Diamondbacks in the Rough--Again
The news is as familiar to Arizona fans as a Randy Johnson fastball: The Diamondbacks are restructuring again, the fifth time in five years that Major League Baseball's most successful expansion team has been forced to hustle cash to stay on the field. Investors have been squeezed, bank lines tapped, and player salaries deferred--all to help owner Jerry Colangelo meet his payroll.
The Diamondbacks may have won the World Series last fall, but financial nirvana didn't come with the championship rings. In February, scarcely four months after Luis Gonzales' bloop single vanquished the Yankees in a stirring seventh-game victory, Colangelo moved to secure $160 million in new equity to keep the team's $32 million operating loss from growing larger this season.
With Johnson, Curt Schilling, and other swanky talent, the D-Backs' payroll will be more than $95 million, not counting over $40 million that's been deferred and starts coming due this year. That trails the Yankees' $124 million but is well above the $68 million average.
Attendance, though up 17% from 2001, will fall short of the 3.6 million in 1998, the debut season. And the club is saddled with more than $150 million in stadium debt. That the D-Backs haven't been shipped to Washington or some other hungry market is testimony to the first rule of baseball--know where the money is.
No one knows better than 61-year-old Colangelo, a onetime marketing whiz for the Chicago Bulls who also runs the Phoenix Suns. To start up the team in '98, he assembled 23 investors who laid down $6.8 million apiece. They have since been pressed to pony up $53 million more to cover losses. Now, four of them are committing $16 million a year for 10 years. That gives them 49.5% of the team. Colangelo retains control of 1%. "Baseball is great for me, for my business, for all of Arizona," says Mel Shultz, a Phoenix real-estate developer and one of the gang of four.
Profits are a ways off, if ever, concedes Shultz. Last year's postseason run added $20 million in ticket sales and concessions and an extra $10 million in sponsorship revenue this year. But while season ticket sales jumped to 25,000 from 21,000 last year, the team hiked overall prices by just 6% for fear of alienating Arizona's large blue-collar and retired community. "Other teams that have won World Series increase ticket prices by 10% to 15%," says Diamondbacks ticket manager Diane Aguilar. "The economy was working against us."
The biggest thing working against the team, though, is a payroll that climbed more than 12% from last season. That will likely saddle the D-Backs with over $30 million in additional operating losses in the 2002 season, says CFO Tom Harris. Unlike the Florida Marlins, which unloaded veteran players after winning the 1997 Series, Colangelo promised his partners he wouldn't dismantle the team.
That puts a lot of pressure on a still young farm team to continue to produce stars such as rookie second baseman Junior Spivey. Says Minnesota attorney and longtime baseball exec Clark Griffith, who wants to buy the Minnesota Twins, a club his father once owned: "A team like Arizona has mortgaged its future and won't have money to keep buying the stars they need."
However, sports economist Andrew Zimbalist points out that the D-Backs need to keep winning to build allegiance. "Colangelo overestimated the short-term potential of this market to support the team," he says. The latest cash infusion should help the D-Backs remain a formidable team. And if that's not enough, Colangelo knows where to get more.
By Ronald Grover