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Major League Baseball is concerned that the COVID-19 pandemic, and the drop in revenues that will come with a shortened 2020 season, is going to make it more difficult for teams to pay off their debt. You might be familiar with the debt service rule in MLB: it arose from the collective bargaining of 2002, and was an attempt to make sure that teams actually had the money to pay their bills by limiting their debt to 10 times their annual earnings. You might also not be familiar with it at all, because it’s barely ever mentioned by the teams or the media, and even now it being brought up is more a negotiating ploy than a real thing to be concerned about.
Keeping in line with the debt service rule isn’t something that’s going to get teams in trouble with some financial authority like a bank: it’s just an internal MLB thing that’s meant to keep teams from promising to be able to pay more than they’ll be able to. And yet, despite the institution of this rule in 2002, nine clubs were in violation of the debt service rule in 2011. MLB didn’t go after most of those teams: they did go after the Dodgers for violating the debt service rule, though, that was because everyone wanted Frank McCourt to get kicked out of the league. The Mets were in violation at the same time, thanks to the Wilpons’ involvement with Bernie Madoff, but they were allowed to keep their team, because then-commissioner Bud Selig and the rest of the owners didn’t despise the Wilpons like they did McCourt.
Continue reading “Debt service, and MLB’s obfuscation racket”