Astros GM is going to have a long 2 months.

[weams]

12 hours ago, Cumberbundy said:

Dodgers pen blew up, they needed ZB tonight.

Their fake lefty too.  The one that was "Just as good."

[Ohfan67]

Thanks spiritof66 for explaining your rationale. I seriously underestimated the estate tax issue. I guess that's the primary reason (or at least one of two reasons) the Cooke family doesn't own the Redskins. 

[spiritof66]

14 minutes ago, Ohfan67 said:

Thanks spiritof66 for explaining your rationale. I seriously underestimated the estate tax issue. I guess that's the primary reason (or at least one of two reasons) the Cooke family doesn't own the Redskins. 

The death of a sports team owner who wants to keep the team in the family is a lot like the death of a farm owner in that situation. Both assets have a fair market value that far exceeds the value attributable to the operating income they generated for the owner -- sports teams because that's what wealthy people or companies are willing to pay for the privilege of owning these rare assets, and the stereotypical farm because of the potential value of the land in the hands of a real estate developer. http://fortune.com/2015/04/13/death-tax-killing-american-family-farms/ The deceased's interest in both the team and the farm are subject to estate taxes based on those high valuations.

Two small points I should add. I forgot to mention that one estate planning tool that can be used to offset estate taxes is life insurance on the owner's life, owned by a trust for the benefit of heirs. The insurance proceeds can be tax-free (though there are complications involved in arranging that). The insurance proceeds (even if they are taxed) can be used to pay taxes that come due on the other assets. I doubt it's feasible, if it's even possible, to insure a life for hundreds of millions of dollars, but I don't really know that.

The second is that President Trump has proposed eliminating the federal estate tax. (You know, to benefit the middle class . . .) That's extremely unlikely, but some decrease in the rate is possible, I guess.

Again, I know a little about this stuff, which may be helpful or dangerous or some of each. If I'm off in a way that matters, I'd be glad to learn that. 

[tntoriole]

The Astros GM may take a hit if they have a publicly obvious, to the common fan, blowup of a close situation in the playoffs.  However, of course, those same fans think nothing of what the players they lost may do next year or the year after, so the hit is a distorted phenomenon.

Similarly, Duquette will likely not take a PR hit, because if Zach pitches well through next year,  then most fans will be happy that he is pitching well for us.  But those same fans will not think or be aware of the players that we may have gained if we had traded Zach and will give Duquette a pass.   And the losses will be attributed to multiple factors, not just the failure to make a timely trade of your top assets. 

 

It is all a crap shoot to a certain extent and there is a lot of just dumb luck involved with GM decision making.  However, around the edges, it is the decisions involving a team's big time talent that can impact long term outcomes.   Clearly with Chris Davis, for example, he was at his zenith in the winter of 2013 at 27 having hit 53 homers and 137 RBIs when he led the majors in home runs, etc.   If we had traded him that winter, while we could have obtained an entire farm system's worth of best prospects, DD would have been excoriated by the present day fan group.  However, now, here in 2017....it would have looked like genius time.  

If we had traded Manny Machado last winter after his season, again, we could have commanded another team's entire list of prospects and other major league players as well.   Zach's peak value was last winter.  DD,, for understandable reasons, held on to his ace reliever.  Well, his value began to decline as soon as this season started because a team would not get full two seasons like if he had been dealt last winter.  And then his value took a major hit with DL trip.  It is still nowhere near what it would have been last winter, or this spring before the injury and it may never return to anywhere close to that value.   So, yes, this winter, his value may be higher than it was at the deadline if he pitches well the rest of the year.  But if he is not pitching well, or God forbid, is hurt again, well, then he has no value and we have lost whatever we might have obtained last winter or at the trade deadline (which last winter certainly would have been much more than Chapman brought). 

Players and their value and their health are all dynamic variables and thus there is much luck involved.  But strategically, if you never trade a prime performing player before their value completely runs out, then typically you are not going to be one of those teams that regularly is at the top. 

[Uli2001]

That's why Houston franchises, with the exception of the Rockets during Michael Jordan's brief retirement in the 90's, are perennial losers. This despite having a huge TV market and loyal fans. Their management is consistently mediocre. 

