Matthew Goldstein

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Baseball's Major League Debts

Matthew Goldstein

The players may call strike three on the baseball season later this month, but when it comes to paying for all those bats, balls and chartered jets, it's a few big banks holding the bag.

Over the past three years, three commercial banks -- Bank of AmericaBAC, FleetBoston FinancialFBF and J.P. Morgan ChaseJPM -- have arranged at least $2 billion in loans and lines of credit for Major League Baseball and for a handful of professional teams, including the Cleveland Indians, Milwaukee Brewers and Philadelphia Phillies, according to Loan Pricing Corp., a division of Reuters.

And Japan's Sumitomo Bank arranged a $145 million loan for the Detroit Tigers' new stadium, Comerica Park. Comerica CMA, was involved in initial discussions about providing the loan, but ulitmately had no part in the deal.

Lou Merloni, .260

The biggest single borrower isn't a team but Major League Baseball itself. Loan Pricing reports that the corporate entity that runs professional baseball in the U.S. has taken out at least $1.78 billion in bank loans and credit lines.

Included in that amount is a $1.3 billion revolving line of credit arranged in November 2000 by Fleet and co-managed by B of A, J.P. Morgan and Bank of Nova Scotia. The line of credit is a securitization of baseball's multiyear national television contract. Major League Baseball uses the credit line to make loans of up to $75 million to individual teams.

The amount of money baseball owes to the nation's banks could become an important issue if the players union strikes on Aug. 30 and the labor dispute is a protracted one. A long strike could make it difficult for teams with new ballparks, such as the Tigers and Brewers, to make good on their loan payments.

Fitch Ratings, one of the three main bond rating services, says a baseball strike could pose a risk to owners of bonds and other debt that's been issued to build new baseball stadiums. In a report released Tuesday, Fitch says a strike also may reduce the value of some contractual agreements such as television rights, which are used to support a team's debt payments.

Trot Nixon, .267

And while no one expects the banks to immediately call in a loan and push a team to the financial brink, the amount of debt owed by the teams adds to the pressure on the owners to reach a deal with the players.

Indeed, the Loan Pricing figures, if anything, underestimate the total amount of loans and debt owed by the 30 major league teams. The figure doesn't include corporate bonds sold by some teams to pay for the construction of new stadiums. Nor does it include financing deals arranged by investment banks such as Lehman BrothersLEH, which is a lender to a number of big-market teams.

"The teams have more debt on them than ever before, in part because of a big boom in stadium construction," says Sal Galatioto, a Lehman managing director and head of firm's sports advisory and finance group. "The best case is that the banks are infinitely patient."

Besides the Tigers, other teams with significant bank loans or outstanding lines of credit are the Brewers with $170 million in bank obligations, the Phillies with $125 million in bank debt, the Baltimore Orioles with a $115 million in bank loans, and the Indians with $70 million in bank obligations.

Brian Daubach, .265

Loan Pricing officials say it's possible that some of the loans and credit lines, some of which date back to the 2000 baseball season, may have been paid off or never used by the teams.

Additionally, the bank loans were part of syndicated lending deals, meaning that pieces of each loan were sold to dozens of other banks by the B of A, Comerica, Fleet and J.P. Morgan. Loan syndication helps banks limit their exposure in the event of a default by a big borrower.

It's widely believed in the sports world that the owners have protected themselves by taking out insurance policies that cover revenue losses in the event of a strike. But Lehman's Galatioto says he's not aware of any team that has taken out so-called strike insurance.

"People say it exists, but I seriously doubt it," Galatioto said.