If You Spend It, Will They Come?

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

The Rockies played the first year in Mile High Stadium (home to the NFL Broncos) to enthusiastic crowds that snapped up inexpensive tickets. The team was a big hit the first season, and turned a $30 million profit, Colangelo says.

The Diamondbacks were also a big hit in their first year, but the team isn't releasing any documentation on how much money--if any--it made in its first season. Diamondbacks president Richard Dozer told the Arizona Republic in December that the team broke even.

The Rockies received an additional boost in year two when the team moved into a new stadium, Coors Field. The Rockies had the luxury of putting the $30 million profit from the first season into player development the second year, primarily because the team didn't have to contribute any money to Coors Field, Colangelo says.

While the Rockies got a free stadium (voters approved a one-tenth cent sales tax until 2012), the Diamondbacks had to make a substantial investment in Bank One Ballpark.

Maricopa County taxpayers put up the first $238 million through a Maricopa County Stadium District-imposed quarter-cent sales tax that has since expired; the county also agreed to kick in a $15 million loan that will be repaid from baseball revenues.

The balance of stadium costs were the responsibility of the team, which had anticipated a total price tag of about $280 million. Instead, the tab has soared to about $360 million, with another $34 million in claims being fought over in Maricopa County Superior Court.

The Rockies got more good news in year three when the team made the playoffs. The Rockies' first three years--highlighted by a profitable new team, a free stadium, and, ultimately, success on the field--solidified a strong fan base.

Colangelo, perhaps naively, thought he could replicate the Denver model in Phoenix.

"I looked at that and felt, gee, I don't really know how long a honeymoon we are going to have, but I have confidence in the marketplace, and I think we will have a good ride," Colangelo says.

With an anticipated "good ride," the Diamondbacks developed a go-slow approach to building the team.

"Our philosophy was we were going to build through the draft and player development," he says. "Yet we wanted to go out and get some franchise players, so to speak, in our first year, and that's why we signed people like Matt Williams and Jay Bell."

Those signings have been roundly criticized by many baseball observers who believe the Diamondbacks paid too much for Williams ($48.5 million over five years), and Bell ($34 million over five years).

Yet as the Diamondbacks took the field for the first time on March 31 before a packed house in a state-of-the-art ballpark, it appeared the team's strategy was on track. And as the season progressed, there was no reason to think otherwise.

"We were first in the league in season-ticket sales at 36,000; we were third in attendance at 3.6 million; and we projected we would be one of the top revenue-producing teams," Colangelo says.

The team estimated it would gross $108 million in 1998, according to documents filed with the Phoenix Industrial Development Authority.

But Colangelo's estimate that the team's revenue would put the Diamondbacks in baseball's top five turned out to be erroneous, because, he says, many teams increased ticket prices last year. The Diamondbacks' average ticket price last season ranked 17th out of 30 teams. Instead of being the fifth- or sixth-highest revenue team when the season concluded, the Diamondbacks fell to ninth or tenth, Colangelo says.

Even as the season ended there was still no indication the Diamondbacks would scrap their long-term development plan. While the team knew which free agents would be available, Colangelo says, "It was not a conscious belief or game plan as the season was unfolding that we would make a major run in terms of free agents when the season was concluded."

But that was before the Diamondbacks unleashed a public-relations debacle. They clumsily announced a ticket price hike for the 1999 season during "Fan Appreciation Week" in September. The price hike drew banner headlines in the Arizona Republic, which has a $5 million investment in the team, and stoked the passions on the Valley's radio talk shows.

Colangelo says he considers the 12 percent increase to be "modest," noting it was smaller than some teams are imposing.

"I came to find out that many of the price increases with many of the teams this year were in the 20 to 25 percent range," he says. "We are now anticipating that we will be probably closer to 20th in the league (in average ticket prices, down from 17th in 1998)."

While the ticket price boost seemed "modest" to Colangelo, consumers thought otherwise. Season-ticket renewals plunged for a number of reasons. The biggest factor appeared to be that many season-ticket holders realized they couldn't attend so many games, and chose to consolidate their seats with friends.

It was clear to Colangelo that the Diamondbacks would have to take dramatic action.

"If we were to proceed on our [present] course, we were looking at losses this year," Colangelo says.

Losses?
Nowhere had the Diamondbacks ever projected losses. Not in the March 1995 "Confidential Private Offering Memorandum" that sought investors for the team, or last summer when the club submitted projected financial statements as part of a Phoenix Industrial Development Authority (IDA) bonding issue.

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