[joelala]

On 8/9/2017 at 2:45 PM, spiritof66 said:

MLB's owners clearly have the right to withhold approval of the Angeloses owning the team. I don't know whether they would withhold that approval, but I think they would. Either the current owner or his sons may decide to sell the team for the same reason, which I'll try to explain below. I am using numbers in Forbes' 2017 report on MLB teams except where I indicate otherwise. https://www.forbes.com/mlb-valuations/list/#tab:overall  Aside from my taking the Forbes numbers at face value, I have of necessity made some guesses and assumptions in here, and if they seem wrong (or I've made other errors), I'd be glad to hear about them.

I'm assuming that Peter Angelos owns about 80 percent of the Orioles, that he continues to do so until he dies, and he leaves his ownership interest in the team to one or both of his sons. I am pretty certain that there is no "estate plan" that will enable his estate to avoid paying taxes if that occurs. As described below, the estate tax problem that would arise on these assumptions is the same one created when the owner of a family farm dies and bequeaths it to his children, who have to sell the farm to developers to pay the estate taxes on it.  More accurately, any such plan would involve making arrangements that would complicate the ownership of the team, which MLB would not allow.

There is one way to defer those taxes, either in the hope that federal estate tax law will change or on the premise that paying taxes tomorrow is better than paying them today: if Angelos leaves the team to his wife, there will be no estate taxes due, but the same problems will arise if she tries to leave the team to the Angelos sons, and the tax burden will be greater if MLB team valuations continue to increase -- unless the law has changed at the time of her death.  

Some numbers. Forbes valued the Orioles earlier this year at $1.175 billion. I think the IRS would make a more aggressive valuation and could get away with it, especially if valuations and actual sales continue to climb. But let's use $1.2 million. The Orioles are reported to have $200 million in debt -- in apparent violation of MLB rules -- making the value of the equity of the Orioles around $1.0 billion. I understand from various sources I've seen that Angelos owns about 80 percent of the team, so the value of what he passes along to his sons would be about .8 x 1.0 billion, or $800 million.

The Forbes valuations include the value of teams' cable rights fees but do not include the value of their interests in regional sports networks. It's very hard to value MASN while the rights fees dispute is pending, but that's something that would need to be done. In 2013, a Forbes writer valued MASN at $600 million. I'll discount that value in light of the likelihood of large rights fee increases, and estimate the value of the Orioles' majority interest in MASN at $250 million. 

So the Oriole-related interests in Peter Angelos' estate have a value of about $1.05 billion. I think that's pretty conservative, but let's knock it down to an even $1.0 billion. The federal estate tax on that amount is 40 percent. The Maryland tax appears to be either an additional 10 percent or 16 percent. I'll take the lower figure. Therefore the estate would owe $500 million in federal and estate taxes on the Orioles-related assets. Peter Angelos' estate would have to come up with $500 million in liquid assets (cash, stock, bonds, etc.) to pay those taxes, right? Wrong. It's worse than that. Let's say that when Peter Angelos dies there's $600 million of cash in the estate. Before applying that to pay taxes on the Oriole-related assets, the estate has to pay taxes on that $600 million in assets. The federal and state taxes on $600 million would be about $300 million. So to pay taxes on Oriole-related assets valued at $1 billion, the state would need about $750 million in liquid assets -- which would be reduced after estate taxes to about $500 million, the taxes on the Oriole-related assets. 

I have no idea whether Angelos' estate has or could raise the $750 million in cash it would need to pay taxes. (I have some doubt about that based on what I've read, including estimates of his net worth.) It's my guess that Angelos expected that, before or soon after his death, MASN could be sold to pay a large part of the estate taxes that would come due. But MASN is not readily salable with the rights fees dispute unresolved. And if the rights fees stay as high as they were set after the original arbitration, the value of MASN will be reduced significantly. But one thing I'm certain of is that the $750 million in taxes, in addition to estate taxes on his other assets, will largely deplete Peter Angelos' wealth. 

