The Bar: Jonah Keri And The House Poor Padres?

This is where we gather from time to time to talk about something big in the Padres world or just the Padres or just baseball. It’s a roundtable discussion. Except, you know, no round tables. This is a Public House…so we’re at the bar.

When I’m at the bar, I like to fire up the juke box:

In Jonah Keri’s weekly “The 30” over at Grantland, he dedicated a portion of his piece to the San Diego Padres (ranked 29th in MLB, for the week); it wasn’t pretty. From Edinson Volquez’s inadequacies as a staff “ace”/opening day starter, overall franchise issues with drafting and developing talent, Josh Byrnes’ trade record, the club’s handling of Chase Headley, to club finances…he painted a pretty bleak picture. And fair, as well. When pressed on a few issues by Padres Public bloggers, he took the time to respond to each and every one of us.

The Sac Bunt

 

Woe, Doctor!

 

He also added this:

The juiciest piece of news from the piece was that the Padres pay $17M a year in stadium payments, as well as having to keep an undisclosed amount of cash available to satisfy three different lenders! We asked Keri to elaborate on that point:

The whole thing was interesting, to say the least.

What say you, Padres Public?

Melvin – The Sacrifice Bunt

The important part of the piece is the bit about the amount of debt the team holds.  The timing of this information couldn’t have been better considering the Forbes numbers, our recent discussion about the Padres debt, and Lonnie Brownell’s work following up with Forbes. Maybe Forbes is where Keri got his information, or maybe they share the same source. We’re learning there may be more to the Fowler/O’Malley purchase that we don’t know, which creates questions about the ownership group being “overcapitalized” as was reported. Stadium debt isn’t necessarily a major issue, but if the owners needed financing to buy the team I have to wonder how much and why that’s any different than what Jeff Moorad tried to do.

Avenging Jack Murphy

Keri has a business background, having written for the Wall Street Journal, so it is conceivable that his sources are the same as those of Forbes or Forbes itself. If so then his comments would seem to bring us back to Mel’s post last week about not knowing who to trust. I find it extremely annoying that these waters are so murky.

The only thing I disagreed with was his assessment of the Edinson Volquez suck factor. Volquez is aweso . . . OK, I apologize. I can’t continue this with a straight face so I’ll just stop.

The one issue I had with Keri’s analysis of drafting Donavan Tate concerned his comment of “who the hell knows why” the Padres drafted him. In hindsight there are certain red flags with Tate such as Jed Hoyer’s comments that the Red Sox wouldn’t have even taken him at the end of the 1st round in 2009. But at the time he was drafted, Tate represented a major departure from previous Padres drafts in two marked ways:

  1. He was a high ceiling high school athlete. In other words he was the antithesis of the 2008 Alan Dykstra pick and the 2007 Nick Schmidt selection.
  2. The Padres were going to have to pay top dollar to get him. And holy crap! The Padres paid! It was so veerd!

I’m not positive but I don’t think anyone panned the pick at the time and nobody was talking about Mike Trout who nearly the entire league passed on in 2009.

David – The Vocal Minority

If we add in Scott Miller’s previous claim that the Padres are broke, it becomes hard to ignore what’s coming from the national media. Maybe they’re all pulling from the same sources, or maybe (unfortunately) there’s something to it.

Ghost of Ray Kroc

I think in this case Keri is referring to investors/lenders/Capital venture groups and the like who funded the O’Fowdler Group’s (You like that?) upfront cash and not a layaway plan, as Moorad’s agreement was described as. A lot of businesses use that type of financing for things like startup costs.
However, depending on the agreement(s) with said lenders, the O’Fowdler Group is likely paying a portion of team profit’s to pay down that debt. And that’s going to affect the bottom line. Or, in this case, payroll and the lack of moves in the offseason. Moores’ and Moorad’s raiding of the Fox money didn’t help.

Left Coast Bias

I second the disagreement regarding the comments about Tate though it’s tough to defend the pick today considering the results.

I don’t know a baseball fan that doesn’t trust Jonah Keri. He is, to me, on a short list of baseball writers/reporters that I have absolute faith in.

Obviously, the part of this article we care and worry about the most is the amount of debt the Padres may be in right now. That’s the most newsworthy moment of the whole article as far as the Padres are concerned. $17 million a year (for how long?) and the undisclosed amount of cash they have to have on hand at all times to satisfy three lenders is by far the most concerning news I’ve heard about this purchase since it happened.

I don’t know how Bud Selig, after the precedent he set with the Dodgers and the all-purpose “best interest of baseball” clause that he has as commissioner, could allow this sale to A) a group that clearly could not afford it; B) for a price that clearly exceeded actual value. The Padres have basically become the sports franchise version of a sub-prime mortgage. And that didn’t end well nationally.

“Given the magnitude of the transaction, such a diversion of assets would have the effect of mortgaging the future of the franchise to the long-term detriment of the club and its fans” This is what Bud Selig said (source: Huffington Post Los Angeles 06/20/2011) when he blocked the Fox Sports television deal to Frank McCourt because McCourt was going to use those funds for personal needs. With so much of the Padres television deal walking out of the door and the new owners having to utilize three separate credit lenders to complete the sale, I fail to see the difference.

Except that of course we know the difference. The Dodgers, on a national level, matter to MLB. It matters more to MLB to have the Dodgers be relevant. It matters very little to MLB if San Diego is.

This is 1000 times more frustrating than the starting rotation (which will get better) or the teams poor start (I don’t foresee them losing 5 of 6 throughout the season).

The Padres are house poor.

