What Did The Phillies Spend More Than 156 Million Dollars On?
Posted by R.C. Cowie, Fri, June 03, 2011 12:05 PM Comments: 11
Prior to the ratification of the 2006 Collective Bargaining Agreement, all major league teams had to abide by the 60/40 rule; that is, 60 percent of the teams assets couldn’t eclipse more than 40 percent of its liabilities (team debt). The new CBA signed in 2006 changed that rule from the previous 60/40 provision to debt being capped based on club earnings before interest, taxes, etc.
The rule stated verbatim:
DEBT SERVICE RULE
Section 1. The Rule. No Club may maintain more Total Club Debt than can reasonably be supported by its EBITDA. A Club’s Total Club Debt cannot reasonably be supported by its EBITDA if Total Club Debt exceeds the product of the average of that Club’s EBITDA over the most recent two years multiplied by the Cash Flow Multiplier applicable to that Club; provided, however, that a Club may elect, on or before April 1, 2007, to utilize, in both 2007 and 2008, the average of its EBITDA over the most recent three years.
What does this mean? Let’s use Forbes franchise estimations for the Phils team value to determine what their debt cap is. Remember, all of these numbers are estimates by Forbes. But, for this purpose I think they will give us the closest actually to what the team is up too.
Figuring Out Operating Cost Over the Last Two Seasons
Let’s average the Phillies operating costs from 2010 and 2009 and multiply by 10. We would get the Phillies debt ceiling for this year.
$14.5 (mil) (2010) + $16.3 (mil) (2009) = 30.8 million
2009-2010 values X 10 = $308 (mil).
The Phillies have an operating cost of $308 (mil) for the 2011 season.
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