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By Ray Stern
By New Times
By Amy Silverman
By Stephen Lemons
By Stephen Lemons
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According to a front-page story in Sunday's Arizona Republic, the Diamondbacks face a "cash crunch" caused by skyrocketing payroll and a dropoff of 9,000 in 1999 season ticket sales.
The Republic -- whose parent company, Phoenix Newspapers Incorporated, is a limited partner in the team, with a $7 million investment -- reported that the Diamondbacks could face a $15 million "shortfall" this year.
As a result, the Diamondbacks had to ask its deep-pocket corporate partners to cough up another $24 million to cover operating expenses, the Republic reported.
The team's limited partners now have $198 million invested in the franchise.
The story makes it appear that the Diamondbacks are in financial straits -- even as the team is poised to win its first pennant in only its second year, with a $65.9 million payroll.
That seems unlikely.
The Republic story did not define "shortfall." And the Diamondbacks aren't talking -- at least to New Times.
But if "shortfall" is to be construed as a loss, the Diamondbacks would have to have experienced a one-year financial collapse reminiscent of J. Fife Symington III's disastrous foray into the Camelback Esplanade.
Unlike the former governor, however, Diamondbacks managing partner Jerry Colangelo knows how to build the bottom line.
Colangelo engineered a $21.15 million net operating profit in the Diamondbacks' first season, according to the team's audited financial statements obtained by New Times.
Only the world champion New York Yankees, with $23 million in net operating income, made more money last year.
So how could baseball's second-most-profitable team in 1998 be facing a $15 million loss in its second season?
It probably isn't.
Just because the Republic reported the team faces a "shortfall" doesn't mean it's facing a loss.
Phoenix Newspapers -- which, as a limited partner, has access to the team's current financial condition but elects not to share that information with the public -- reported last year that the Diamondbacks broke even in their inaugural year; there was no mention that the team enjoyed the second-highest net operating income in baseball.
Could the Republic and the Diamondbacks be deliberately downplaying the financial success of the team? Why would they? Many Maricopa County residents are still angry over the $238 million in sales taxes collected to pay for a portion of the $355 million Bank One Ballpark. Stories of team profits might bolster the perception that taxpayers financed a bonanza for rich athletes and huge corporations.
Republic reader advocate Richard De Uriarte did not return a phone call seeking comment on the Republic's coverage of the newspaper's investment in the Diamondbacks. He did contact New Times by e-mail.
"We were pleased that we broke that story Sunday," De Uriarte stated. He also noted that the paper "has been pretty upfront about" the paper's investment in the Diamondbacks.
It might be "upfront" about its investment, but the Republic is reporting very few details of the Diamondbacks' financial operations.
So what did the Diamondbacks do with last year's $21.15 million profit?
One possibility is the money was used to help cover the anticipated increase in payroll and drop in revenue from falling ticket sales for the 1999 season.
The $21.15 million profit -- which, according to the team's financial statement, was not returned to investors -- should just about compensate for this year's $14 million boost in payroll and about $8 million drop in revenue from decreased ticket sales.
Former National Football League player Randy Vataha, president of Game Plan, a Boston sports investment and deal-making company, says the Diamondbacks should break even this year.
"There is something driving that $24 million [capital call] other than the operations," Vataha says.
Vataha says the Diamondbacks are generating too much revenue -- $105 million last year -- to be facing a $24 million shortfall in operations.
While average attendance this year is 37,225 per game, down from 44,450 last year, Vataha says it is still at a level that will generate substantial revenue.
"Right off the top, they are still averaging attendance up in the 30s, and with all their revenue from the stadium and all of that, it doesn't sound right to me that they could be $24 million short in cash," he says.
Matt Freedman, editor of Team Marketing Report, a Chicago-based sports-business newsletter, says the Diamondbacks could be raising the $24 million for a number of reasons.
The Diamondbacks, Freedman suggests, realize that even the addition of $120 million worth of free agents hasn't propped up attendance -- and may not be enough to get the Diamondbacks into the World Series.
"Mr. Colangelo is looking into the future and realizes that not only do the Diamondbacks have to maintain this level, but they are going to have to increase spending," Freedman says.
Colangelo faces a big bill down the road. The Diamondbacks are deferring payment of salaries for many of their biggest stars until after their contracts have expired. This buy-now, pay-later approach will place steady pressure on the team's payroll for years to come.
In the short run, the $24 million infusion into the Diamondbacks also sends a signal to baseball's top free agents that Arizona is serious about winning and is willing to pay.
"He's [Colangelo] definitely sending out a good public relations message to potential free agents," Freedman says.
If the Diamondbacks don't make it to the World Series, Freedman says it is likely the team will seek to land one or two big-name free agents to put together a championship squad for 2000.
"They want to win, and they want to win now," he says. "They want to become a hot sports property not only in the U.S. but internationally."
Colangelo has taken steps to increase the Diamondbacks' international exposure through his investment in QuePasa.com, a Phoenix-based, publicly traded company that produces a Spanish/English Web site.
Colangelo controls the Diamondbacks through his majority interest in AZPB Incorporated, which in turn is the general partner in AZPB Limited Partnership.
AZPB Incorporated has a 1 percent share in the $198 million limited partnership. Once the limited partners are repaid their investments plus interest, AZPB's share in the Diamondbacks' increases to 25 percent. Colangelo stands to make a fortune if he can repay the limited partners.
Most of Colangelo's limited partners are major Arizona corporations that can easily absorb $1 million capital calls such as the one issued this month.
In addition to Phoenix Newspapers, the limited partners include Viad, Circle K, Arizona Public Service Company, Phelps Dodge Corporation, Bank One, Wells Fargo Bank, BankAmerica, America West Airlines, Discount Tire, Swift Transportation, Pulitzer Publishing Company, Finova Corporation and Kenilworth Investments (a company owned by Nike chairman Phil Knight).
While the corporations don't flinch at another $1 million capital call, how much have taxpayers gotten out of the deal?
Last year, the Maricopa County Stadium District collected $1.5 million in park-user fees from the Diamondbacks.
At that rate, it will take 158 years before taxpayers will get back the $238 million they shelled out for the ballpark.
Contact John Dougherty at his online address: email@example.com