If You Spend It, Will They Come?

Jerry Colangelo got a crash course in baseball economics. Time will tell what his grade will be.

It was a short honeymoon, far more fleeting than Jerry Colangelo and the Arizona Diamondbacks expected.

The lovefest was supposed to last for years--just like it has in Colorado, where fans still fill the stadium every game to watch their beloved Rockies, a team that drew 4 million fans last year. The Denver expansion franchise served as the model the Diamondbacks' management hoped to emulate.

The Diamondbacks were expecting a $20 million profit for the 1999 season.
Instead, Colangelo woke up one morning last fall and was stunned to discover that season-ticket renewals for the 1999 season had plummeted by about 35 percent on the heels of a 12 percent ticket-price hike.

The marketplace had spoken. The honeymoon was over and the marriage threatened--after only six months and 97 losses in the Diamondback's first season.

Colangelo knew it was time for drastic action.
"Because of the response that we received when we sent out our renewals, it caused me to sit back and take notice in a big way," Colangelo, the managing partner of the Diamondbacks, tells New Times.

The free fall in season-ticket renewals cut more than $7 million out of the heart of the Diamondbacks' most important revenue stream. The renewal rate was so tepid that Colangelo projected the team would lose money during the 1999 season unless something was done.

Red ink certainly would not be good news for members of the consortium of corporations that have invested more than $140 million and own 99 percent of the Diamondbacks.

Those partners had already been hit up for an additional $29 million in January 1998 in the face of more than $100 million in unanticipated expenses, most due to cost overruns to build Bank One Ballpark.

The looming loss and mounting debt forced Colangelo's hand. The Diamondbacks abruptly abandoned their long-term development philosophy, which called for building a team slowly from within the organization, and set a course aimed at putting a winning team on the field immediately, no matter how much it would cost, now or in the future.

Colangelo went into a "creative financing" mode, pulled out his credit card and signed five expensive free agents to the roster. All of them are older than 30, and most could be considered at the peak of their careers.

Lead by Uberpitcher Randy Johnson's $52.4 million contract, the Diamondbacks committed to pay the five free agents $119 million to assemble a team that could contend for a playoff position this year.

But the club will be paying for this stable of stars long after they hang up their Diamondbacks uniforms. At least three of the five free agents agreed to defer up to half of their monster salaries years down the road--after they will be in the twilight of their careers or retired.

Colangelo hopes that by that time, a group of promising young players moving up through the farm system will be ready to take the reins. It's a risky, spendthrift strategy that has drawn the wrath of some baseball owners. But to Colangelo, there was no option.

"The purpose of doing what we did was to focus in on how do we protect the major investment we already have made, and how do we deal with this [revenue] shortfall?" Colangelo says. "Well, it meant to us, you had to compete now."

If the team doesn't win, if more season tickets aren't sold the next couple of years, Colangelo's gambit could hamstring the club for years to come. Randy Johnson is 35, and paying his salary once he retires will mean less cash to retain the services of the league's budding stars in 2005 or 2006.

But even Colangelo's detractors would admit that if any sports executive can shift strategies and pull this off, it's Colangelo.

If he can't, well, can you say, "Montreal Expos?"

In a candid interview last week, Colangelo described just how uncertain the Diamondbacks' financial future has become, and in fact, just how little was really known in 1994 when massive public and private investment commitments were made.

That investment today--public and private--is approaching $650 million.
The Colorado Rockies were the model the Diamondbacks hoped to replicate. But stark differences between the two teams and their markets have emerged, leaving Colangelo no choice but to scrap that mold.

"We looked at models of what we might anticipate, because it was all on the come," Colangelo says. "We didn't know anything for certain. We felt that a good model for us was Denver."

After lengthy discussions with the Rockies management, Colangelo says he was convinced that the Diamondbacks would enjoy an extended period of fan goodwill.

In retrospect, Colangelo says there were vast differences between the Rockies and the Diamondbacks.

Before the Rockies played their first game in Denver, that city had one of the most successful AAA baseball clubs in the country--and with it a loyal fan base. The Phoenix Firebirds, the AAA affiliate of the San Francisco Giants, were barely on the radar screen in the Valley.

"They (Denver fans) were in the hunt for Major League Baseball for a long time," he says.

Colorado was awarded the franchise in 1993, before Denver even had a baseball stadium. The fee levied by Major League Baseball for Colorado to join the league was $95 million. Colangelo's investment group had to put up $130 million.

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