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The score is 1-0 government in a likely lengthy legal battle between Miami-Dade County and the Miami Marlins baseball franchise stemming from its 2009 public-private stadium funding deal.
But even before the final dust settles, other tax authorities should take note of the unique contract the county negotiated with the Marlins in footing 80 percent of the bill for the new stadium construction. It may offer protection when negotiating often-controversial stadium financing deals with billionaire sports franchise owners—which the cities of Cleveland and Las Vegas, among others, recently have done with the NBA’s Cleveland Cavaliers and the NFL’s now-Oakland raiders.
Miami-Dade County filed a complaint Feb. 16 against Miami Marlins, L.P., the former ownership group, and Marlins TeamCo,LLC, the current group, alleging that the county was stiffed on a 5 percent equity share payment stemming from the team’s sale this past fall.
The inclusion of such a payment provision in a stadium deal is almost unheard of in sports team negotiations, Victor Matheson, sports economics and accounting professor at the College of the Holy Cross, told Bloomberg Tax Feb. 23.
Such a contract provision could inspire other jurisdictions to enact similar measures when embroiled in a public financing request.
And, if nothing else, the Marlins stadium financing deal has taught taxpayers and the local government a hard lesson about brokering deals with billionaire sports owners. Since the 2009 Marlins deal, the county has been cautious toward other approaching sports entities. The county gave no money to soccer superstar David Beckham for the construction of a new Major League Soccer stadium.
Loria argues that he doesn’t owe the county any money surrounding the 2017 franchise sale since he didn’t make any profits off the $1.2 billion deal with the new ownership group led by former MLB shortstop, Derek Jeter, and former Private Capital Management CEO, Bruce Sherman.
Loria originally purchased the team in 2002 for $158.5 million.
A provision in a 2009 stadium financing deal between Loria, Miami-Dade County, and the city of Miami provides that upon the sale of the franchise, the team is required to give 5 percent of the proceeds from the sale to both the city and county.
In early February, “the county received a vague, conclusory, and unsubstantiated valuation that the 5% Equity Payment on the $1.2 Billion sale was $0,” prompting the county to sue the team under the False Claims Act and the Florida Deceptive and Unfair Trade Practices Act, according to the complaint.
Judge Beatrice Butchko ruled in the county’s favor Feb. 22, stating that Loria’s financial team breached their 2009 agreement and must produce all financial documents surrounding the team’s sale.
Loria’s argument that he actually lost money with the team and owes nothing is pretty incomprehensible, Andrew Zimbalist, professor of economics at Smith College, told Bloomberg Tax Feb. 23.
During Loria’s ownership, " he had a very low payroll, so it’s hard to believe that in net terms over his ownership period that he was losing money,” said Zimbalist, who specializes in the economics of sports financing. “And clearly from a capital gains basis, he bought the team for $158 million and sold it for $1.2 billion, it doesn’t look like he has a lot there.”
“Any claim that he lost money almost certainly rests on fancy accountants rather than the reality of his bank account,” Matheson said.
Loria’s lawyer didn’t immediately respond to Bloomberg Tax’s request for comment.
In 2009, the city of Miami and Miami-Dade county agreed to provide $500 million in public financing toward the construction costs for a new $600 million Marlins stadium. With more than 80 percent of stadium costs billed to the county and city, Miami residents were left holding a high bill compared to other public-private stadium deals, Matheson said.
“Typically the average stadium deal between 1990 and 2008 had the public paying two thirds of the costs and the team or league paying one third,” Matheson said. “After 2008, that roughly switched to two-third private and one-third public. So even in the old days under the old regime where the public was paying a lot more than it is now, $500 million out of $600 is still high,” he added.
Yet the county and city’s inclusion of an equity share payment was a relatively smart move and one that more localities should take note of, Matheson said.
“It makes a huge amount of economic sense to throw this sort of thing in because anytime you build a new stadium, that causes a huge increase in the value of that franchise,” he said.
At the time of the 2009 negotiations, the Marlins were valued at $277 million. In 2017, the Marlins valuation was $940 million, marking a nearly 39 percent value increase in one year, according to a Forbes report.
In terms of general sports financing contract negotiations, the Loria case may prompt localities to take a second look at their deals with owners to ensure there aren’t ambiguities to be exploited, Zimbalist said.
“I think what it might do is encourage cities and counties going forward to make sure a lawyer looks very closely at the language that is attempting to guarantee a certain return or guarantee against certain losses,” he said.
For Miami residents, the debacle with Loria and the Marlins left such a sour taste among county authorities that David Beckham faced many obstacles in building a new MLS stadium there.
“They were so upset by how fleeced they got in the original stadium deal by handing out all this money, that they were very gun shy to even let David Beckham build a stadium in Miami even with his own money,” Matheson said.
After nearly four years of push-back from residents and the local government, Beckham’s stadium construction was finally approved in January, with zero public financing attached to the agreement. Miami-Dade County made $9 million in a three acre land sale to Beckham. The stadium is set to open in 2021 and is estimated to cost $500 million.
The uphill battle for Beckham “shows how widely and wildly things have swung in the last 10 years from handing away $500 million to a billionaire baseball owner to not even allowing a millionaire soccer owner to spend his own money,” Matheson said. “I find that pretty remarkable.”
The Loria case is Miami-Dade County vs. Miami Marlins, L.P. et al., Fla. Cir. Ct., No. 2018-004718-CA-01, order 2/22/18 .
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