Colangelo Gets His
Hey, have you heard the news about Jerry Colangelo?
No, not that he's trying to sell the Phoenix Suns.
Did you know he's already sold his controlling interest in the Arizona Diamondbacks?
That's right. Jerry Colangelo is no longer the grand master of major league baseball in Arizona.
In fact, he's just another employee -- although his eight-year contract with the new ownership group carries a pretty hefty title: chairman and chief executive officer of the team.
But that comes with some pretty heavy-duty strings. For the first time since he was awarded a major league franchise in 1995, Colangelo now must report to others.
This is a rather stunning turn of events.
The power players behind the Diamondbacks are now software tycoons Dale Jensen, Mike Chipman and Ken Kendrick, along with Canadian cable television mogul J.C. Royer.
This four-man posse now owns more than 50 percent of the Diamondbacks' shares and, more important, also controls the general partnership that oversees management of the club.
But Jerry, 64, is not left out in the cold. Although he has sold his financial interest -- for an undisclosed sum -- in the general partnership, he was given an equal vote with the four other investors.
So Jerry's gone from being The Man to being a guy with one of five votes. It's a gigantic dilution of his power.
Colangelo's selling out his sole control of the D-Backs and Monday's announcement of his plans to sell the Phoenix Suns raise serious questions beyond the world of sports, the most important of which is the future development of downtown Phoenix.
But first, you're probably wondering why you haven't heard anything (until now) about Jerry bailing on the D-Backs -- the biggest business sports story in Phoenix in years.
Thank the state's largest daily newspaper for burying the news deep inside a March 3 front-page story gushing over yet another $100 million cash infusion for the financially bleeding Diamondbacks.
In the ninth paragraph of the story -- and well into the jump page inside the paper -- the Arizona Republic, which is a minority investor in the team, threw readers a knuckleball.
Referring to the four big cheeses, the Republic casually noted that they "bought Colangelo's general partnership for an undisclosed sum, which gives them controlling interest in the team."
Talk about burying a bombshell.
The fact that Jerry Colangelo, the most powerful businessman in the city, sold his controlling financial interest in the Arizona Diamondbacks is a historic event that must not go unheralded.
After all, this is the man who is credited with bringing major league baseball to Phoenix, with winning a World Series in the fourth year of the franchise -- a most impressive feat in the world of professional sports.
But winning the World Series and running a financially sound operation haven't gone hand in hand during Colangelo's reign.
The breaking point came because the Diamondbacks desperately needed more money, and the only way investors would kick in another $100 million was if they got financial control of the team.
But at the same time, the fab four didn't want to assume daily management of the franchise, which is why they asked Colangelo's outfit to stay around and do that. In other words, though the Godfather of Phoenix sports may have had to agree to a demotion, he always gets his.
"He's under an employment agreement for eight years," Kendrick says. "That's healthy. It's good for him, and it's good for us."
By downplaying Jerry's removal from control of the team, the Republic has once again perpetuated the myth that Colangelo possesses extraordinary business acumen and is the community's leading visionary.
For 25 years, Jerry and the Republic have been entangled in an incestuous relationship that has benefited both immensely.
Colangelo's professional sports franchises bring increased advertising revenue to the Republic. His teams, meanwhile, have gotten massive free advertising from the Republic's fawning "news" coverage of sporting events.
But it doesn't stop there. The Republic is a major sponsor of Colangelo's two other downtown venues, America West Arena and the Dodge Theatre, and the paper's chairman, chief executive officer and publisher, Sue Clark-Johnson, is a key player in two business groups that Colangelo founded, the Downtown Phoenix Partnership and the Phoenix Community Alliance.
These organizations have actively lobbied local, state and federal officials for funding to help pay for major development projects downtown, including the $600 million expansion of the Phoenix Civic Plaza.
City Hall has reverentially allowed these groups, led by Colangelo, to dictate downtown policy for decades.
As for the Republic, it abandoned its typically harsh anti-tax philosophy when it came to Jerry's sports venues. Rather than sticking to its conservative less-government-intrusion line, the paper had no problem hitting up taxpayers for more than $300 million toward the cost of building and expanding America West Arena and Bank One Ballpark.
