The Dodgers are carrying too much debt, according to MLB rules:
The rule, designed to ensure teams have the resources to meet their financial obligations, generally limits debt to no more than 12 times annual revenue, minus expenses. The Dodgers were not profitable in any of the first three full seasons under new ownership, co-owner Todd Boehly said last year. Their debt is believed to be in the hundreds of millions.
Guggenheim’s spending — from the assumption of a quarter-billion in contracts to get Adrian Gonzalez in 2012 to the sport’s first $300-million payroll in 2015 — raised eyebrows throughout the industry. The New York Yankees led the major leagues in payroll every season from 1999-2012, but the Dodgers have led in every full season under Guggenheim ownership.
“The Dodgers blew past the Yankees like Grant through Richmond,” said Ron Fowler, executive chairman of the San Diego Padres.
Manfred said the Dodgers’ five-year waiver from the debt service requirements was authorized by the collective bargaining agreement in place at the time of the sale.
Debt is an interesting animal. The ability to service debt depends on lots of factors, including the value of the property financed, the interest rate, the credit worthiness of the debtor, and the liquidity of the lender. Is the interest rate fixed or variable? Can the loans be called?
I suspect that with the value of the Dodgers being in the billions and the debt in hundred of millions, Guggenheim can service it just fine. This rule is more about preserving competitive balance than worrying about the financial health of the Dodgers.
Its 12 times EBITDA which is basically revenue less operating expenses excluding interest, taxes, depreciation or amortization.
For reference Yankees have 3 billion in debt , almost 2 billion off the books. The 1 billion on the books is not called debt under MLB rules since the city issued the bonds and the payments on the bonds by the Yankees are considered payments in lieu of taxes. Dodgers were heavily in debt (555 million) from day 1 though due to the sale, and the bulk if the revenues from their tv deal dont really kick in until later years due to the escalators. Accorfing to Fotbes their debt has declined to about 400 million (16% debt/value)
You are right on interest rate concerns. Basel IV is looming and oil prices will approach 200 dollars with the neocons in power, also trumps policies of tariffs and forcing the dollar to weaken against other countries that we import from will be inflationary (guys who own real estate love inflation). Not to mention the Fed is gearing up to boost interest rates and Trump is a big fan of Volcker. Hold onto your horses, especially if you have debt with adjustable interest rates