Independent reviews show Brewers $133 million in debt

The Milwaukee Journal Sentinel ^ | May 6, 2004 | DON WALKER

[MediaMole]

An independent review of the state of the Milwaukee Brewers released Thursday paints a portrait of a franchise that is $133.1 million in debt, and that received nearly $44 million in equity from team owners over the past 10 years yet reported a net loss from operations of $28.8 million over the same time period.

The report, by a three-member panel of business leaders appointed by the Metropolitan Milwaukee Association of Commerce, also contains a few surprises, specifically a review of the salaries paid former Brewers president and now baseball commissioner Bud Selig, his daughter, Wendy Selig-Prieb, and son-in-law Laurel Prieb. The review determined that their combined salaries never exceeded $736,000 in a single year, far below a claim made in a recent HBO report on the Brewers that said the three drew more than $2 million in salary at some point in the mid-1990s.

The new report said the combined salaries of the Selig family were "within industry averages."

The report also disclosed that the Brewers had paid Selig Leasing Co., a car leasing firm whose president is Bud Selig, payments as high as $521,000 in 2003 for car leases for scouts and team executives. The report concluded, however, that the transactions did not appear to be excessive.

The report by the MMAC was prepared and released separately from another financial overview conducted by the state's Legislative Audit Bureau, also released Thursday morning.

The independent reviews arose out of fire the Brewers came under for reducing payroll and failing to field a competitive team despite public tax support for a new stadium and the benefits of baseball's new revenue-sharing system.

The audit bureau, in contrast to the MMAC report, sounded warnings about the Brewers' financial condition.

"Our review of the Brewers' financial statements and related documentation indicates that the financial challenges the Brewers have faced in the past will continue in the future, particularly if the team's on-field performance does not improve."

The audit bureau further noted that, although team revenues have increased, "they generally do not compare favorably with those of other major league baseball clubs. Furthermore, the Brewers have continued to rely on significant borrowing and on owner contributions to provide the cash needed to finance ongoing operations."

The audit bureau reported a slighter higher amount of debt in its report: $133.2 million. It also noted that the Breewrs' debt is 11th highest among all 30 baseball clubs and is sixth compared to the 12 clubs with new stadiums. "However, it is difficult to compare debt levels for clubs with new stadiums because the mix of public and private funding varies by facility," the report said.

Among the highlights of the MMAC report:

• From 1994-2003, team owners committed $43.8 million in equity to the team, $32 million of which was contributed through fiscal 2003, which ended Oct. 31 last year.

• In fiscal year 1994, the team owed banks a total of $32.4 million. As of October 31, 2003, that had increased to $122 million. Those notes, plus debt owed to the Miller Park stadium district, bring the total debt to $133.1 million. According to the MMAC report, the club's debt is below the industry average of $140.1 million for the 12 Major League clubs that have new ballparks, but more than the overall industry average indebtedness of $120.5 million.

• All sources of cash involving the ballclub were used to fund the team's investment in Miller Park and to fund ongoing baseball operations. The MMAC concluded that no other businesses or entities were supported or funded by the franchise.

• Though no specific details were provided, stock sales occurred between owners of the team, but the franchise itself did not repurchase shares from owners using club assets or through borrowings under credit agreements. Baseball Commissioner Bud Selig is the majority stockholder of the team, and holds 27.8%. His shares are held in a trust.

The report did note an unusual arrangement involving undisclosed team owners who received a fee for "guaranteeing the club's debt under its loan agreements." The guarantee fees accrued, but not paid, totaled $1.6 million as of Oct. 31, 2003, the report said. In addition, the report said that an undisclosed owner of the team made a $1.5 million short-term personal loan to the club in 1995, with interest paid at market rates.

• A summary of wages paid Bud Selig, Wendy Selig-Prieb and her husband, Laurel, showed that Bud Selig was paid as much as $543,000 in 1994, and $317,000 in 1998 when he was named commissioner of baseball.

The highest salary paid Wendy Laurel-Prieb, who succeeded her father as team president and later became chairman of the team's board of directors in 2002 when Ulice Payne was named team president and CEO, was $442,000 in 2001. That was the same year Miller Park opened.

Wendy's husband, Laurel, a marketing executive with the team, was paid as much as $173,000 in 2002, according to the report. The MMAC report said the salaries paid to the three Selig family members were "within industry averages."

• The report stated that annual payments for car leases to Selig Leasing ranged from $358,000 in 1996 to a high of $521,000 in 2003. The report noted that the club remained liable for leases outstanding to former employees, an apparent reference to Payne and other members of his management team who left the team last year. According to the report, the Brewers lease approximately 40 vehicles per year from Selig for scouts and other team executives, but it has existing deals with other car leasing companies.

• No dividends have ever been paid to team owners, including Selig. However, combined annual payments to owners for director fees ranged from $10,000 to $29,000.

• Over a seven-year period beginning in 1994 and leading up to the opening of Miller Park in 2001, the Brewers averaged $53.2 million in operating revenue per year. Since the stadium opened, average operating revenue has been $110.1 million.

• In the seven-year period leading up to 2001, the Brewers reported operating expenses at an average of $60.6 million per year. Since Miller Park opened, the average has been $102.8 million.

• The Brewers also have made commitments on baseball operations. During the seven-year period leading up to the opening of the ballpark, the team spent an average of $46.3 million on baseball operations. Since the stadium opened, the average has been $76.2 million. Baseball operations has been defined as scouting and player development.

