How Miami Could Still Get Its Money from Jeffrey Loria

Jeffrey Loria found multiple avenues by which to torment the people of Miami.
(Photo: Jared)

In 2009, the City of Miami and County of Miami-Dade agreed to pay for 75% of a new stadium for Jeffrey Loria’s Miami Marlins. The projected stadium cost was $645 million, so Miami and Miami-Dade — or, more technically, Miami and Miami-Dade taxpayers — agreed to cover up to $480 million of stadium-building costs, largely from from hotel taxes. (According to some reports, Miami and Miami-Dade ended up paying about $347 million.) Miami and Miami-Dade also agreed not to receive any of the money from the stadium at all. No money from ticket sales, no money for concessions or naming rights. All Miami and Miami-Dade got in return was a guarantee that, if Jeffrey Loria sold the team, they would get a percentage of the net sale proceeds.

In October 2017, Jeffrey Loria did sell the Miami Marlins — for $1.2 billion. Under the terms of that stadium deal, Miami and Miami-Dade are entitled to 5% of the net sale proceeds. So good news for Miami and Miami-Dade, right? Well, not this time: Loria has told them he actually lost money on the sale of the team. So despite that gaudy list price, Miami and Miami-Dade stand to get nothing at all.

On the surface, Loria’s claim seems pretty implausible. After all, he bought the then-Florida Marlins in 2002 for $158 million, $38 million of which was a loan from Major League Baseball. Even after accounting for paying back the loan, that’s still a difference of over a billion dollars. Remember, though, that according to the stadium deal, Miami and Miami Dade agreed to receive 5% of the net proceeds (i.e. profits), not gross proceeds (i.e. the sale price), in the event of a sale.

Jeffrey Loria’s lawyers and accountants prepared a summary that is supposed to explain how Loria lost money on the Marlins’ sale. According to that document, the gross proceeds of the sale – in other words, the money received before taxes and expenses are paid – was $1.128 billion. But Loria says that the Marlins had about $280 million in debt, taxes on the sale of $297 million, and $33 million paid to financial advisors who managed the sale. All in all, the summary says that Loria lost over $140 million on the sale.

Naturally, this has not been received well in Miami. Under the stadium contract, Miami has 30 days to decide how to respond to Loria’s claim of no profits, and some city officials are threatening a lawsuit against Loria. But the problem for Miami is precisely for what it would sue Loria, because a suit for money damages would have a lot of problems.

Here are three of them:

  1. Even if Miami and Miami-Dade were entitled to 5% of the whole $1.2 billion – and they aren’t entitled to even that much under the contract – they would still be receiving only $60 million. So even a best case scenario for Miami and Miami-Dade would end up with taxpayers getting about 12.5% of their investment back.
  2. The stadium contract also has an arbitration clause. An arbitration clause is language that says that disputes get resolved in arbitration and not a lawsuit. There are ways around that, but it’s possible that a lawsuit by Miami for money damages might not even be allowed in court.
  3. The single biggest question here is the accuracy of Loria’s listed value of the Marlins. The taxes are easily provable, and the transaction costs should all be supportable, as well. But the value of the franchise is more subjective, determined by appraisals and accountants. Miami and Miami-Dade would have to prove that the franchise is worth more than $940 million. In court, that’s what’s known as a “battle of the experts”: each side hires an expert witness (or multiple experts) who will testify to their opinion of the value of the franchise. Experts are expensive, which would just cost Miami taxpayers more money. And if the experts are equally credible, Miami loses, because the party who sues has to prove its case.

There are, in short, a number of unknowns that would accompany a lawsuit solely aimed at money damages. That’s probably why, when asked about taking legal action against Loria, Miami mayor Francis Suarez cited the need to “close this chapter” of Marlins history.

Suarez has a point. That said, there might be another option Miami and Miami-Dade could pursue here, and one which I think makes a lot of sense.

There are two main types of lawsuit. In the kind most people imagine, one person sues another person for money damages. But in a second, less-well-known kind, a person can sue another person in order to ask the court to order that person to do, or not do, a specific act. It’s called “equitable relief,” and there are many different kinds. One type of equitable relief I think the Marlins could pursue here is called an “accounting.”

An accounting is a special type of lawsuit in which the court orders the defendant to “account” (hence the name) for all monies spent on a given thing. Under Florida law, an accounting can be available in cases of complex business transactions, and the $1.2 billion sale of an MLB franchise would certainly qualify as a complex transaction. And in a case called Cassedy v. Alland Invs. Corp, the Florida Court of Appeal explained that, under Florida law, once a plaintiff proves a right to an accounting, it becomes the defendant’s responsibility to prove that he didn’t mishandle the money. Moreover, if the defendant didn’t keep accurate or detailed records, Florida law presumes the money was mishandled.

So if Miami brought an accounting case against Loria, theoretically the city could require him to back up all of his numbers in a way that would pass court muster. In essence, Loria would have to prove to the court’s satisfaction that he really did lose the monies he said he lost on the sale of the team and that his loss of the monies was reasonable. Otherwise, Miami and Miami-Dade could be entitled to money back.