The Republic's kowtowing to Colangelo has helped him get immense power to shape downtown Phoenix. Lately, he has attempted to seize another opportunity by hiring a planning company to secretly draw up blueprints for the future of downtown development, with the Republic right there leading the cheers.
All this has brought protests from small downtown businesses, artists and neighborhood groups. They are asking Mayor Phil Gordon to place a one-year moratorium on Colangelo's master-planning process. As usual, Jerry wants to get his by cutting out the little guy and building a massive shopping mall next to the BOB and America West.
A probable showdown looms later this spring between Colangelo and the mayor, who has proclaimed that the future of downtown development is the top item on his agenda. What we're all waiting to see is if Gordon has the guts to buck Colangelo and his buddies, including the execs at the Republic.
That is, will the mayor give innovative small business people and artists -- the real soul of any vibrant downtown -- a seat at the table? Practically all the public redevelopment money has gone to Jerry and his gang, and that has to stop.
Forget about that World Series victory.
Let's take a look at Jerry Colangelo's bottom line.
Last April, Forbes magazine estimated that the Diamondbacks were worth $269 million. That might seem like a lot of money, and it is.
Unless you're among the team's investors who already have $227 million out the door and commitments to invest another $227 million over the next 10 years -- to bring total equity investment by 2014 to $454 million.
Ken Kendrick tells me that investors are banking on the Diamondbacks doubling in value by then -- which means the team must increase in value at an average rate of 7.3 percent a year.
This is wishful thinking.
Last year, the Diamondbacks' value fell by 1 percent, according to Forbes.
There is clearly no guarantee that investors will see their money back anytime soon. And given the history of the team, it is very likely that investors will be asked to kick in even more money in the future.
Strike one against Jerry.
Now, let's move to the debt side of the balance sheet.
The fast-track design and construction of Bank One Ballpark led to huge cost overruns that had to be absorbed by the team. Those overruns were driven by Colangelo's demand that the stadium be built with a retractable roof to allow for natural grass.
Not a bad idea to go for a quality environment, but Colangelo grossly underestimated the cost. The Diamondbacks are now carrying $145 million in long-term debt -- which drains revenue that could have been used to field a serious contender.
Colangelo's oft-stated baseball business plan held that if a winning team were put on the field, the fans would come in droves even in lean years. Jerry persuaded star players to defer $170 million in salaries, which allowed him to field a great team that won a thrilling World Series against the Yankees.
But attendance has steadily declined, making Jerry wrong again. Now the deferred salaries must be paid, further cutting into the kitty to pay current players. That's why all we heard about last season was the youth movement. Young no-name players work cheap, and of course have little chance of propelling a team into the playoffs.
We have to face it -- his partners have. Jerry Colangelo blew it on the equity end of the business and left the team mired in debt.
I may be one of the few people who remember that Colangelo's original plan wasn't to go for broke to field a quick contender. He told me in the early days of the franchise that he wanted to build the D-Backs slowly by utilizing young players with low salaries. He said then that he would slowly but steadily build a fan base that way.
But he panicked after the team's first year in 1998 when season-ticket sales for the next year plummeted. Rather than staying the course, he pulled out the credit card to buy the World Series championship.
So much for his touted acumen as a brilliant downtown businessman and visionary.
Yet, until the latest turn of events, Colangelo has always gotten pretty much everything he wanted.
He got county supervisors to impose an unpopular $243 million sales tax to help build the ballpark.
He's hit up his partners for more than $213 million in the last five years to keep the team afloat as he jerked from one management plan to another.
See, Colangelo has always been one to spend other people's money. As his partners continued to shell out the megabucks, Jerry's sucked down a sweet $3 million a year salary for the last six seasons (and enjoyed prime home-plate seats).
Now, with the start of a new season less than a month away and the D-Backs' fortunes looking bleak, Colangelo has been able to turn a demotion into a coup de grce.
He's been paid handsomely (does anyone hear an echo?) to turn over the keys to his wheezing Yugo to a band of new, hopeful owners.
"He's had his cake and he's eating it, too," observes former Minnesota Twins baseball executive Clark Griffith.
Which should serve as a clear warning to Mayor Gordon as Colangelo secretly crafts his downtown redevelopment plan.
Unless somebody puts a stop to this, Jerry will once again get his and the rest of us will be the poorer.
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