Q&A with Maury Brown on the Rangers ownership situation

Maury Brown, of the excellent Biz of Baseball blog, graciously agreed to take a few minutes out and do a Q&A with me about the situation regarding Tom Hicks, the Rangers financial situation, and the ongoing mess that we've been reading about the past several months...

Questions and answers after the jump...

AJM:  Word is that the sale of the Rangers won't happen this winter, and will likely drag into the 2010 season.  Why should a sale take so long, given that it has been known for months now that Hicks would be selling the team?


Brown:  The sales process, especially in this economy, is exceptionally difficult. The credit markets have tightened, as well. The other issue has been whether Hicks is going to sell the controlling interest. He'd like to stay on, which may or may not be of interest to potential bidders. That, and the potential bidders have to do their due diligence. The first set of "books" on the club's financials went out in January from Merrill Lynch, and since then, the club has sent out a second set of books, with William Morris Endeavor, Bank of America Merrill Lynch and Perella Weinberg as advisers. When you put it all together, any sale that can be completed within a year would be considered "fast" at this point in time, let alone the complex situation with the Rangers. If the deal gets completed by Spring Training, I'd say to any Rangers fan, be happy..


AJM:  What is your understanding of the Texas Ranger franchise's current financial situation?


Brown:  Hicks is under heavy debt; Rangers as well, but not nearly to the extent that Hicks Sports Group is (he missed a $10 million payment to creditors in late March). While the Rangers were given a $15 million line of credit, since that point, there has been little else heard regarding the need for another infusion.


AJM:  Although the Rangers had huge payrolls in the early part of this decade, the last several years, they've been a low-payroll team with a pretty good media deal playing in one of the biggest markets in America, and have reportedly broken even or made a small profit each of the last several years..  So how did this franchise end up in the situation it is in?


Brown: In terms of player payrolls, with exceptions (large revenue making clubs such as the Yankees, Mets, Cubs, Red Sox, et al), ownership will increase the amount in player payroll to make a stab at sustained efforts to place high in the standing, often times at expense of the bottom line. Many forget, but when the Blue Jays had their World Series glory, they had the highest level of player payroll in the league. The Orioles used to have a highest player payroll in the league, higher than the Yankees at one point (late '90s). It's the inability to sustain high player payroll that often gives fans heartburn, but in reality, is a normal cycling of up and down. Other examples are the Arizona Diamondbacks, and Cleveland Indians who had high player payrolls in early 2000s. Some interesting trivia to consider that may, or may not have relevance to the increased payroll and television ratings in the early 2000s: When Alex Rodriguez was signed to his record contract by the Rangers in 2001, television ratings for the Rangers declined. When he left in Feb of 2004, ratings went back up.


AJM:  Supposedly, MLB had to loan the Rangers money so that the team could make payroll.  Why would this be necessary, and is not uncommon for MLB to have to advance a team funds, or is this an exceptional situation?


Brown:  The Rangers have said that they took the $15 million advance, but that it was not for club payroll. At the last Winter Meetings, I asked Nolan Ryan how the economy was impacting business for the Rangers. He said that it was tough to measure how much revenues were coming in due to slow season ticket renewals. Extrapolating on that, a club that is seeing a cash flow problem that may not have been in place before the economy tanked, may need the cash loans to breach the gap that might be covered more easily in solid economic times -- it's easier to say that money will be coming in, and therefore, margins are broader. In terms of whether this is an exceptional situation, in 2002, there were rumors that two clubs needed loans to meet player payroll. The last team to be in serious shape was the Orioles in 1993. At that time, Eli Jacobs filed for bankruptcy protection, and the team was eventually sold to Peter Angelos.


AJM:  A couple of D/FW area columnists have painted the Rangers as now being a ward of the MLB state, basically in the same situation the Expos were in before they moved to Washington, with MLB having control over every move the Rangers make and dictating how much money can be spent.  In particular, it has been reported that at the end of the day MLB refused to allow the Rangers to offer first round pick Matt Purke more than slot money ($2.6 million), while the front office has indicated that they offered Purke $4 million.  How involved is MLB in the Rangers' situation right now, in terms of the Rangers making moves?  Is MLB going to be able to dictate whether the Rangers can sign free agents and how much they can offer?


Brown:  I think these stories have overblown the situation. The offer for Purke was well over slot (according to Jim Callis' calculations, the recommended slot was $1.602 million). I think the decision was based upon that, and had little, if nothing to do with the financial situation that the Rangers are under. The reason I say that is the Rangers have spent over $3 million in the Latin American free agents.


AJM:  The most worrisome thing for Rangers fans would seem to be the Rangers having payroll dropped to the $50 million range, which would mean moving more expensive pre-free-agent players such as Frankie Francisco, C.J. Wilson, and Ian Kinsler.  Doing that would seem to be counter-productive from a franchise value standpoint, since doing a sell-off on the heels of a surprisingly successful 2009 season would likely alienate the fanbase and reduce the franchise's value, but the idea of payroll dropping that low has been broached.  Is that a realistic fear for Rangers fans, or is it reasonable to assume that payroll will be similar to, or just a little lower than, 2009?


Brown:  Good question. Worrisome? Possibly. I think you have to look at Rangers situation and take into account the overall economy. There's belt tightening going on with a number of clubs. But, all that said, would the Rangers have been more likely to be more aggressive this upcoming off-season than with the sale process in play? It's certainly possible. The club sale places many decisions in limbo. This isn't something unique to the Rangers sale; look at the Cubs with the Peavy deal that got scuttled. 


AJM:  What do you expect the ultimate sale price of the franchise to be, and do you have any thoughts as to who you think the favorites are among the prospective groups?


Brown:  I'd look for a price of between $510-$550 million. The Rangers don't own an RSN, nor their ballpark. The lease they have, however, works in their favor. As for who will wind up winning the day, that seems very much in flux. If there is one thing that MLB is known recently for doing, it's working to cobble together ownership groups that reflect a local appeal, while having an executive structure that fits within MLB's ownership dynamic. I think that based upon that, the idea of Nolan Ryan being a part of the deal could be highly likely. From that perspective, I see Chuck Greenberg as a possibility. The rumor of Sandy Alderson having interest is intriguing, but only insofar as his ability to gain the needed capital to pull a competitive bid off.

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