And that's not quite the end. The MLB Constitution limits the debt a team is permitted to have, such that its operating income can't exceed 12 percent of its debt. The Orioles had operating income of $9 million in 2015 and operating losses of $2.1 million in 2016, and I have no reason to think that will change radically in 2017. The Orioles' 2015 and 2016 profits would support debt of only $75 million and 0, respectively, to be in compliance with MLB's rules. I would think that in connection with a proposed approval of a transfer of the team, MLB would insist that most or all of that $200 million be repaid. And as explained above, the estate would need $300 million before estate taxes to pay down debt of $200 million. So, while this part is speculative, there's a good chance that the $750 million in cash needs cited above would swell to more like $900 million or $1 billion. (I'm assuming that John and Lou won't have hundreds of millions of dollars, other than what comes out of the estate, to make these payments.)

If the estate can pay this amount and have the ability to transfer the Orioles  how would the other MLB owners look at a proposed transfer of the Orioles to John and/or Lou Angeles? For the first 100 years or so of major league baseball, the owners were in the baseball business. For some, that was the owner's business, in many cases becoming the family business, and the teams were financed from the profits they generated from baseball. Other owners used their teams to enhance their other activities, usually brewing. Still others were rich guys who thought it would be fun to own a team. Pretty much anyone with the resources to buy a team when it was put up for sale was welcome.

The rules of this game have changed. The owners now understand that are one another's partners in a multi-billion dollar business. They are interested in owners who won't rock the boat the way Bill Veeck and Charlie Finely, and to a much lesser extent Luria and Angelos, have done. But even more important, and this is something that Bud Selig stressed with the owners, they want owners or ownership groups who are financially secure -- after paying their hundreds of millions or billions for the team. They want partners who can weather financial downturns in MLB or in their outside businesses, and they realize that once an owner is in place and has financial problems there is a potential effect on all of MLB, including their own investments. So they're looking for owners who have lots of wealth and income outside of baseball, and they demand extensive documentation of it. The recent owners who have come into the game are billionaires or large corporations.

Unless I'm way off in my facts and assumptions, I don't see how wither Angelos son could qualify as the principal owner of the Orioles. They have no record of business or professional accomplishment or of financial success that I'm aware of. I'm pretty sure they'd have no significant sources of income outside the Orioles. Most important, after estate taxes were paid, they would have little in cash reserves to run a team that is in a very difficult competitive circumstance.  And they couldn't count on generating that cash from the Orioles -- which were one of five MLB teams to operate at a deficit in 2016 according to Forbes. They would be extremely unimpressive owners from any financial perspective. That's apart from the likelihood that the Commissioner, his predecessor and, in all likelihood, some owners view Peter Angelos as a difficult guy and wish that he had never become one of their partners. 

I suppose the Angeloses, or either of them, could put together a group to own the Orioles, in which others would put up lots of money but one or both of them would maintain control. I'm not sure how easily it would be to raise money that way, or how the MLB owners would look at that sort of arrangement. 

A quick word about the Steinbrenners. They inherited 70 percent  (I think that was George's percentage, but I'm not sure) of the NYYs -- a money-making machine that is now valued by Forbes at $3.7 billion and is debt-free. That's after the NYYs sold their interest in YES, their regional sports network, for $4 billion in 2014. Steinbrenner also owned hotels and other real estate, horse racing interests and other stuff. I don't know who inherited what from George, but it's likely his sons are each multi-billionaires. In large part, that's because their inheritances came with zero estate taxes, because of a glitch in federal tax law at the time of George's death and the absence of estate taxes in Florida, where Steinbrenner lived. 

 

 

 

 

Thank you for this.  Literally the best thing I've read all week.

[Enjoy Terror]

http://www.sportingnews.com/ca/mlb/news/josh-reddick-astros-down-lack-trades-deadline/1s5h4aqgkzmck1k3wjf38sxhwe

[Lucky_13]

Personally, I think Reddick's comments show that the Astros are a weak willed team. I get welcoming moves that might improve the team, but you have to believe in the guys in the clubhouse more then any outside players. 

The fact that they let it affect their play to this extent is kind  of ridiculous. 

[hoosiers]

While I applaud the effort of Spirit to analyze a possible quandary facing the Angelos family, or, more specifically, his sons in their potential quest to retain ownership upon PA's death, I am skeptical of the analysis and the conclusion.  One has to assume the sons want to retain ownership and that the father wants the sons to own the team - unlike Jack Kent Cooke whose will had the team auctioned and the proceeds to go to a charitable foundation that is set to be JKC's future legacy.  If it is the intention of PA and his sons for them to retain ownership, the idea that the tax hit has not been planned for, and that planning will still not allow the family to continue to own the team, is an assumption I am not comfortable with.

