MLB's Most Questionable Stat
If someone wants to hand you a check for $138 million, can you still be getting screwed? Ask Mets co-owner Nelson Doubleday.
So far, 2002 hasn't been an amazing year for the Mets or Doubleday. On the field, most of the big names that GM Steve Phillips brought in to close the gap with Atlanta have disappointed. Forget about winning the NL East.
But that's nothing compared with the drama playing out upstairs in Shea Stadium's owners' boxes. There, Doubleday is trying to sell his half of the team while hurling accusations that he's being fleeced by his partner, Fred Wilpon, and baseball commissioner Bud Selig, who wants to keep franchise values down as the owners negotiate a new collective-bargaining agreement with the players. And a peek at a formerly confidential appraisal prepared for the Mets sale (and obtained by the Voice) shows that Doubleday may be onto something.
Since 1986, publishing scion Doubleday has co-owned the Mets with Wilpon, a self-made real estate magnate whom, according to various press reports, Doubleday despises. After years of sniping behind the scenes, the two finally agreed that Wilpon should buy Doubleday's half and end the partnership. They hired an appraiser to value the franchise, a sports consultant from Minneapolis named Robert Starkey, who was recommended by Selig and Robert DuPuy, baseball's chief operating officer. And they agreed that Starkey's opinion would be final and binding.
Before Starkey issued his report, it was generally believed the Met franchise was worth around $500 million, the figure Cablevision used in Charles Dolan's failed 1999 bid for the team. So you can imagine Doubleday's reaction when he saw Starkey's appraisal valuing the Mets at just $391 millionand valuing Doubleday's half at just $138 million after $115 million in balance sheet "adjustments."
"It wasn't reached correctly," Doubleday told a crowd of reporters before a Mets-Braves game in late June. "If he didn't use the proper method to get from one and one to two, then you have a lawsuit. Let's not forget we were offered $500 million twice."
Doubleday hasn't sued anyone. But Wilpon has, seeking to force Doubleday to adhere to the appraisal. Meanwhile both sides have quietly begun negotiations on an agreeable price. The owners, their lawyers, and Starkey all declined comment to the Voice. But a June 25 statement issued on Wilpon's behalf said of Doubleday, "What he is now trying to do is overturn a fair and comprehensive process that he had previously agreed to and actively participated in because he presumably does not like the conclusions that were drawn by the appraiser he approved."
At the heart of Doubleday's gripe is the independence of the appraiser, specifically Major League Baseball's role in shaping the valuation of the franchise. Starkey has been a financial consultant for MLB for more than a decade and was an adviser to the owners during the sport's last major labor dispute in the mid 1990s. An accountant by training, he was the head of the sports industry group at Arthur Andersen until 1999, when he launched his own firm, Starkey Sports Consulting.
His dealings with Selig go back to at least 1995, when Selig was the official and active owner of the Milwaukee Brewers. That year, Starkey provided a glowing report to the Wisconsin legislature supporting public financing for a new Brewers stadium, estimating that the building would attract an additional 750,000 fans a year. Milwaukee's Miller Stadium opened last year, and Starkey's analysis isn't proving prescient. After a healthy initial season, attendance through the Brewers' first 50 home games this year was down 30 percent to 24,047 a game.
So how does Selig's relationship with Starkey affect the Mets? Well, baseball is at a precarious place, with a strike looming and owners crying poverty. In this environment, the last thing the league wants is for the Mets, although a marquee franchise, to be sold for a stratospheric price.
"The PR isn't so wonderful if the Mets all of a sudden are worth $600 million," says Andrew Zimbalist, a sports economist and author who teaches at Smith College. "It's easier for Selig to claim economic distress if the Mets, a team in the largest media market and a great baseball town, are sold for $400 million instead."
Furthermore, Wilpon is an important ally for Selig. "Wilpon is a Selig man," Zimbalist adds. "Selig wants to count on Wilpon's cooperation, which is particularly important because he represents a big-city team and a high-revenue team. Selig, of course, is trying to unify the owners around revenue-sharing issues. So they do each other favors, scratch each other's backs."
The numbers in Starkey's appraisal qualify as a full-body massage for Wilpon. Like stocks, which can be valued using a price-to-earnings ratio, baseball teams are often valued as a multiple of their revenue. So if the Yankees are worth $700 million and the team's revenue is $240 million, the Yankees are worth 2.9 times their revenue.
Valuing a sports team is more art than science, and it does involve some general assumptions. One of those assumptions is that franchises in larger media markets sell for higher multiples than those in smaller markets.
"Bigger-market teams generate more revenue faster," says Randy Vataha, a former NFL wide receiver who is president of Game Plan LLC, a Boston sports-banking outfit. "They have larger local-television deals and higher prices from suite sales and club seat sales. Everything is bigger."
On average, baseball franchises, large and small, are valued at about 2.65 times their revenue, sports-finance insiders tell the Voice. So, using the 2001 revenue figures provided to Congress, the Mets would be worth at least $484 million. Not according to Starkey's analysis.
Since every deal is different, Starkey had to develop his own multiple for the Mets. So he looked at teams that had sold recently to see how they did. But in his calculations he included smaller marketslike Cleveland and Texasthat aren't in the same ballpark as New York. This enabled him to come up with a low multiple of 2.5.
Then he turned his attention to the revenue. Rather than use the figure of $182.6 million that the Mets reported to Congress, Starkey made two adjustments. First, he subtracted $15.7 million the Mets contributed to the league's revenue-sharing program. Then he took out the team's $21.7 million in stadium expenses.
"You cannot deduct stadium expenses from revenue for valuation purposes," says Michael Ozanian, senior editor at Forbes, which publishes its own list of estimated franchise valuesits guesstimate last April of the value of the Mets was $482 million. "When you deduct expenses, you are no longer talking about revenue, but operating income. And teams are not valued on operating income."
But that's what Starkey did. Using his low multiple and devalued revenue figures, he came up with two valuations for the Mets, $400 million and $382 million. Then he averaged them to arrive at a final value of $391 million. And that's where we stand now.
"It's a crock," Zimbalist says. "If Doubleday's upset, I think he has a right. It's not kosher."
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