Jeffrey Loria sold his baseball team for about $1 billion more than he paid for it, so how can he be telling the county and the city he owes nothing from a 2009 profit-sharing deal requiring him to turn over 5 percent of any sale proceeds to the public?
A court may ultimately answer that question, with Miami-Dade Mayor Carlos Gimenez saying he’s interested in suing to recover a public share of what he assumes is the “hundreds of millions of dollars” that Loria put “in his pocket” after a $1.2 billion sale to Derek Jeter and partners last fall.
Loria’s camp wasn’t commenting Friday, but Gimenez’s office released a summary prepared by the former owner’s accountants and lawyers for Miami and Miami-Dade that details how Loria claimed a $141 million loss on the sale.
The terms of the October sale are not a matter of public record, but the report by the New York office of the Proskauer Rose law firm confirms the broadest detail: Loria sold the Marlins for $1.2 billion. Loria’s claimed paper loss comes from the terms embedded within the original 2009 deal between the Marlins and Miami-Dade that had the county borrow nearly $400 million for the stadium’s construction costs. The team paid about $120 million, and Miami put up $100 million to build the parking garages.
Part of the 2009 agreement required Loria to share 5 percent of the profits from a sale with the county and the city, with Miami-Dade entitled to almost all of the government payout. But the deal included a string of deductions to calculate that profit, and Loria for the first time this week confirmed he doesn’t intend to pay anything in the deal.
That’s not to say Loria didn’t make a profit after buying the Marlins from then-owner John Henry for $159 million in 2002. The document delivered to Miami-Dade shows Loria deducted from his proceeds a $30 million fee paid to a financial firm representing him since at least 2000. That firm, Tallwood Associates, based in New York City, had its own profit-sharing deal entitling it to a 5 percent share of the proceeds if Loria ever sold the team, according to the documents received by Miami-Dade this week.
The rules behind Tallwood’s profit-sharing deal were apparently much more generous than Miami-Dade’s, since Loria reported paying the firm $30 million out of the sale to Jeter’s group. To earn $30 million on a 5 percent commission, the calculated profits under Tallwood’s agreement would have had to be about $600 million.
That Tallwood received $30 million from the sale and Miami-Dade could receive nothing captures the dicey nature of profit-sharing agreements, said Jay Rosen, a mergers-and-acquisitions lawyer with Saul, Ewing, Arnstein and Lehr in Miami. He said sellers can negotiate favorable terms for “net profit,” which isn’t a standard term but one that changes with each deal.
“You can’t really tinker with gross profit,” Rosen said. “But with net profit, it’s gross profit minus — and it could be almost anything under the sun.”
“Ultimately,” he said, “the devil is in the details of the contract.”
The 2009 deal allowed Miami to score its first-ever Major League Baseball stadium and permitted the Marlins to move from a shared space with the Miami Dolphins into its own, county-owned ballpark with a retractable roof and air conditioning. Part of the agreement was designed to punish Loria if he used the new stadium to flip the team, with him having to share some profits with the governments who built the ballpark and surrounding garages. An earlier county analysis of the agreement said Miami-Dade would receive 85 percent of any payout (4.2 percent of the proceeds) and Miami would get 15 percent (less than 1 percent of the proceeds).
Friday’s long-awaited delivery of Loria’s verdict on profit-sharing revived a favorite political punching bag that had faded from attention with the arrival of Jeter and his own unpopular front-office moves, including slashing payroll and dismissing popular players.
Gimenez rose to political prominence in part thanks to his opposition to the 2009 stadium deal, which helped spark the recall of the mayor in office at the time, Carlos Alvarez.
The document itself served as a flashback to a time when local politics was divided by who supported the Marlins deal and who didn’t: The cover letter from Loria’s lawyers that included the profit-sharing explanation was addressed to George Burgess, Alvarez’s county manager and architect of the stadium deal. Burgess quit shortly before Gimenez took office in 2011.
