The Padres Were Money Winners in ‘84, Too : Team Recorded 1st Profit, But Expenses Are on the Rise

For the first time in their 16-year history, the San Diego Padres have turned a profit, generating about $2.5 million in net income during their 1984 championship season.

But there will be a price to pay for success.

The team must attract 2 million fans to San Diego Jack Murphy Stadium in 1985 just to break even.

That is a lofty goal for two reasons. First, it would be a record crowd count for the Padres. (Attendance last year reached 1.98 million.)

Second, if the team should falter during the season, then the expected fan interest that will carry over from the playoffs and World Series likely will dissipate.

The pressure is on and to a larger degree than when the Padres were merely also-rans.

“Our costs have escalated, and we’re not assured of winning,” said Richard Freeman, Padres vice president and chief financial officer. Before the 1984 season, Freeman had predicted revenues of $18.5 million, but that was based on estimated attendance of about 1.7 million fans and did not include the windfall that was garnered from the National League Championship Series and the World Series.

Actual revenues reached $25 million, spelling the team’s first-ever profit and catapulting the club into the financial big leagues.

If there is a down side, it would be that the team must continue to win or at least field an exciting contender if it wants to remain in the black.

About 60% of the team’s revenues--projected at $23.5 million in 1985--are tied to attendance levels, which are linked to on-the-field performance. So for every drop in attendance, the bottom line also takes a tumble.

In addition, costs have risen since the Padres lost the World Series, four games to one, to the Detroit Tigers in October. Salaries, for example, will jump from last year’s $7.5 million to nearly $9 million in 1985.

Although Padres officials are optimistic about next season, there remains a sliver of caution in their predictions.

“I have a lot of faith in this city to draw fans,” said Freeman. “But I’m conservative: Every time you increase the break even by 100,000 fans, it increases the risk factor of something going wrong, such as injury to a key player.”

Being fiscally conservative is one of the reasons Freeman was hired in 1981 by team president Ballard Smith. At the time, the Padres were mired in losses both on the field and in the front office.

Worse, the club had no business plan and and was unable to tell then-owner Ray Kroc--a business-plan-oriented type--how long the flow of red ink would continue.

Smith, Kroc’s son-in-law, reorganized the front office and fashioned with Freeman the team’s first financial plan.

Under what was called the “most likely” scenario, the team would lose $7.7 million between 1982 and 1984.

As it turned out, the team lost $4.2 million in 1982 and 1983, but last year’s $2.5-million profit cut the three-year loss to $1.7 million.

(The team is a Sub-S corporation, meaning that its profits are pretax, with taxes assumed by the owner, Joan Kroc.)

Freeman, the former treasurer of San Diego-based Central Savings & Loan Assn., said that although the three-year plan provided fiscal guidance to the team, its importance publicly became overblown.

“The important thing was that we had some sort of plan,” he said. “We put numbers to it to give ourselves an idea of what was to happen. But having a plan was the important thing.”

Freeman said a new plan is now being plotted.

Included in last year’s $25-million revenues were $2.5 million from local television and radio broadcasting (the radio contract with KFMB-AM expires this year and the TV contract with KCST Channel 39 runs through 1986), about $12 million from ticket revenues (home and away) and about $4 million from national television revenues.

The national TV contract went into effect last year, and increased each major league team’s annual share from $1 million to upwards of $4 million.

Cox Cable San Diego also has emerged victorious in the wake of the Padres’ pennant-winning ’84 season.

Cox’s broadcasting venture with the Padres--the first pay-per-view in the country for baseball--has been an overwhelming success. About 3,000 Cox customers subscribed to the service in early 1984. By season’s end, customer count had ballooned to more than 10,000, and Cox officials predict that between 12,000 and 15,000 people will subscribe by the time the first ball is thrown in April.

For Cox, the venture--proceeds were split but most of the costs were borne by Cox--is important because it wants to retrofit its 253,000-customer subscriber base with “addressable” cable converter boxes. That process, expected to take several years, has been estimated to cost more than $30 million.

But the Padres venture has quickened that retrofitting, according to Marty Youngman, Cox’s pay-per-view manager.

Cox started last season with about 60,000 addressable converters, and Youngman predicts that will climb to about 120,000 by April. Addressable boxes could be in as many as 140,000 homes by year’s end, Youngman said.