Padres Trail

I’ve read that part of Keri’s article three times and I still don’t know what to think. It does make me wonder what the real reasons were Phil Mickelson declined to join the ownership group.  Did he see the writing on the wall based on how they were positioned financially?
I take away two things from this article:

– If they are cash strapped then they AB-SOL-UTELY cannot afford to make mistakes in the draft. The only way this franchise will get better is by drafting well, aggressively developing those players, and locking them up long-term.

– Headley’s gone.  No way they re-sign him.  I will be the happiest guy in the room if I’m proven wrong, but the cash strapped implications of Keri’s article explain why they haven’t signed him yet; why expect them to sign him during the season or right after the World Series?

Nate – The Vocal Minority

Let’s not forget that, no matter how much money the team has to keep in it’s reserves, I assume it’s not a growing number. Revenues, on the other hand, are growing. The Padres, like every other team in baseball, are getting $25 million richer next season from the new national media contract. If cash limitations forced the team into it’s current payroll situation, and if the team needs to operate at what appears to be a $30 million profit every year just to keep their creditors at bay, that means the Padres could still conceivably be able to afford a $90 million payroll next season. Things may look disastrous, but it’s not a reason to give the ownership an excuse to continue being cheap. Their secret financial woes can keep payroll down this year, but those woes are not an excuse for 2014 and beyond.

Left Coast Bias

If the money is to pay lenders though I think it’s entirely possible that it is a growing number. I would imagine that if the team was basically bought on credit that some interest is accruing. Or do I just bank at the worst place on earth?

It’s not an excuse, I totally agree. But it could be the simple reality. And if the owners, in purchasing the team, left themselves with no money to actually operate the team I come back to why this sale was ever approved. I suppose it would be helpful to know how long before they pay off these lenders or how long they will require those reserves.

Nate – The Vocal Minority

The optimist in me says that the Padres being broke is temporary. When Ron Fowler says to judge ownership in 18-24 months, I take it to mean that the financial situation will be much improved by then. I’m sure the $25 million revenue boost is part of that. Hopefully that’s not the only reason why, since every team is getting it.I’m not a Padres optimist by nature, but what I have learned is how to roll with the punches, and that none of these problems ever really work as excuses against future expectations.

David – The Vocal Minority

In the end, we’re back where we always seem to end up: Padres in the news for all the wrong reasons. In the footnotes of that piece, Keri says this: “And even if management does have a point, the fact that a team getting a massive public subsidy considers its beautiful ballpark a burden more than a reliable revenue generator speaks volumes about the supposed versus real profitability of stadium deals.” A BURDEN! That is amazing. To the team’s credit, they’ve been smart enough to keep that to themselves. However, when you have a new stadium that was approved on the premise that it was necessary for sustained success in San Diego…that’s a hard pill to swallow. What else has John Moores left to be revealed?

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  • maestro876

    What’s different about this group vs. the Moorad Group? From MLB’s point of view, this group doesn’t include Jeff Moorad, and we just plain don’t like Jeff Moorad.

    Also, I’m still confused–are they broke or cheap? Tell me what I’m supposed to be mad about!

    • Melvin

      I don’t think that matters so long as you make sweeping accusatory statements without evidence.

    • Tom Waits

      Agree — too many people in important positions were never going to let Moorad buy the team. They’re fine with an undercapitalized group owning the Padres as long as there’s a different name at the top of the org chart.

      At least Moorad was more popular with Selig and the other owners than McCourt. There are some slight differences between what McCourt wanted to do with the LA Fox money and what happened here (Good-Bye, $200M! We hardly knew ye!), but the real difference was that Moores had been one of Selig’s cronies and McCourt was a douche.

  • Nate’s “I think it’ll get better” is what I’ve been saying all along. I assumed they were somewhat cash-strapped for now, but have lots of revenue–increasing in the years to come–to refill the coffers. Still true, but now we have a clearer picture (based on these insider reports) of exactly how they became cash-poor.

    Today, at their lowest point financially, they can afford this years a-little-higher-than-last-year’s payroll, the new, larger debt service, and run operations (although with “new efficiency” — mentioned by Faith Keeper over at Gaslamp Ball, they’re cutting game day staff). Debt payments typically don’t go up–unless you add more debt (why, dear God, would they?), or have an adjustable rate (please, no!), so those should remain as fixed costs.

    Odd to say, but I feel better about things. Funny how knowing the truth–or a plausible facsimile thereof–helps.

  • Gloccamorra

    I don’t think the Padres finances have anything to do with Phil Mickelson dropping out of the ownership group. He raised some dust mentioning taxes, and it’s true that the Federal top rate went from 35% to 39.6%, while the state rate went up from 11.3% to 13.3%. Add in the 3%-4% to his caddy and 5%-6% to his agent, plus a public figure needing to retain lawyers and accountants, and he’s probably getting to keep less than 40 cents on the dollar. He’s selling his RSF estate, and I wouldn’t be surprised if he changes his legal residence to a no-tax state like Florida where most pro golfers live, or a low tax state like Arizona where he went to school.

  • Neal White

    I am not fond of the whole fuzzy information from fuzzy sources theme. If the writer has specific information as to the club being weighed down by a leveraged purchase he should state it. Otherwise the hints do not belong in the article.

    • Knowing a little is better than knowing nothing.

  • Tom Waits

    @Nate

    The problem with that $25M bump is, as you said, that everybody else gets it too. More revenue across the board means salary inflation. Our purely hypothetical $90M future payroll will buy more than our current $68M, but not as much as people may think.