With another fight over tax dollars potentially on the horizon with Loria, a new generation of politicians can be part of the backlash. Francis Suarez, Miami’s recently elected mayor, issued a statement denouncing the “latest development in the Loria/Marlins saga.”
“It is difficult for me to believe that a team that was sold for $1.2 billion and had a publicly financed stadium did not make any profits from the sale,” Suarez said. He said that he, like Gimenez, would have government auditors review Loria’s submission for a potential challenge. In a nod to Jeter’s embrace by local elected leaders, he added: “Although this is not a reflection of the team’s current ownership, we must close this chapter of the Marlins’ history.”
The 2009 profit-sharing agreement ran roughly 10 years from the initial county deal with the team, which was signed in 2008. The profit-sharing provision was included in a non-relocation contract that reduced Loria’s required government payout as the years went by before expiring this year. He could have avoided the agreement altogether if he had waited to sell the team after March 2018. Gimenez, who opposed the stadium deal as a county commissioner and effectively boycotted Marlins games since becoming mayor, said the fact that Loria pursued a sale last year was a clue he had no intention of sharing any profits.
“I always felt it was kind of funny even though there was that 5 percent clause in the contract,” Gimenez said Friday. “There’s a track record here. … Why wouldn’t he wait, unless they felt they already had significant deductions not to pay the city or the county?”
The biggest deduction allowed under the county deal is the original value of the team. The contract valued the franchise at $250 million in 2008, and allowed Loria to increase that starting value by 8 percent each year.
From there claimed deductions pile up: $35 million in contributions to the business from Loria and any undisclosed partners in the old Marlins ownership group, another $280 million in debt, and about $21 million in discounts given to Jeter and partners at the sale. The Proskauer report said the franchise went into the October sale worth about $939 million.
That still left about $190 million in profits — enough for Miami-Dade to earn $8 million. But the 2009 contract also allows Loria to deduct capital-gains tax on the sale — essentially the income tax owed for a seller’s windfall profit. That tax bill was reported at $297 million for “partners.” (Though the language suggests more than one owner sold the team, it’s not clear whether Loria owned the team outright or had investors.)
The windfall may not be over, either. A major deduction for Loria was $50 million he agreed to set aside under the terms negotiated with the Jeter group to cover other costs associated with the transaction. It’s not known if that contingency included a potential payout to Miami and Miami-Dade, or whether that provision would shield the Jeter group from exposure to a profit-sharing dispute. (Gimenez said Friday he wasn’t sure whom Miami-Dade might take to court, but Marlins representatives have said in the past that the new ownership has nothing to do with the profit-sharing agreement that Loria signed. The team declined to comment Friday.)
Miami and Miami-Dade have 30 days to protest Loria’s profit estimates. The Jeter group has until October to make a claim on the $50 million sheltered by an escrow account, which will go to Loria if the new owners don’t press any successful claims on the money. Can the county have a share of that if Loria gets it? Apparently not. The Jan. 31 report from Loria lawyer Wayne Katz noted of the Loria ownership entity: “Even if the partnership received all of the Escrow funds, the amount of net proceeds would still be $0.”
Even with no claims from Jeter, Loria wouldn’t get all of the $50 million sitting in that escrow account. While his lawyers say Miami-Dade’s profit-sharing deal wouldn’t entitle taxpayers to any of the money, Loria’s financial advisors should expect a significant bump above its $30 million payout. “The financial advisor fee would increase upon release of the Escrow funds to the partnership,” the report said.
This report was updated to correct an inaccurate description of the $50 million in sales proceeds set aside in an escrow account under an agreement with seller Jeffrey Loria and the new Miami Marlins owners. As described in the documents turned over to Miami-Dade this week, the $50 million is to cover potential additional costs related to the deal between the buyer and the seller. The story also was updated to use a consistent date of 2009 for the original county and Marlins agreement, which included documents signed in 2008 and 2009.