First, while the analysis attempts to be conservative regarding PA's wealth relating to Os/MASN, it appears to exclude from the "gain" or taxable basis calculation the cost basis of these investments.  I have to believe PA's cost basis of the Os investment to be in the $125M-$150M range (assuming the 80% ownership in the analysis).  Further, there were start-up investment costs to MASN - though I will note that the MASN settlement/agreement paid $ to the Os/PA to offset that investment.  The cost basis of these investments surely offsets about 10% of the tax hit and perhaps as much as 20%.

Second, there appears to be some assumption that the Angelos sons have not amassed any material wealth that could help offset some of the tax hit.  Or that they do not actually own a portion of the team to appreciably offset the tax hit.  Remember, we have gone through a remarkable period of asset appreciation the past seven years and surely the Angelos family has benefited from either the stock market run up or the real estate boom.

Third, why not simply sell either MASN or a healthy percentage of the team.   If PA's portion of MASN generates $250M, that is a healthy portion of the tax hit right there PLUS the Os would presumably get local TV rights fees closer to market value or about $50M-$60M - generating an additional $10M-$20M for the Os in cash flow quite quickly.  Or sell off 25-30% of the team to reduce the family ownership to just north of 50% - which could generate the remaining $ for the tax hit.

Fourth, I have to believe PA has substantial assets outside of the team that runs in the hundreds of millions.  

FWIW, I have speculated that the Os $200M debt might be a "loan" from the Angelos family or is some kind of related party transaction.  Not sure how that would impact the sale, investment basis or other.  

Again, good analysis and thought, but I can't conceive of a situation where the family wanted to keep the team upon PA's death but was unable to do so. 

 

[hoosiers]

1 hour ago, Enjoy Terror said:

http://www.sportingnews.com/ca/mlb/news/josh-reddick-astros-down-lack-trades-deadline/1s5h4aqgkzmck1k3wjf38sxhwe

Very interesting to hear about this from a player's perspective.  I think the Houston players had every right to expect, given the strength of their farm system, that ownership/management would sacrifice some prospects to improve the team - like the NYY, ChiCubs and other did.  

[spiritof66]

31 minutes ago, hoosiers said:

While I applaud the effort of Spirit to analyze a possible quandary facing the Angelos family, or, more specifically, his sons in their potential quest to retain ownership upon PA's death, I am skeptical of the analysis and the conclusion.  One has to assume the sons want to retain ownership and that the father wants the sons to own the team - unlike Jack Kent Cooke whose will had the team auctioned and the proceeds to go to a charitable foundation that is set to be JKC's future legacy.  If it is the intention of PA and his sons for them to retain ownership, the idea that the tax hit has not been planned for, and that planning will still not allow the family to continue to own the team, is an assumption I am not comfortable with.

First, while the analysis attempts to be conservative regarding PA's wealth relating to Os/MASN, it appears to exclude from the "gain" or taxable basis calculation the cost basis of these investments.  I have to believe PA's cost basis of the Os investment to be in the $125M-$150M range (assuming the 80% ownership in the analysis).  Further, there were start-up investment costs to MASN - though I will note that the MASN settlement/agreement paid $ to the Os/PA to offset that investment.  The cost basis of these investments surely offsets about 10% of the tax hit and perhaps as much as 20%.

Second, there appears to be some assumption that the Angelos sons have not amassed any material wealth that could help offset some of the tax hit.  Or that they do not actually own a portion of the team to appreciably offset the tax hit.  Remember, we have gone through a remarkable period of asset appreciation the past seven years and surely the Angelos family has benefited from either the stock market run up or the real estate boom.

Third, why not simply sell either MASN or a healthy percentage of the team.   If PA's portion of MASN generates $250M, that is a healthy portion of the tax hit right there PLUS the Os would presumably get local TV rights fees closer to market value or about $50M-$60M - generating an additional $10M-$20M for the Os in cash flow quite quickly.  Or sell off 25-30% of the team to reduce the family ownership to just north of 50% - which could generate the remaining $ for the tax hit.

Fourth, I have to believe PA has substantial assets outside of the team that runs in the hundreds of millions.  

