Is Selig’s Enforcement of the 60/40 Rule Working?
24th March 2006
In Friday’s edition of the USA Today, Hal Bodley is reporting that guaranteed contracts that will run for the five year period starting in 2007 total $2.83 billion to 179 players. This is $131.6 million less than the $2.97 billion for 190 players in 2005, a striking turn that alters the debt/value ratio component for the league.
Not surprisingly, Selig is quoted as saying, “One of the things that’s an ongoing concern to me is the amount of debt that baseball has,” Selig said Wednesday of the survey. “I think we’ve made slight progress in the right direction, but we have to be very careful.”
One thing that Selig has pounded home to the owners is the amount of debt clubs can carry against their assets. This is one area where Selig has been the architect, as well as enforcer.
These guaranteed contracts fall within the 60/40 Rule, which Selig wrote in 1975. It’s his baby, and an area that Selig has always zeroed in on.
The 1999 edition of the MLB Constitution outlines the 60-40 rule as, Rule 8.7: Fiscal Responsibility.
- It mandates that each club retain a 60:40 ratio of assets to liabilities at the close of its fiscal year. An AL resolution, adopted December 12, 1982 and amended December 8, 1983, provides that for purposes of the 60/40 rule, balance sheets shall be recast to:
- Value non-current baseball assets (stadia, spring training camps, franchise, player contracts, right to future broadcasting revenues, etc.) at $20 million, if the balance sheet shows less;
- Eliminate advance ticket sales, and other advanced monies, from both sides of the balance sheet;
- Record the value of all current assets (cash, receivables, securities, etc.) as booked, and the value of all non-current non-baseball assets at a value determined by an appraisal of their net fair market value;
- “Include in a club’s liabilities the present value of all long-term baseball commitments”; and;
- “Exclude from a Club’s liabilities any debt obligations relating to stadium improvement or acquisition.”
In the 2005 edition MLB Constitution, the enforcement of this rule is clearly outlined to be within Selig’s realm:
“The implementation, administration and interpretation of the requirements of this 60/40 Rule shall be in accordance with regulations and policies promulgated by the Commissioner.”
Going back to the guaranteed contract numbers… What’s missing from Bodley’s article is any comments from the MLBPA, given what MLB senior VP Frank Cooley had to say, one would think there would be a response.
“The free agent market was very vibrant this year, but I don’t think the players were quite as good as they were last year,” Cooley said . “That helps explain why the amount of money committed in the future has gone down.”
Maybe the times are different and the particulars have changed, but I can’t help of thinking of the last time there was a dramatic drop in salaries in terms of long-term contracts. At that time (late 80’s) Peter Ubueroth was at the helm, and Collusion I,II, and III was the outcome. It was, and remains, a major gaff on MLB’s part (something I cover in Rob Neyer’s upcoming book, Rob Neyer’s Big Book of Baseball Blunders : A Complete Guide to the Worst Decisions and Stupidest Moments in Baseball History scheduled for a May 2nd release), and something that created extreme distrust on the part of the Players Assocition.
On those collusion rulings… Selig has maintained that the owners never colluded.
Back to the future? I would be very interested to hear what the MLBPA has to say about the USA Today report.
Here are some other key figures from the USA Today article:
- The New York Yankees top the list of 30 teams, owing 10 players $373.1 million through 2011. The Yankees, whose record payroll reached $213.1 million in 2005, had guaranteed contracts of $425.6 million a year ago.
- The next club on the list is the Blue Jays. This is due to the signings this past off-season of B.J. Ryan and A.J. Burnett. Their guaranteed contracts for the next five years total $198.1 million compared to $71.3 million a year ago.
- Who is at the top of the “mortgage list”. Alex Rodriguez is in the sixth year of his record 10-year, $252 million contract between 2007-11 being owed $98.79 million.