Padres Plead Poverty : San Diego Team’s Owners Say Small-Market Economics Stunt Their Profits

The owners of the San Diego Padres stunned the city earlier this month by announcing that the team was a financial bust and might leave town or be sold if the club could not find new sources of revenue.

Of several ideas floated by the team’s 15 partners, the most controversial is that the city build the Padres a baseball-only stadium modeled after Baltimore’s hugely successful, $290-million Oriole Park at Camden Yards.

The Padres’ owners, led by Hollywood television mogul Tom Werner, say they can no longer tolerate the team’s mounting losses, which one partner pegged at $3 million in 1993--a figure the owners expect will double in 1994.

In the season just concluded, the Padres finished with the worst record in their division--below even the Colorado Rockies, an expansion team--and with the worst attendance in Major League Baseball, with only 1.1 million turnstile clicks.

Critics in San Diego and elsewhere blame the owners for the team’s tangle of problems, including its fire-sale trades of high-priced stars and community relations that rank at the bottom of league standings.

Werner and company counter by saying that they, like other clubs in small markets, are increasingly the victims of grim economic realities.

In any event, city officials dismiss the thought of building a new stadium for the Padres and describe the team’s Nov. 5 announcement as nothing more than a bargaining ploy to get lower rent at San Diego Jack Murphy Stadium, where the San Diego Chargers football team also plays.

Mayor Susan Golding is sympathetic to the Padres’ owners, but says other civic projects are more pressing than a new stadium. “If someone could show me how to retire the bonds, I’d be happy to listen,” she said. “We don’t have the revenues to do it.”

Whoever is to blame, the Padres’ predicament pinpoints the growing inequities in the game’s financial structure, which favors such major-market behemoths as the New York Yankees, Chicago Cubs and Los Angeles Dodgers.

Unless more attention is paid to the needs of half a dozen or more small-market teams--the Padres, Milwaukee Brewers and Pittsburgh Pirates, for example--economists say the long-term future of the game is in jeopardy. Two remedies, they say, are revenue sharing and a team-by-team cap on players’ salaries--neither of which the sport seems willing to adopt.

Among the more immediate concerns confronting small-market teams, said Padres’ minority owner Bob Payne, are the drop in television revenue between 1993 and 1994--from $14 million per team to $6 million under a new network contract--and the rise in players’ salaries, which have doubled since 1990 and now average more than $1 million a year.

Robert A. Baade, an economics professor at Lake Forest College in Chicago who has written extensively about pro sports and player salaries, said baseball is rapidly evolving into sharply defined tiers of haves and have-nots.

“If baseball doesn’t do something about revenue sharing, the smaller markets will produce teams that become just another layer of player development,” Baade said. “They will be unable to keep players who achieve star status. So the big-versus-small-market question is real.”

Since buying the Padres from philanthropist Joan Kroc for $75 million in 1990, Werner and his ownership group have campaigned for a form of revenue sharing akin to that in the National Football League, whose teams share almost all revenue equally.

“When you have one team like the New York Yankees with a $50-million television contract and one like ours with a $5-million television contract--and we’re both competing for the same pool of players--you have to conclude that the playing field isn’t level,” said the 43-year-old Werner.

“The NFL,” he added, “has structured itself so that teams such as the Green Bay Packers can compete equally with the likes of the New York Giants.” Werner, with about 40%, owns the largest share of the Padres.

But prospects for revenue sharing in baseball appear dim. After endorsing the concept in principle at their June meetings in Denver, baseball owners voted it down in August. The Padres’ Payne said flatly, “We don’t have the votes.”

A three-fourths majority of the game’s 28 owners, or 21, is needed to approve revenue sharing, but Payne says only 18 have committed to the concept. In the meantime, the Padres expect even deeper financial erosion--despite chopping away at costs through such means as slashing player payroll to $19.5 million from $29.5 million in 1992.

So far, big-city owners have shown little sympathy for the plight of teams in less lucrative markets. Told that the Padres and other clubs will continue to suffer without revenue sharing, George Steinbrenner--who is pressing New York to build a new stadium for his Yankees--said recently that San Diego could go broke for all he cared.

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Werner’s response: “He can go to hell.”

Economists may sympathize with Werner, but San Diego fans remain skeptical. Many blame the Werner regime for having destroyed a once-formidable franchise by letting go of such superstars as first baseman Fred McGriff--the 1992 National League home run champion--and third baseman Gary Sheffield, who won the league’s batting crown that year.

The team’s ownership--which experts say is among the richest in the game--is concerned only about the bottom line, to the detriment of its fans and its prospects on the field, say such insiders as Roger Angell, baseball writer for the New Yorker magazine.

Former Padres President Ballard Smith has joined in the criticism, publicly excoriating Werner and his partners for not anticipating the game’s economic pitfalls. The group, Smith said, was “either egotistical or naive, and lives in fear of having to spend a buck.”

The Padres’ proposal for a new stadium a la Camden Yards exemplifies for many critics how professional sports owners hold cities hostage under threat of moving the teams that loyal fans hold so dear.

In an interview, Werner said he and the other owners have no intention of moving the Padres but do not rule out selling “as a last resort.” Much will depend, he said, on the findings of Wertheim Schroder & Co., the New York investment firm hired by the Padres to evaluate economic options--including a study of a baseball-only stadium. The firm will deliver its report within 90 days.

Theoretically, a stadium like the one in Baltimore would generate vast new sources of revenue--in the form of sky box suites and club seating--and give the team more control over its own domain. But the Orioles and other teams got their new stadiums only after threatening to move, and many in San Diego see the Padres’ proposal as a thinly veiled threat, despite Werner’s assurances.

