I’ve been reading Twins Daily for some time and finally have signed up as a member as I had a few ideas of topics to write about. For my first blog post I wanted to write about some of the financial aspects of the recent “Selling/Not Selling Saga” and what it might mean for the Twins next few years.
It’s been about a year since the Pohlad’s announced that they were going to explore a sale of the Twins. It seemed that something would happen soon. Over the winter we heard that the sale could be completed by opening day. Then the Ishbia’s dropped out, and the timeline was extended. However, by All-Star break the talk was that something would be done by the end of the season. That was followed by the trade deadline teardown and the Pohlad’s announcement. They were no longer selling the team but instead were taking on investors who would buy 20% of the team.
Some interesting items about the Twins came to light during this process. First, the Pohlads wanted $1.7 billion for the team. There was an early for $1.5 billion from a group led by a Minnesota billionaire that was rejected.
It also came out that Twins have $425 million in debt. The Strib reported that the Twins wanted the buyers to assume the team’s debt. Adding the debt increases the buyer’s price. It’s like buying a house that has a mortgage on it. If the person selling the house says they want to get $300,000 plus there’s a $200,000 mortgage to the bank, your cost to buy the house is $500,000. So, the actual price to the buyer the Twins were asking for was $2.125 billion (1.7b plus 425m).
The offer that was finally accepted was to sell 20% of the team for $425 million with the money paid being used to pay down the Twins debt. That $425 million is more than 20% of $1.7 billion. But it is exactly 20% of 2.125 billion.
One additional thing that may have impacted some of the decisions the Pohlads made. The last sale of a professional sports franchise in the Twin Cities was Glen Taylor’s sale of the Timberwolves in 2021. He sold the Wolves for $1.5 billion to Alex Rodriguez and Marc Lore. He also provided some interest free financing for the sale, allowing the new owners to pay him installment payments. By the time the last payment was due the value of the team had more than doubled. This led to Glen Taylor feeling some seller’s remorse, and he unsuccessfully tried to stop the sale based on a loophole.
I’d like to look at what all this means to the future for the Twins. Since things can be interpreted in a good or bad way, I’ll have an Optimist’s viewpoint and a Pessimist’s viewpoint.
Let’s start with the money. The Twins will receive $425 million for 20% of the team and will use it to pay down their debt.
Pessimist: This along with the payroll dump points to a lockout in 2027. The owners will try to implement a salary cap and the players will try to stop it. The Twins are preparing for some lean times coming as part the season will be lost and attendance when they come back will suffer for some time. They’re paying down their debt because they think they’re going to need to borrow more money in reaction to the turmoil. If they have $425 million in debt, borrowing more would be difficult and the interest rate would be much higher.
Optimist: Or maybe they’re looking at the savings that are generated by lowering their debt. Currently the prime interest rate is 7%. Let’s say they use $400 million to pay down that debt. At a little over prime, say 7.5%, they would save $30 million a year in interest. More than enough to add to payroll and have an impact.
Note: This was first mentioned in Brandon’s blog post “New Found Revenue” posted on Nov 14.
What impact will the new owners have?
Optimist: We keep hearing that a former Twin might be part of the Minnesota group. They’ll be able to talk some sense into the Pohlad’s about what their actions mean to the fans. They’re probably just as disgusted with all the trades as we are.
Pessimist: That’s pretty funny. As part of the process of selling a business, financial projections are prepared so that the buyers can understand what their opportunity is. There is no way the Twins made such a massive change at the trading deadline without having disclosed it in advance to potential purchasers. The fact that they knew about it in advance and still went forward with the purchase tells you what they think about that.
Why hasn’t Derek Falvey been given a payroll number for next year?
Pessimist: They’re not going to come out and say how bad it’s going to be. The Pohdals learned that lesson in 2023. They’re trying to bank as much cash as they can to make it through the labor troubles on the horizon. Any additions or free agent signings will be offset by trades.
Optimist: On the other hand, if they’re planning on using the interest savings from paying down the debt once the 20% sale is closed, then they wouldn’t fully settle on a payroll number until the deal is closed. It would put them in bad situation if they approved a larger payroll and then something happened to cause the deal to fall apart at the last minute. Once the deal is approved at the Winter Meetings, Falvey should get his number.
What do you make of the sudden shift that was made in going from trying to sell the whole team to selling 20%?
Pessimist: We’re going to be stuck with the Pohlad’s forever. Or at least through 2030, when the labor situation is more settled and MLB has taken over the local broadcast revenues. So, it will feel like forever.
Optimist: I think they looked at what happened with the Timberwolves and realized the potential was there for the team’s value to increase substantially. From Joe Pohlad’s comments I think he doesn’t want to sell, so he was probably the one pushing this viewpoint. My guess is that they compromised. They probably picked a point in the future when they would be able to sell the team for a multiple what they were asking for it. Then they compared it to what $1.7 billion would grow to in that point of time. Selling the team won out. But every day that passed was one day less of earnings on the $1.7 billion. At some date a line was crossed and the sale became less profitable than retaining the team. If you have the time frame and the expected return on the sales price it would be easy to set up a spreadsheet to calculate the date to stop trying to sell. I’m assuming that when the line was crossed that’s when they pivoted to taking on minority partners.
When I started writing this, I was very much in the pessimistic mindset. But as I wrote, I found myself hoping that the optimistic mindset was possible. Off season is the best time for hope, but time will tell.