It’s been about a year since the Pohlad’s announced they were exploring a sale of the Twins. It seemed like something would happen soon. Over the winter we heard that the sale could be completed on opening day. Then the Ishbias dropped out and the timeline was extended. At the All-Star break, however, the talk was that something would happen towards the end of the season. That was followed by the trade deadline abort and the Pohlad announcement. They no longer sold the team, but instead took on investors who would buy 20% of the team.
During this process, some interesting items about the Twins came to light. First, the Pohlads wanted $1.7 billion for the team. There was a $1.5 billion early offer from a group led by a Minnesota billionaire that was turned down.
It also turned out that Twins has $425 million in debt. The Strib reported that the Twins wanted the buyers to take over the team’s debts. Adding debt increases the buyer’s price. It’s like buying a house with a mortgage. If the person selling the house says he wants to get $300,000, plus a $200,000 mortgage from the bank, then your cost to buy the house is $500,000. So the actual buyer price the Twins asked for was $2.125 billion (1.7 billion plus 425 million).
The offer that was ultimately accepted was to sell 20% of the team for $425 million, with the money paid to be used to pay off the Twins debt. That $425 million is more than 20% of $1.7 billion. But it is exactly 20% of 2.125 billion.
Another thing that may have influenced 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 to Alex Rodriguez and Marc Lore for $1.5 billion. He also provided interest-free financing for the sale, allowing the new owners to pay him installments. By the time the final payment was due, the team’s value had more than doubled. This led to Glen Taylor feeling some seller’s remorse, and he tried unsuccessfully to stop the sale based on a loophole in the law.
I’d like to take a look at what this all means for the future of the Twins. Since things can be interpreted in a good or bad way, I have an optimist’s point of view and a pessimist’s point of view.
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 wage 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 as part of the season will be lost and attendance will suffer for some time upon their return. They pay off their debts because they think they will have to borrow more money in response to the unrest. If they have $425 million in debt, it would be difficult to borrow more and the interest rate would be much higher.
Optimist: Or perhaps they are looking at the savings generated by reducing their debt. Currently the primary interest rate is 7%. Let’s say they use $400 million to pay off that debt. At a slightly higher interest rate, say 7.5%, they would save $30 million per year in interest. More than enough to add to the payroll and make an impact.
Remark: This was first mentioned in Brandon’s blog post “New Found Revenue” posted on November 14th.
What impact will the new owners have?
Optimist: We keep hearing that a former twin may be part of the Minnesota group. They will be able to communicate more sensibly to the Pohlad’s about what their actions mean to the fans. They’re probably as disgusted by all the transactions as we are.
Pessimist: That’s pretty funny. As part of the sales process of a business, financial forecasts are prepared so that buyers can understand their opportunities. There’s no way the Twins could have made such a huge change at the trade deadline without disclosing it to potential buyers ahead of time. The fact that they knew it in advance and still went ahead with the purchase tells how they feel about it.
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 are trying to put as much cash in the bank as possible to weather the labor problems on the horizon. Any free agent additions or signings will be offset by trades.
Optimist: On the other hand, if they plan to use the interest savings from paying off the debt once the 20% sale closes, then they wouldn’t hit a full payroll until the deal closes. It would put them in a bad situation if they approved a larger payroll and then something happened to fall apart at the last minute. Once the deal is approved at the Winter Meetings, Falvey should get his number.
What do you think of the sudden shift made from selling the entire team to selling 20%?
Pessimist: We’ll be stuck with the Pohlad’s forever. Or at least until 2030, when the labor situation is more stable and MLB has taken over local broadcast revenue. So it will seem like an eternity.
Optimist: I think they looked at what happened with the Timberwolves and realized the potential was there to significantly increase the value of the team. From Joe Pohlad’s comments I think he doesn’t want to sell, so he was probably the one who made this point. I guess they compromised. They probably picked a point in the future where they could sell the team for many times what they asked for it. Then they compared it to what would be $1.7 billion at that time. Selling the team won. But every day that passed was one day less profit on the $1.7 billion. At some point a line was crossed and selling became less profitable than keeping the team. If you have the time frame and expected return on the sales price, you can easily set up a spreadsheet to calculate the date by which you should stop selling. I guess when the line was crossed they turned around to take on minority partners.
When I started writing this, I was very pessimistic. But as I wrote, I hoped that the optimistic mindset was possible. The offseason is the best time for hope, but time will tell.
#Pohlads #salesnonsales #saga