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December 22, 2011 12:55 PM

Judge puts Mariners franchise value at $641 million in Chris Larson divorce case ruling

Posted by Geoff Baker

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Mariners minority owner Chris Larson had a final ruling delivered in his divorce case this morning. In it, King County Superior Court Judge William Downing concluded that, based on evidence presented at trial, the Mariners have a total franchise value of $641 million.

Forbes magazine back in March had estimated the franchise to be worth $449 million, compared to an average MLB team value of $523 million. Today's figure, based off the ruling, would put the M's fifth highest on the Forbes list of the 30 big-league teams. But it's worth remembering that this latest court estimate is coming in after the 2011 season has been played and not prior to it like the most recent Forbes list.

Also, Forbes appears to have dramatically underestimated the M's value, so it's possible they have done the same with other teams on the list.

Two appraisals done prior to trial -- based on greater access to insider information than Forbes has -- had put the team's value at $551 million and $750 million, respectively.

Larson's wife, Julia Calhoun, had her appraiser come in at the higher figure, arguing the Mariners compared favorably to the $593 million sale of the Texas Rangers and $610 million sale of the Houston Astros, both involving franchises purchased within the past year and armed with lucrative new television deals.

But Larson's side argued the team slotted more in between the Rangers and the San Diego Padres -- sold for $480 million in 2009 -- in terms of value.

In his ruling, Downing wrote: "The Court has reviewed the details of transactions involving the Houston Astros, Texas Rangers, San Diego Padres, Chicago Cubs and Atlanta Braves. The Court would find the May 2011 Astros transaction and the December 2010 Rangers transaction to be the best comparables due to their recency, similar attendance and other factors. The Seattle Mariners' on-field performance probably slides in between the two but, from a business point of view, they enjoy a superior demographic."

That's an interesting conclusion, the last part about "demographic" pertaining to how much disposable income fans have and would be willing to spend on items like team merchandise and concessions at the ballpark.

Also interesting, given how some speculate the team is on the verge of a money windfall thanks to a 2015 opt-out clause in its current deal with ROOT Sports and a fan base stretching over a broad, multi-state territory that includes Alaska and Hawaii as well as parts of Canada and Asia.

The court heard testimony that the Mariners had local revenues of $190 million last season, along with non-operating assets that include excess working capital of approximately $20 million. Other such assets include $21.25 million in short-term receivables and $3.75 million in vacant land.

Downing arrived at his franchise value figure by multiplying the $190 million in revenues by a 3.2 multiple similar to the Rangers and Astros sales, giving a sub-total of $608 million. He then added the non-operating assets to that amount, before subtracting $12 million in deferred tax payments to arrive at the full franchise value.

Photo Credit: Ken Lambert/Seattle Times

Of that amount, Larson's fully-appraised stake of 30.636 percent is said to be worth approximately $196 million. For purposes of the divorce, Downing subtracted 10 percent off the amount because Larson's share would be a non-controlling stake if sold by itself and he would have to deal with some internal partnership rules first pertaining to keeping the team in local hands.

So, if selling his stake on his own, the court ruled his share was worth $176 million.

"This is a relatively low discount,'' Downing states in his ruling, "since the restrictions are not particularly onerous and were willingly accepted by the local owners with a view to keeping the Mariners "Safe at Home". While not being able to unilaterally hire and fire a field manager (à la Steinbrenner) or to prescribe players' facial hair or its absence (à la Finley), the local minority owners do retain an unusual level of control over certain key ownership decisions.''

These are important figures to consider down the road when it comes to deciding whether the Mariners would be motivated to sell the team. Larson personally would stand to gain an additional $20 million more for his share -- based on the court's estimation -- if the Mariners were sold as one majority unit rather than him selling his minority part of it alone.

Something to consider if we're going to debate the possibility of a future Mariners sale with facts rather than supposition.

As for the divorce itself, Larson appears to have scored a major victory in getting the court to consider a substantial portion of his estate as his own property separate from Calhoun. She had been asking for the estate to be split down the middle.

Larson had offered a $104 million total settlement with $25 million of that in cash.

Calhoun had wanted approximately $300 million (half of the total estate's determined value) with $105 million of it in cash.

In the end, Downing awarded Calhoun just over $180 million in total settlement, with $27 million of that in cash paid out over the next two years. She also avoids being attached to any remaining debt the estate had piled up.

What this means for Larson is that his cash payout is significantly less than it would have been had Calhoun been awarded what she was seeking. Larson's side had stated in court that he would be forced to sell his Mariners shares had Calhoun received the cash settlement she was looking for.

Larson is still not out of the woods as far as holding on to his stake, since he indeed will still be encumbered by more than $150 million in debt on two accounts used to borrow money for business ventures and big-ticket purchases. He will also endure significantly more carrying costs than Calhoun on the properties he held on to, including his estate in The Highlands. He will have to continue selling off assets to pay down debt and the Mariners share -- acquired through his Mudville Nine Inc. company and which the judge wittily noted was "for a baseball team famous for leaving the tying runs stranded on base" -- remains his single largest asset by far.

So, we'll see what the future holds for Larson and whether the Mariners will continue to be a part of it.

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