MLB Files Suit on Manner of Exposed Finances

By Diane M. Grassi
Updated: October 24, 2011

As CBA Expiration Approaches

Major League Baseball (MLB) should be enjoying the fruits of an above average 2011 post-season performance, which will be crucial to the impending expiration of its Collective Bargaining Agreement (CBA) with the Major League Baseball Players Association (MLBPA) on December 31, 2011.

Additionally, TV broadcasters and their advertisers are keen on seeing the length of both 2011 League Championship Series and now the current World Series to extend as deep into October as possible.

And could it be that MLB commissioner, Bud Selig, et al., lucked out this year with back-to-back appearances by the Texas Rangers in the 2010 and the 2011 World Series facing the St. Louis Cardinals, thought to be done for the season back in August?

But because it is more about the money game in MLB, albeit also the case for the other professional sports, there is but a prevailing defiance by MLB, which pokes out its ugly head every now and again from within its realms.

No stranger to pettiness and a cloak-and-dagger management style, MLB beholds the kind of high-handedness once only reserved for certain factions of government and within the corporate world.

At a time, during this post-season, when MLB should be building its fan base, especially in light of another impending CBA negotiation, which sports fans have otherwise had a belly full of this year, MLB remains tone deaf.

To wit, lost amongst the more sensational sports headlines these past few weeks, is but another day in court sought by MLB, giving new meaning to the term arrogance.

In New York State Supreme Court on October 7, 2011, MLB filed a claim against Beazley Insurance Co., Inc. d/b/a Beazley Co., one of six of its insurers that MLB believes could have leaked financial data to Deadspin.com which was published in August 2010, and an Associated Press (AP) story also written at that time.

The premise of the story by the AP and the data Deadspin.com published revolved around the financial statements of the Pittsburgh Pirates, the Tampa By Rays and the Seattle Mariners from 2007-2008; the Los Angeles Angels and Seattle Mariners from 2008-2009; and a workbook containing a draft of the finances of the Texas Rangers from 2007-2008, which preceded the club’s Chapter 11 bankruptcy filed in May 2010.

MLB’s purpose of its filing for injunctive relief is to force Beazley Co., a Lloyd’s of London syndicated company, to admit it broke its confidentiality agreement with MLB. Through the preliminary discovery process, MLB intends to prove Beazley’s malfeasance through legal access to Beazley’s documentation.

Beazley contends it did its own internal audit and has no indication that any person in its organization leaked the financial statements to the press. Therefore, this is but a game of chicken which can only end up with egg on MLB’s proverbial face. The deed is done, regardless of whom, of potential thousands of people who may have leaked the information. And ultimately the leaked data could have come from within MLB’s very own offices.

But the matter of the leaked financial figures, that showed that the aforementioned teams had previously claimed that they were in the red and were actually making a profit, is not the lawsuit’s matter of contention. Rather, “The information contained in the financial statements is confidential, and publication of the financial statements is detrimental to MLB, to the teams within its organizational structure, and specifically to the Subject Clubs,” according to the filed claim by MLB for injunctive relief.

The claim also indicated that 10 MLB teams had handed over confidential financial statements to no less than 20 insurers in 2010. And MLB claims the relevance is because it was looking for liability insurance for its Board of Directors. Why then MLB is so convinced that Beazley is the lone culprit is a mystery. And the connection between the release of financial statements of individual clubs and its liability coverage for its own board remains to be seen.

Also important to MLB is that it should be recognized as a private corporation, without any legal obligation to publicly disclose its finances and sources of revenue, or even salaries of its executives – including Bud Selig’s – unlike that of a publicly held corporation.

MLB hides behind “the curtain” in a way not dissimilar to the one used by the Wizard of Oz. And Bud Selig might truly believe, in his own world, that he is not far removed from being the Great and Powerful Oz, himself; accountable to no one.

But with the federal anti-trust exemptions that MLB enjoys; the public-private partnerships for taxpayer funded stadiums nationwide; public funds for the necessary infrastructure and garages for such stadiums and tax abatements and tax free bonds issued by municipalities; fan patronage of game tickets, stadium concessions, parking and merchandise, and MLB.TV subscription media; its affiliation with non-profit organizations; broadcasting contracts with partners over publicly owned airwaves; are but a few that come to mind of “public” entities intertwined within the daily management and businesses of MLB.

And the ultimate insult to fans is that MLB tries to pawn itself off as a business as innocuous as the neighborhood deli.

But the primary question on behalf of not only consumers of MLB, but also taxpayers and even the MLBPA is if the leaked financial statements are even accurate. Without ‘open books’, MLB baseball and its clubs have various mechanisms available to them allowing them to squirrel away certain expenses and revenue income without them appearing as such on a balance sheet. And to that end, even the IRS most likely does not have the correct numbers, either.

And both federal and state governments have but enabled such fuzzy math not only from MLB, but as we have seen with the National Football Leagues (NFL) and especially during this current National Basketball Association (NBA) lockout.

Cities and states are so hungry for additional revenue and potential jobs that things are only expected to get worse in terms of finding accurate numbers among thieves.

For example, there is an abuse of accounting practices throughout all of the professional sports leagues according to many Certified Public Accountants, in the field. It is essentially a case of how far they can push the envelope without being caught. And in MLB, the jury is still out as to whether any of its teams are truly losing money – not unlike claims from the NBA – in spite of revenue sharing and the luxury tax.

Although a financial statement of MLB’s projected 2001 earnings was presented to the House Judiciary Committee when Bud Selig testified before it on December 6, 2001, his testimony then was about how “between 1995 and 1999 only three teams – ten percent of the industry – the New York Yankees, the Colorado Rockies, and the Cleveland Indians, were profitable. During that five-year period, on operations alone, the industry lost in excess of $1 billion figures,” according then to Mr. Selig. So this is indeed a topic near and dear to his heart. But the question is was he telling the truth then or is he lying now about MLB’s prosperity?

Unfortunately, we the public, are no closer to getting accurate figures on MLB genuine revenues – in spite of this soon to be negotiated CBA – than we are to cracking the code to the vault in the U.S. mint. And it is not enough to take MLB at its word, given all of its hide-the-ball accounting practices.

Given the timing of MLB’s lawsuit, against one its own insurers yet, could its timing be any worse? Instead of spending resources, this post-season, to bring young fans into the game of baseball and to maybe win back many whom they lost long ago in the 1990′s, MLB is seemingly squandering any good will left towards it and chooses to maintain an image of the Big Bad Wolf.

While the NBA is in peril of losing its entire 2011-2012 season, also over fuzzy math, NBA Commissioner, David Stern claims that 23 of its teams were in the red for the 2010-2011 season, arguably one of its most popular years in its history. The National Basketball League Players Association (NBAPA) believes only eight teams were in the red; again, non-disclosure of accurate figures presides.

As noted, MLB is counting on good viewing numbers from the TV ratings following this 2011 World Series. But if it does not keep itself from getting in its own way on many fronts, its fan base will continue to erode. Of note, according to the TV ratings from the 2010 post-season, the age of the average viewer was 52 years old.

Finally, unless MLB gets some serious treatment for its myopia, it will continue to conveniently bend reality for its own endeavors of self-entitlement.

And that begs the question; will MLB also wind up in lockout mode?

Copyright ©2011 Diane M. Grassi

Contact: dgrassi@verizon.net