FWIW, I have speculated that the Os $200M debt might be a "loan" from the Angelos family or is some kind of related party transaction.  Not sure how that would impact the sale, investment basis or other.  

Again, good analysis and thought, but I can't conceive of a situation where the family wanted to keep the team upon PA's death but was unable to do so. 

 

Thanks for the comments and reactions.

You may be right that the Angelos family's estate planning has taken care of this in a way that will enable the Angelos sons to pay their estate taxes. I don't know what that might be, other than to amass cash from some source that doesn't show up in Forbes' valuations of Peter's assets. I assume that there will be hundreds of millions of dollars available to pay these taxes from the sources I mentioned, including Peter Angelos's non-Oriole assets and, possibly, a sale of the Orioles' interest in MASN.  

But that's beside my main point: even if the Peter Angelos estate and his sons can liquidate about a billion dollars of assets (my estimate) to pay those estate taxes, they will be asking the MLB owners to approve a transfer to two kids who (a) will have spent the vast majority of their personal wealth and that of their father's estate, and (b) will, I'm pretty sure though I can't be positive, have no significant sources of income outside of the Orioles -- an operation that, having made a modest profit or has lost money in the last three years, is no cash cow. That operation, as the baseball world as well as Hangouters knows, may have to make significant investments to compete in a division with two of baseball's richest teams (and a third that has the potential to increase its revenues dramatically), including building a Latin American program pretty much from scratch. They will taking over a franchise that is known for its dysfunctionality as a one-man operation hobbled by bad decision-making.

Unlike every other owner that's been approved recently (other than the Steinbrenners), the Angelos sons are young men who haven't (so far as I know) had any success in business or any profession or other field of endeavor, or even sought or gotten a job on their own. So far as I know, neither of them has ever made a dime that wasn't attributable to their father. Unlike the Steinbrenners, the Angeloses have (again, so far as I know) no friends or allies among the other owners. To the contrary, the Commissioner and some of the owners --  perhaps many of them -- regard their father as a renegade who has been difficult for the other owners to deal with, broke ranks with his co-owners on hiring replacement owners, and violated both written and unwritten rules by threatening to sue MLB and then by actually suing MLB. John Angelos' outspokenly progressive politics would not help his cause with a number of the owners. 

Are the Angeloses the guy or guys to whom MLB's wealthy, savvy and successful circle of owners, knowing the operational and financial challenges faced by this franchise (especially if MLB's position on the MASN rights fees holds up) and the Commissioner's likely desire to drive the Angeloses from the council of MLB owners, will want to entrust the future stability of one of its original 16 franchises for the next 30 years or so? I obviously don't know, but I sincerely doubt it.

I'm limited about what I can say about this, but it's my understanding that under the Selig regime, when a team was up for sale prospective bidders would speak to the Commissioner to get a preview as to whether the bidder would be supported by him and would be likely to get the owner's approved if he made a deal to buy the team, and those who weren't encouraged would tend to drop out rather than buck the Commissioner and face the embarrassment of a negative vote. If that's right, and if it still works that way, what sort of head's-up think Manfred would say to the Angeloses?

A few specific points: 

The cost basis that Peter Angelos would have in the team for income tax purposes, if he sold the team, is irrelevant to the estate tax. The entire value of the estate is subject to estate taxes, regardless of the deceased's income tax basis. 

I don't doubt that the Angelos sons are wealthy. But hundreds of millions of dollars? I doubt it. Neither seems to have held a lucrative job. Their father may have given them many millions, but if he did he would have had to pay 40 percent gift taxes on those amounts -- and if he hasn't their writing of large checks may raise difficulties with the IRS. That seems unlikely. I also don't doubt that Peter Angelos has hundreds of millions of dollars worth of non-Orioles assets. Again, my point is that if the Orioles are to remain owned by the family the vast majority of those assets is likely to be be dissipated in the payment of estate taxes. 

I am pretty sure, from everything I've seen, that neither John nor Lou Angelos already owns a piece of the team. I've never seen either referred to as a part-owner. They might, and that's something I'd like to consider if I knew about it.

