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The business of baseball

While Florida Marlins fans rush to get autographs from team owner Jeffrey Loria, his former partners are fighting to sue him.  Loria turned a relatively small investment into a potential windfall — and made plenty of enemies along the way.  Still, the reigning world champs are not a quarter as valuable as the Yankees.
Expos v Marlins
Florida Marlins Owner Jeffrey Loria chats with Outfielder Jeff Conine before their game against the Montreal Expos on April 6 at Pro Player Stadium in Miami.Eliot J. Schechter / Getty Images
/ Source: Forbes

Jeff Loria has outmaneuvered foes in two countries and on the baseball diamond. Now he's trying to pull off a clean sweep.

When Florida Marlins owner Jeffrey Loria arrived at the team's spring training ballpark, the fans treated him like a conquering hero. They clamored for his autograph and a look at his 120-gram championship ring (240 diamonds, one with a rare teal hue, and 12 rubies) and to thank him for not dismantling their World Series champs as billionaire Wayne Huizenga did a few years ago.

Baseball has never seen an owner quite like Loria. The 63-year-old art dealer has shrewdly turned a relatively small investment into a potential windfall — and made more enemies than George Steinbrenner. Even now Loria is fighting his former partners (who are suing him), grabbing for controversial tax breaks and maneuvering to get all sorts of help from Major League Baseball. But he is always steps ahead of the competition both off the field and on it. "The so-called experts still don't think we can win," says Loria, watching his team play the St. Louis Cardinals from behind home plate. "It's fine for them to dismiss us again."

Opportunity knocks
Baseball and deal-making are in Loria's blood. His attorney father twice pitched to Lou Gehrig while in high school and regularly took young Loria four subway stops from home to Yankee Stadium. Loria won a city championship in high school, playing second base. He majored in art history at Yale and later hooked up with actor Vincent Price, hired by Sears, Roebuck to hawk art to the masses. In the 1960s Loria was Sears' youngest buyer. While the venture fizzled, he turned the experience into Jeffrey H. Loria & Co., buying and selling works by the likes of Léger and Picasso for an Upper East Side Manhattan clientele.

By the late 1980s Loria had turned his attention to baseball. He bought the Oklahoma City 89ers, the AAA club of the Texas Rangers, for $3.8 million in 1989, won a championship and sold the team for $8 million in 1993. In the 1990s he tried unsuccessfully to buy major league clubs, first in Montreal, then in Baltimore, where he lost a bankruptcy auction for the Orioles to trial lawyer Peter Angelos.

His break came in 1999. The partnership that owned the money-losing Montreal Expos was without a managing partner, and the 11 Canadian limited partners, including telecommunications giant BCE and the investment bank BMO Nesbitt Burns, were looking for outside investors. They turned to Loria, who wangled a 24 percent stake for $12 million and became managing partner. Stephen Bronfman, a member of one of Canada's richest families, and Canadian billionaire Jean Coutu hopped on board, too.

Baseball business
Loria says he nearly doubled payroll to $31 million, which led to increasing losses. He then initiated capital calls on the other owners in 2000 and 2001 to fund rising operating expenses. When they chose not to meet those calls, Loria funded them himself with about $18 million. That triggered a clause in the partnership agreement that allowed him to dilute the interests of other owners down to 6 percent. Loria thus gained 94 percent of the Expos for roughly $30 million. He would soon sell the team for four times that amount.

And enrage his limited partners. They refused to meet the capital calls, they allege in a federal suit, because Loria "misrepresented important facts in an effort to destroy Major League Baseball in Montreal." They cite his decisions to pull the Expos off local radio and TV (lousy deals, says Loria) and to stop free tickets to sponsors. They also claim he torpedoed plans for a new stadium for which they'd secured real estate, $5 million a year from the Quebec government to cover interest on a planned $67 million bond and $8 million in annual tax relief. Irrelevant, says Loria's lawyer, since there's nothing about the stadium in the contract.

The federal suit additionally claims that Loria conspired with Baseball Commissioner Allan (Bud) Selig, who is also a defendant, to take control of the team and move it to another city. After Selig decided to eliminate the Expos and the Minnesota Twins in 2001 in order to apply pressure on players in labor negotiations, the commissioner agreed to provide another team to Loria, who had threatened to sue Major League Baseball if he lost his team. No evidence of a conspiracy, says Loria's lawyer.

In any event, the Canadian partners will have a tough time winning the case. Loria appears to have operated within the boundaries of his contract with them. Indeed, he has already convinced a federal judge in Miami to stall the suit and have an arbitration panel in New York hear the case this May, per a stipulation in the partnership agreement. The contract also permitted Loria to increase player salaries and contained provisions for the Expos to be sold or relocated. Loria says the Canadian partners were simply unwilling to invest in the Expos.