Another reason an accounting suit makes more sense than a lawsuit for money damages is because, right now, $50 million of the sale proceeds is still sitting in an escrow account. At this point, Loria, the Jeter/Sherman group which bought the Marlins, Miami-Dade, and the financial advisors on the sale transaction, all have a right to claim some or all of those monies. Loria has already said that he’s entitled to receive that money, too, because he lost so much money on the sale. But a court in an accounting case can order escrowed funds frozen pending the outcome of the accounting, which means that there could be at least some money available to Miami and Miami-Dade if they win the case. It’s an option that probably wouldn’t be available in a lawsuit for only money damages.

Miami and Miami-Dade may ultimately decide to cut their losses and walk away. But this is one way they might be able to get some money back.





Sheryl Ring is a litigation attorney and General Counsel at Open Communities, a non-profit legal aid agency in the Chicago suburbs. You can reach her on twitter at @Ring_Sheryl. The opinions expressed here are solely the author's. This post is intended for informational purposes only and is not intended as legal advice.

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sadtrombone
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sadtrombone

Okay, help me out here. If he lost $610 million on fees/taxes/settling debts then 1.1 billion – 610 million is still way more than $158 million dollars. Why is the 5% amount not applied to this number?

Or is it because they are valuing the franchise at $940 million or something like that? Is this some kind of legalese that I can’t parse because I’m not a lawyer? It doesn’t make sense to me for some reason.

CGrass18
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CGrass18

Here’s the accounting breakdown from Loria’s team:
Contract Price – $1.2B
Adjustments/Escrow ($71M)
Gross Proceeds = $1.13B

Less Agreement adjustments:
Assumed value of team: $940M
Transaction expense (Paying financial team): $33M
Income tax: $297M
Total Adjustments = $1.27B
Net proceeds ($141M)

(I took this from the summary link in the article above http://www.miamiherald.com/news/local/community/miami-dade/article198173034.html)

Jeremy
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Jeremy

Wait, he gets to subtract out the value of the team from the sale price? What does “assumed value of team” even mean?

Surrealistic Pillow
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Surrealistic Pillow

This is not adequately explained in this FG post or the Miami Herald article but the only way the calculations make sense is if Loria agreed to pay the City/County 5% of net profits based on the increased value of the franchise following the stadium deal.

We haven’t seen the agreement but I would guess that “net profit” is defined to mean “gross sales price, less (a) transaction expenses, purchase price adjustments, etc., (b) income taxes, and (c) the value of the franchise as of the effective date of the agreement.”

There is nothing inherently objectionable to this method of calculating net profit if that was the business deal agreed to between the parties. Certainly the attorneys for the City/County should have explained to their client the method of calculation. If the attorneys did so, the City/County is simply unhappy with the deal they agreed to. If the attorneys did not do so, the City/County should be pursuing a malpractice claim instead of legal action against Loria–assuming they used outside counsel.

Even if the method was explained to the City/County, two additional items are worth noting. First, failure to agree on the value of the franchise at the time of the agreement would be a major mistake–a practical guarantee of future litigation/arbitration. Second, the City/County still gets absolutely hosed under this method of calculation even if they only wanted to capture the increased value of the franchise. If Loria only pays on the proportionate increase, he should not get to deduct 100% of transaction costs, taxes, etc. in making that determination. Those costs are attributable to 100% of the gross sales price. In other words, Loria is only paying out after deducting, for example, his tax liability that was already “built in” to his investment at the time of the agreement.

Mean Mr. Mustard
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Mean Mr. Mustard

Maybe I’m not reading your statement correctly, but I for one find it absolutely objectionable if he can sell for above the value of the team and then subtract that value from the sale price. That’s not losing money, that’s making money above and beyond that which he might have otherwise expected.
But…this is Loria. If it did go to court, I’d fully expect him to show up in a neck brace.

Barnard
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Barnard

I can’t figure this out either, so hopefully someone with knowledge of this could speak to it. Take that number out and the net proceeds is a completely different story

bunslow
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bunslow

Thanks, just these two paragraphs alone shed great light on what’s going on.

RoyalsFan#14321
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RoyalsFan#14321

In terms of these kinds of posts, there is no such thing as “too detailed”. Please, by all means, get as detailed as you can/want.

Mr Manager
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Mr Manager

To me, “assumed value” would just mean be the price that was actually less the debt? End of the day, that’s what the value of those assets was on the open market.

sadtrombone
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sadtrombone

Thanks everyone. This was driving me crazy.

Paul22
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Paul22

The assumed value of the franchise at the time the stadium was constructed was 650 million. The stadium was expected to enhance the value of the franchise . Miami wanted a piece of that appreciation should the franchise be sold. The assumed value of the franchise without a new stadium at the time of the sale was 900+ million since there were 8% annual escalators built in to the agreement So the part of the sales price Miami gets 5 % on is roughly 300 million less expenses (supposedly debt, taxes, closing fees, etc) which apparently exceed 300 milion