You're correct that the estate (or Peter while he's alive) could sell the Orioles' interest in MASN and take Peter's share of the proceeds. My guess is that selling MASN (or part of it) was and may stillbe a part of the Angeloses' estate plan. (I also guess that selling YES or a portion of it to pay estate taxes was part of the Steinbrenner estate plan, which it turned out they didn't need.) But you can't very easily sell the Orioles' stake in MASN now, with the rights fees undecided, except to a gambler or maybe a litigation funding company, and then at a substantial discount, and there's a good chance that MASN's value will ultimately be greatly depressed by the higher level of rights fees set by the original arbitration panel.  In hindsight, the time to sell MASN was four years ago, with the rights fees in place and before cable programming providers were seen as wasting assets. 

You're right that one way out of this difficulty could be to sell a piece of the team. I didn't get into that because there are so many possible shapes and forms that such a sale could take. But I'm not sure I would be easy to get outsiders to trust hundreds of millions to the Angeloses. When the Wilpons were in financial distress a few years ago from their Madoff investments, they tried to sell a chunk of the Mets. They failed, at least in part, because prospective investors of large amounts insisted on some say in the team's operations, to which the Wilpons would not agree.

So while I'd agree that the Angeloses could get some funding from investors, I focused my comments on the person or persons who would go before MLB's owners seeking approval for a new holder of a "control interest" in the Orioles. That's the person or persons the well-financed, successful business people who own MLB teams will look to to keep the Orioles running successfully and free of financial distress over the coming decades, for further investment in the Orioles if it's needed, and for prudence in making the owners' collective judgments on MLB matters. That person or persons will be assessed as a prospective "partner" in MLB, expected to be team players who won't load on them the kind of crap that MLB had to put up with from their father.

I feel pretty confident that if that control person is John or Lou Angelos, the business people who own the other MLB clubs will not approve. Of course, I could be wrong. I hope not --  to be a viable competitor in Baltimore this franchise will need deep pockets and smarts that won't come without a sale to someone who can provide that.

By the way, it appears that in 1981 the Wrigleys were forced to sell their interest in the Cubs -- which dated back 65 years, four years before Weeghman Field became Wrigley Field -- because of the burden of estate taxes. It shouldn't be unthinkable. 

Ihttp://www.bankinsurance.com/editorial/articles/pdfs/bim/1995-avoid-the-wrigley-risk.pdf

 

 

[Tx Oriole]

1 hour ago, Lucky_13 said:

Personally, I think Reddick's comments show that the Astros are a weak willed team. I get welcoming moves that might improve the team, but you have to believe in the guys in the clubhouse more then any outside players. 

The fact that they let it affect their play to this extent is kind  of ridiculous. 

I didn't know they had. 

[weams]

2 hours ago, joelala said:

Thank you for this.  Literally the best thing I've read all week.

spirit is the type of guy to know this stuff. 

[Enjoy Terror]

2 hours ago, Tx Oriole said:

I didn't know they had. 

I think they have 11 wins over the last 30 days, which is in the bottom third of the league.

[hoosiers]

6 hours ago, tntoriole said:

Again, with all of this,  I suspect that Mr. Angelos has probably analyzed these matters at a much more proficient level than is possible on a fan board.  

Really?  You think?  Way to go out on a limb, here, speculating that "Mr. Angelos has probably analyzed these matters (his own personal finances) at a much more proficient level than .... a fan board."  I am not sure who on this board ever thought for one second that Spirit was "more proficient" in his knowledge of PA's finances than PA himself.  What a cheap, unnecessary shot.  Whatever.

It is the posters with new and original thoughts that I applaud here.  I think the way Spirit used the financial angle (which he supported with past examples, but I disagree with) may not have been the best way to arrive and justify his main opinions, but whatever.  I think Spirit's main points that 1) post-estate taxes, the sons will not be nearly as wealthy as the father and 2) that the sons may not be accepted by the Commissioner or other owners as appropriate stewards of the franchise are very worthy of discussion.

I think he raises some interesting issues with point number two, but let's not forget that the Os were purchased by PA in bankruptcy, that very recently the Wilpon's personal finances greatly interfered with the operation of the Mets or that MLB has stepped in to help troubled franchises make payroll (I think the Diamondbacks were in serious financial jeopardy within the past 15-20 years - and the Rays as well).  I would also speculate that even if other owners believed the Angelos sons lacked the financial, business and/or baseball acumen to properly run the Orioles, the other owners may prefer to leave that alone and let the Orioles founder.