Swapping teams
Loria ended up in south Florida thanks to Selig and John Henry, a hedge fund manager. At the same time the situation in Montreal was deteriorating, the Boston Red Sox were put up for sale. Henry was interested, but he already owned the Marlins (no owner is allowed to control more than one team), so Selig arranged for Loria to swap the Expos for the Marlins. The deal called for baseball's other owners to buy the Expos for $120 million from Loria, who agreed to pay $158 million for the Marlins. The balance would come from a $38 million interest-free loan made to Loria by baseball's owners — a debt that will be reduced by $15 million or so if Loria can't get a new stadium.

Clever move, since it pushes other owners to side with Loria, whose support he would need to move the Marlins, if he can't get a new ballpark in south Florida. No wonder, then, that St. Louis Cardinals principal owner William DeWitt Jr. greeted Loria at a recent spring training game with the question, "How are things going with the stadium?"

The 2002 swap still nearly collapsed because the $700 million Henry and his partners bid for the Red Sox and 80 percent of its cable network was less than packages put together by cable billionaire Charles Dolan and New York lawyer Miles Prentice. The Massachusetts attorney general, concerned that "Major League Baseball was calling the shots," only dropped his intervention after Henry arranged for the charity that owned most of the team to get an extra $30 million.

Making money work
Loria still remembers being pilloried after the Marlins ran out of hot dogs on opening day in 2002, six weeks after he took control of the team. But he soon started to make decisions that would lead to a World Series victory. While some low-revenue teams, like the Kansas City Royals, pocket the money they get from the league's revenue-sharing system, Loria used the $20 million or so a year he got from rich teams like the Yankees to hike the Marlins' payroll by 49 percent in his first two seasons to $52 million. He used the money to sign stars like catcher Ivan Rodriguez. "I didn't sit on my wallet," says Loria.

Amid much criticism he hired 72-year-old Jack McKeon as manager, even though McKeon had trouble at first remembering Loria's first name was not Jerry. Loria rightly thought McKeon, who'd been out of baseball for two years, could turn around the then-slumping Marlins as he once did with teams in Cincinnati and San Diego. Loria also took a gamble by not unloading salary by trading away expensive players before the 2003 trading deadline in July, despite the Marlins' unsure playoff chances.

Loria watched his Marlins win the World Series from his season ticket box seats at Yankee Stadium last fall. After game six he rounded the bases and, thinking of his late father, broke into tears crossing home plate. "To the extent that the Canadians thought I did not know how to run a baseball team," Loria says, "I guess the record speaks for itself." But will the victory help him in arbitration with his unhappy partners? Loria has offered them championship rings — they do own a sliver of the Marlins, after all. Twelve of 14 have accepted.

World Series success
The World Series success, Loria says, also netted an extra $6 million. The victory certainly helped bump up the value of the Marlins this year by 27 percent, according to our calculations, to $172 million. Even accounting for the $37 million Loria says he has put into the team for working capital, he is still about $100 million ahead of where he started in baseball (not counting any exposure from the lawsuits). Presumably, he can also put the team's current losses to good use, offsetting income from his art business.

But for the series victory to really pay off, Loria and the Marlins need a new stadium. His plan is to build a $325 million ballpark somewhere in south Florida, with air conditioning and a retractable roof. This is supposed to happen by opening day in 2007. The new venue would give a boost to attendance, which, despite a 60 percent gain last year to 1.3 million, remains third worst in the business. The team currently plays in Pro Player Stadium, a football field owned by Huizenga that has fans sitting far away from the action on the field and suffering humidity and rain delays in the summer. A new park would also get the Marlins out of one of the most onerous leases in baseball. The team pays about $2 million a year in rent and other ballpark expenses but gets none of the revenue from luxury suites and only 37 percent of the parking take.

Will the state build it? Loria is committing $137 million from sources he declines to specify and has set a May 1 deadline to line up public financing for the rest. So far he has convinced Miami-Dade county to put up $73 million, leaving a $115 million gap. Florida Governor Jeb Bush is on board for a $60 million state sales tax rebate over 30 years for the Marlins, but the state senate is cool to the idea.

There is some urgency. Despite its championship the Marlins had $12 million in operating losses last season. "It's not okay when you write checks each year for $15 million — it's painful," Loria says. "I am not willing to continue to lose money forever."

But certain things are sacrosanct. Loria hasn't raised season ticket prices this year, becoming the first owner in years not to exploit fans after his team has won it all. And he's holding on to many of the team's best players — with a catch. Local hero Mike Lowell, a third baseman, agreed to a four-year $32 million contract that could be reduced to two years and $14 million if no stadium deal is reached by November. "They are using my face to help get a stadium, and I think that's legitimate," says Lowell.

Taxpayers won't chip in for the stadium? Loria might take his ball and go elsewhere.