The season hasn't even started, yet Major League Baseball fans are already thinking this could be the year that things turn around for the San Diego Padres. The team has struggled since clinching the National League Championship in 1998, finishing last or next-to-last in the N.L. West Division each year since.
The freshly optimistic attitude has a lot to do with newly built Petco Park. Padres owner John Moores believes the stadium will help the team break even. The prospect of an improved bottom line led Moores to spend big bucks to sign high-profile pitchers David Wells and Trevor Hoffman. The Padres will inaugurate the $450 million baseball-only field in a game against the San Francisco Giants on Apr. 8 as former President Jimmy Carter throws out the ceremonial first pitch.
Petco Park is more than just a new beginning for the Padres, however. It's also the center of an ambitious urban redevelopment plan for San Diego's underserved downtown area. As part of the deal to build the stadium, the city obligated Moores and the Padres to invest $311 million in the surrounding neighborhood for hotel, retail, and residential space. (The Omni Hotel next door to Petco Park, a joint venture between Omni Hotels and Moores, debuts Apr. 7.)
In return, the city has put up more than $200 million toward the Petco Park's cost. Peter Hall, president of San Diego's Centre City Development Corp., which helped broker the ballpark deal, estimates that $3 billion in economic investment will be created in the neighborhood over the next two decades.
BusinessWeek Reporter Brian Hindo recently spoke with Moores about the new ballpark, its place in San Diego's downtown, and the state of baseball. Edited excerpts of their conversation follow:
Q: Team owners in all sports clamor for new arenas. Why is it so important?
A:The revenue opportunities in the new ballpark are much larger than they would have been if we had stayed at a football stadium.
Q: Even with fewer seats? Petco Park seats 42,000, while Qualcomm Stadium seats 66,154.
A:Yes. It's very striking. The reason is we have so much more good product to sell. Americans have an almost insatiable appetite for the best stuff. So we were able to create many more seats that are much closer, have a much more intimate feel, than we had at a football stadium. The experience is very different.
Years ago I went to [Baltimore's] Camden Yards, and I was thunderstruck. The only baseball games I had ever seen before I bought the Padres were in [Houston's] Astrodome. I was quite concerned whether baseball could be properly played outdoors. I'm not teasing. I just couldn't figure it out.
Q: So the new park provides more opportunities for club seating, luxury boxes, and advertising?
A:All those things. San Diego is a big "club seat" kind of town. Two or four people will get together, they want to go to baseball games, they like curb service.
Q: This is a fairly unusual ballpark deal, in that Petco Park will become the centerpiece of a burgeoning neighborhood and the Padres will become land developers. Why did that appeal to you?
A:It didn't. This was not my idea. I'm a reluctant developer. It was merely the price of getting the deal done. The political climate in San Diego was extremely hostile to professional sports. The city extended its lease at Qualcomm Stadium to the [National Football League's] Chargers and agreed to buy all unused tickets as part of the rental contract. That was seen -- inappropriately, I believe -- as a giveaway to the Chargers when it was really just a rental credit. Anyway, it was not well thought out.
Here we came along and said, "We think the Padres cannot survive in a football stadium." The only way to get the thing done was for me to sign up to develop a lot of stuff.
Q: When you step back, was the deal with the city a good one?
A:Well, the terms were quite onerous. It's never going to rise to the level where you'd say that I hit a home run. [Nonetheless], anybody who wants to build an arena, stadium, or ballpark, in any city ought to come see what we did here. It's absolutely breathtaking.
And if it can be done in San Diego, which is that hardest place in the world to get anything done, it probably can be done anywhere in America. If we made any mistake, it was that we undershot the mark. The size of the redevelopment effort should have been much larger. It should have been staged over a longer period of time. This has been a runaway success. Lots of developers now are furiously building. I think we've changed downtown San Diego forever.
Q: Isn't it risky to have your ballpark be the centerpiece of downtown redevelopment?
A:It should be considered by any city that's serious about redevelopment. Camden Yards really was an epiphany for me. The [park was built at the] tail end of Baltimore's redevelopment program, near an old warehouse. It's very handsome, very old, and very historic. When I was walking by, my neck got sore because all I could do was stare at the ballpark.
I thought that people would like to live, work, and play in an area that takes advantage of that really magnificent view [of a fantastic ballpark]. I think we've done a pretty good job of that in San Diego. A lot of it grows out of the pilgrimage to Camden. There's something about ballparks that are compelling. The only thing that's more beautiful than an empty ballpark is one where there are a lot of people in the seats.
Q: You've lost quite a bit of money on the Padres in the past several years.
A:I think it blew past $100 million. This is my 10th year, and our financial goals are modest. I would like for 2004 to be the first season that I don't have to put cash in the business.
We're hopeful that the Padres, for the first time in a long time, become a self-sustaining business. The model of a baseball club as a charity is hard to swallow.
Q: How crucial is the new stadium to achieving breakeven?
A:Fundamentally. There's no way it would have been possible in Qualcomm. Even in 1998, where we managed to catch lightning in a bottle, the club still lost $7 million to $8 million. Nobody can support a business that's going to lose money like that indefinitely.
Q: You called baseball's business model a charity. What needs to happen so that clubs stop losing so much money?
A:My belief is that baseball is headed in the right direction. Major League Baseball has loaded up so much debt -- it has gone from about $500 million to $4 billion in the last decade. That obviously is not sustainable, and the banks have been pretty emphatic about wanting to be repaid. There's only one way that can happen: Clubs have to act responsibly.
Q: How did things get so bad?
A:What happened is, clubs were borrowing money to pay for current expenses. They added long-term debt to make this year's payroll. That violates the first rule of business: Somehow or other, revenues and expenses ought to cancel each other out. The boat seems to be turning. In particular, the N.L. West seems to be acting fiscally responsible.
Q: You're talking about free-agent signings?
A:Yes. When clubs were signing pitchers to long-term contracts it scared me to death. Because I know arms go bad. Players get older. Skills erode. Yet the clubs were still going to be stuck paying people. I don't see the crazy, stupid stuff that I [used to see].
Edited by Patricia O'Connell