Wednesday, November 14th, 2012...8:10 pm

The Miami Marlins and Public Fraud

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For those of you who are not aware, last night the Miami Marlins agreed to trade 5 major league players to the Toronto Blue Jays for 7 players, a few of which have seen major league service time. All major sports media outlets have covered the trade in great detail, because this is not the ordinary baseball trade. (For what it’s worth, two of my favorite writers are Keith Law and Jonah Keri, who both had excellent takes on the trade and its implications beyond just the players and teams involved). While it is true that “small market,” low-budget teams often trade established big leaguers for prospects and salary relief in Major League Baseball, they usually do so to compete in the future and to improve the status of their organization. This trade does not appear to involve that motivation; instead this trade is purely about money.Ed’s Note: This is a great baseball trade for Toronto and this post is in no way directed at them.

Let me frame this discussion with two quick points. First, I am a huge baseball guy, a “homer” for the game, meaning that I am completely biased in that I want MLB to have the best possible reputation and be the healthiest game possible. If the NFL or NBA disappeared, I wouldn’t be nearly as disappointed as I would be if there was no more baseball. Second, I am extremely skeptical that anything will ever come out of this situation, meaning it is my belief that there will be zero reprucussions for the Marlins and those in charge. I mention these two things because it is quite possible that the explanation below will be affected by my inherent biases.Nonetheless, this is an extremely important situation to dissect, and it has nothing to do with what occurs on the baseball diamond.

The Marlins are owned by Jeffrey Loria. Loria used to own the Montreal Expos until he sold the club to MLB baseball. The reason he sold the team, after spending years trying to acquire an MLB franchise, was that he could not convince the city of Montreal to fund the construction of a brand new stadium. As a result, the Expos toiled under MLB’s control for two years and were moved to Washington. This is a polite way to say that the Expos no longer exist where presumably they would still be in Montreal if the city has agreed to publicly fund a new stadium. As part of the reshuffling, Loria acquired the (then) Florida Marlins in 2002, assisted in part by a no-interest loan from MLB.

Fast forward a few years, and Loria was again threatening to move an organization if it did not get public funding. The Marlins were playing in an NFL stadium and had major attendance difficulties. So Loria discussed other cities that were viable for an MLB baseball team, negotiated with city and county officials in Miami, and had MLB act as the muscle. Low and behold it worked, and Miami-Dade County agreed to help fund the new stadium. All sorts of factors went into the deal: it would keep the franchise in Miami, it would allow them to draw more fans and spend more money, it would guarantee that the Marlins would put a competitive team on the field, it would even be built in Little Havana to engage the large Latin American population, etc. This is not even to mention the supposed economic benefits of new sports facilities, a myth that has been debunked by every economist to study it. (See Phillip Miller, The Economic Impact of Sports Stadium Constructioni, 24 Journal of Urban Affairs 159).

At first, it seemed sincere. The Marlins went out and spent a significant amount of money on free agents: Mark Buehrle, Jose Reyes, Heath Bell. They were even the frontrunner for Albert Pujols, the prize of last year’s free agent class, for a while. Many analysts and commentators picked the Marlins to win their division this year. The only problem was the team didn’t play very well. So in response, they traded multiple players to contenders in July. While surely disappointing to the fanbase, it’s not uncommon to do during a losing season (high profile franchises like the Red Sox and Phillies did the same thing this past season). But then came the offseason: they traded Heath Bell, and then last night traded five more players, including their starting shortstop and two best pitchers.

The Marlins now have a miniscule payroll and are only committed to 8 players for next season (which means their labor costs are going to be extremely low). They just got a publicly funded stadium. Now add to that television money and revenue sharing payments, and, according to Jonah Keri, “the Marlins could expect to rake in about $70 million to $80 million before it ever sold a single ticket.” This is possible because the revenue-sharing system grants payments in which the richer teams (on-field, that is) subsidize the poorer teams. This is supposed to help competitive balance, but baseball lacks the structure necessary to force its franchises to reinvest their revenue-sharing dollars. Instead, certain ownership groups simply skim off the top (Pittsburgh and Kansas City know what that means to a franchise).

So to summarize: Loria threatened the municipal leaders with the prospect of the Marlins leaving town if they did not get a stadium, a threat that was very powerful with the backing of MLB leadership and the Expos cautionary tale; he succeeded in holding the county hostage and only had to contribute $125 million of the stadium’s $634 million price tag; he then signed free agents and made an effort to compete … for half a season before selling off almost all of the team’s assets, and certain each asset that came with a high price tag; and now is looking at a season where the team will be awful, attendance will be even worse and the organization is the laughingstock of baseball, yet he will still pocket tens of millions of dollars.

To me this sounds like public fraud. Obviously there is no cause of action that the people of Miami could pursue. Unfortunately they seem to be stuck with the approximately $2.4 billion in municipal bonds that the county will need to pay off over the next 40 years for the stadium. The lone hope is an ongoing SEC investigation into the stadium’s financing. While there are not a ton of public details on the case, see here for details, I remain skeptical that formal charges will be filed or that any sanctions will be leveled upon Loria and his associates.

What is disappointing about this is that MLB contributed to this public fraud, and the taxpayers in the greater Miami area are left footing the bill for an owner who obviously does not care at all about his organization or its community. Sports are a business, and I am as big a believer in turning a profit as anyone, but this type of conduct, purely motivated by the bottom line, cannot stand. Major League Baseball, the future of baseball in Florida, and most importantly, the taxpayers of the greater Miami area have been irreperably harmed by the conduct of Loria and his associates.

Sam Mann is an editor for the William & Mary Sports and Entertainment Law Society. He may be reached at sgmann@email.wm.edu or @SELSblogWM on Twitter.

 

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