-cutting and special promotions. Further, he’s proud that the financial discipline he started dishing out when he joined MLB in 2002 has put the game in a position to absorb some pretty heavy fiscal blows. One of his major accomplishments, he says, was to help put in place severe debt limits-an innovation that forced owners to live more within their means and slow the growth of player payrolls. Under its debt-service rule, club borrowing was curbed to ten times the amount of each club’s earnings before interest, taxes, depreciation, and amortization (EBITDA).
Interviewed onstage at the CFO Rising conference in Orlando, Fla. earlier this month by Lori Calabro, the editorial director of CFO conferences, Mariner also fielded questions from members of the audience. Following is an edited version of that interview.
Coming into the season, what letter grade would you assign to baseball’s finances?
I would give us today a grade of a B+ or an A-. I came to this office in the CFO role in 2002, when we as a league had lost a half billion dollars by the end of the year. Of the 30 clubs, only three had positive EBITDA by the end of 2002. We had debt that was beyond our capacity to service it. It was growing at a rate that was keeping up with the spending on player payroll. And we needed to put in place something that would change that. We resolved in the 2002 Collective Bargaining Agreement to put in place some specs, and as a result things have really turned around. Today we only have two clubs that don’thave positive EBITDA. What was a half billion dollar deficit five or six years ago is now a cumulative positive EBITDA of half billion dollars for the league.