The new crop of baseball-only stadiums funnel as much as $10 million a year in premium-seating revenue to team owners. That--combined with income from concessions, in-stadium advertising and parking--can far exceed ticket revenue, if a team controls its own stadium.

As teams’ costs continue to rise almost exponentially, almost all major-league clubs are looking to squeeze more out of stadiums and the municipalities that own them, said Christopher H. Washburn, a sports franchise tax expert with KMPG Peat Marwick in Philadelphia.

San Diego officials who asked not to be quoted by name said the Padres’ discussion of a downtown stadium was nothing more, in the words of one, than “a manipulative negotiating ploy” to try to extract a better lease.

Teams such as the Padres can get away with such threats because of baseball’s government-sanctioned monopoly, said Stanford University Prof. Roger Noll, who specializes in the economics of professional sports.

“There are at least 15 cities without Major League Baseball that can support a franchise,” Noll said.

“Why doesn’t baseball award franchises to those cities? So that it can preserve its monopolistic position. So teams like the Padres can demand $250-million stadiums or threaten to move elsewhere.”

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The Padres’ stadium lease, which runs through 1999, calls for the team to pay the city 10% of gross ticket revenue up to $15 million, after which the figure is 8%. Officials concede that the Padres’ rent is on the high end relative to other cities but say the team gets a bigger share of parking and in-stadium signage.

City officials maintain that they intend to hold the Padres to the terms of the lease. They cite the condition of the stadium--opened in 1967 and widely regarded as one of the finest outdoor facilities in the country--as evidence that the owners are bluffing.

Nevertheless, officials said they would be willing to consider some changes as early as next year, such as giving the Padres lower rent and a higher share of stadium concessions. Werner and other Padres’ officials declined to discuss the lease.

Baseball’s short-term economic outlook is so gloomy that the fine points may make little difference, said Ron D. Barton, a KMPG Peat Marwick financial consultant in Tampa, Fla., whose clients include pro sports teams.

Major league teams in the eight smallest markets can expect to absorb at least $3 million a year in losses, he said.

But other experts say baseball owners, in whining about their losses, routinely minimize the enormous tax benefits that major league teams accrue. Owners, for instance, can depreciate the cost of players’ salaries and use that as a tax deduction against their personal income.

Moreover, in reciting their litany of woes, many owners fail to mention the $12-million windfall that each major league team received in 1992--the expansion fees paid by the Colorado Rockies and Florida Marlins.

For the time being, baseball is in a state of crisis in San Diego, where fans appear to have lost faith in the so-called “Gang of 15” that runs their team.

Werner--who rose to fame and fortune as the executive producer of “The Cosby Show” and “Roseanne” and who has earned a reputation as one of Hollywood’s toughest negotiators--says he is only looking for “an economic structure that allows teams in smaller markets to breathe. . . .”

“Those who want to keep their heads in the sand and say that things are hunky-dory,” he said, “are just kidding themselves.”

Cellar Dwellers

The San Diego Padres had the worst attendance in major league baseball last year, a season in which the team’s owners sold off a raft of all stars and a pennant contender collapsed into the National League West basement. The club succeeded in chopping its payroll while average baseball salaries continued to skyrocket. But fans were alienated, and now there is talk of the Padres leaving town.

Padres’ Home Attendance

1980: 1,139,026

1981: 519,161*

1982: 1,607,516

1983: 1,539,819

1984: 1,983,904

1985: 2,210,352

1986: 1,805,776

1987: 1,454,061

1988: 1,506,896

1989: 2,009,032

1990: 1,856,395

1991: 1,804,289

1992: 1,722,102

1993: 1,150,589

*Season shortened by strike

Average Player Salaries

Padres Major League Baseball 1982: $137,936 $241,947

1983: $261,820 $289,294

1984: $311,199 $329,408

1985: $400,497 $371,157

1986: $478,719 $412,520

1987: $368,019 $412,454

1988: $409,930 $438,729

1989: $523,373 $497,254

1990: $656,164 $597,537

1991: $709,359 $851,492

1992: $979,582 $1,028,667

1993: $780,000 $1,100,000*

*Estimate

A Team’s Decline

June, 1990--Hollywood television executive Tom Werner and 14 partners purchase the Padres from philanthropist Joan Kroc for $75 million.

July--TV star Roseanne Arnold sings “The Star-Spangled Banner” before a Padres home game.

October, 1990--Padres finish in a fourth-place tie in the National League West.

October, 1991--Padres finish in third place.

October, 1992--Padres again finish third.

April, 1993--Housecleaning begins. Players let go in the off-season include left fielder Jerald Clark, center fielder Darrin Jackson, shortstop Tony Fernandez, catcher Benito Santiago, starting pitcher Craig Lefferts and relievers Randy Myers, Mike Maddux and Jose Melendez.

May--Financial World magazine estimates the value of the franchise at $103 million.

June 24--Popular third baseman Gary Sheffield, the National League’s 1992 batting champ, is traded to the Florida Marlins.

July 19--First baseman Fred McGriff, the league’s 1992 home run champ, is traded to the Atlanta Braves for three unknowns, putting the Braves on track to winning the division title.

July 26--Padres trade starting pitchers Bruce Hurst and Greg Harris to the Colorado Rockies for minor-league prospects in a final purge of high-priced, veteran talent.

October--Padres finish last in the NL West, 43 games out of first, with a won-lost record of 61-101.

Sources: San Diego Padres, Major League Players Assn., Los Angeles Times