The report noted that, as a percentage of total expenses, less depreciation, baseball operations was 71% in 1994, peaked at 80% in 1999 and declined to 76% in 2003.

• The Brewers will make rent payments to the Miller Park stadium district, the team's landlord, totaling $33.4 million over the life of the lease, which ends in 2030. In addition, the team will contribute $21.7 million over the life of its lease to help finance major stadium repairs, and will receive reduced maintenance payments from the district that will save taxpayers in a five-county area a total of $78 million.

The MMAC report went out of its way to avoid editorial comment on the Brewers' financial situation. Indeed, in the introduction, the report's authors said their intent was to "put the facts on the table as they relate to concerns raised by the public, legislators, and the Brewers regarding information that had been circulating about the Brewers' revenues, expenses, and cash flows, as well as debt, related-party transactions, and ownership activity."

The MMAC panel was led by Curt S. Culver, president and CEO of MGIC Investment Corp., James H. Keyes, a member of the board of directors of Johnson Controls, and Robert J. O'Toole, chairman and CEO of A. O. Smith. The three business leaders received assistance from MMAC staff and officials at American Appraisal Associates, a Milwaukee firm that has expertise in business valuations.

The MMAC report took note of the dramatic increase in local revenue as a result of the move to Miller Park. Local baseball revenue was defined as tickets, concessions, parking, suites, local broadcasting, advertising and sponsorships.

According to the report, local baseball revenue was at $22.7 million in 1995 but rose to $83.3 million in 2001, and then declined to $59.4 million in 2003 due to a decline in attendance of 1.1 million from 2001 to 2003. "In comparing local baseball revenue to other Major League Baseball clubs, the Brewers ranked 23rd on average of all clubs leading up to the opening of Miller Park, 16th in 2001 and 20th in 2002. No number was released for the 2003 season."

Revenue sharing also increased, ranging from a low of $1.5 million in 2001 to a high of $24.7 million in 2003. Taking note of the high amount of revenue sharing in 2003, the report said the figure included $8.4 million that was insurance money paid to the team because of the Big Blue crane collapse. That money was not officially recorded as revenue until 2003.

On the expense side, baseball operating expenses went from $12.5 million in 1995 to $22.3 million and $23.3 million in 2001 and 2002, respectively. In 2003, it went up again, to $26.9 million.

The report confirmed Brewers claims that it had spent more on baseball operations. "During the seven-year period leading up to the opening of Miller Park," the report said, "the Brewers spending on scouting and player development ranked 20th on average in comparison to other clubs. In 2001 and 2002, the Brewers ranked 17th and ninth, respectively."

The MMAC panel also looked at general and administrative costs, and concluded that those costs increased by more than 50% over the last three years. "The increase was primarily attributable to a) the transition to the new management team in 2003; b) pension expense doubling as a result of lower interest rates and a declining market; and c) a doubling of general liability and property insurance as a result of the tragic events of Sept. 11, 2001."

Despite the increase, the report said that the Brewers still rank in the bottom third of all major-league baseball clubs at 24th in terms of spending on other team operations.

The MMAC panel relied on audited financial statements as reported by KPMG LLP, the team's independent auditor. In addition, the MMAC group was able to review general ledger details, tax returns, W-2 forms, as well as industry data and surveys.

This story will be updated with more details from the Legislative Audit Bureau report later today. Complete coverage will appear online tonight and in the Milwaukee Journal Sentinel on Friday morning.

[MediaMole]

Baseball sounds a lot like the movie business. No matter how much revenue you have, you never make a profit.

It will be very interesting to hear what accountants and auditors have to say about this report.

[benson106]

Where is all this increased revenu that is supposed to come in when these new stadiums go up.

It is one of the biggest scams in sports. New stadiums do not bring in any more money. If they did all the owners would build their own stadiums and keep all this "new revenue" for themselves.

Don't buy into it. They just want tax money for themselves.

[Tacis]

It is clear that the taxpayers have a responsibility to bail out these wonderful guys. How about a brand new stadium, maybe 300-400 million dollars, would that be enough? Hey, no prob!

[spunkets]

"They just want tax money for themselves."

Ditto. It's risk free money they have to play with.

[Wally_Kalbacken]

Wendy Selig-Prieb was a law school classmate of mine. Most of us went out and searched for the first job out of school - she was made President of the Brewers. And she appeared to prove, in spades, that she had little talent at it.

Milwaukee is in a tough spot, being in the shadow of the Chicago sports and media markets. But with the heavy coin the taxpayers shelled out for Miller Field and the chronically awful performance of the team - nobody is happy in the town of my birth, Brew City, USA.

[Cicero]

Baseball has been corrupted by the same yuppie attitudes that have corrupted so many other businesses. There have been some great players in recent years. But the whole thing was more fun back in the years following the Second World War, when they were perfectly happy with their old stadiums, moderate salaries, and moderate expense accounts for management. The fans would have looked down their noses at anything new, fancy, or flashy.

[John H K]

There have been some great players in recent years. But the whole thing was more fun back in the years following the Second World War, when they were perfectly happy with their old stadiums, moderate salaries, and moderate expense accounts for management. The fans would have looked down their noses at anything new, fancy, or flashy.

The fans certainly DID look down their noses in those years as attendance was TERRIBLE in the 1950s in many ballparks, INCLUDING the supposedly "Beloved" Brooklyn Dodgers when they were constantly winning pennants.

The supposed "Golden Age" of the 50s was filled with declining attendance and no hope of competing for most of the teams in baseball.