Longform

If You Spend It, Will They Come?

Page 5 of 6

The growing disparity between rich and poor teams and the escalating salaries could lead to another stalemate between owners and players after the 2001 season. That spat could lead to another work stoppage, which would inevitably anger fans and reduce attendance.

"Baseball is a real challenge, let me tell you," Colangelo says.

Being competitive on the field is just a means to an end. Colangelo's top priorities are protecting the huge private investment in the Diamondbacks, turning a profit, and, ultimately, creating a fortune for himself.

Profits can be made without championships. But in baseball, it doesn't appear they can be made without spending to field at least a contending team. The alternative is to spend next to nothing, let the team get creamed, and pick up a few million dollars from the large market teams at the end of the year, an option pursued by some teams like Montreal ($8.3 million payroll last year), but one that Arizonans would never embrace.

It's up to Colangelo to plot the course. Although frequently referred to as the owner of the Diamondbacks, he isn't. In fact, Colangelo owns less than 1 percent of the team.

His power comes as the managing general partner of a limited partnership primarily made up of such Arizona powerhouses as Viad Corporation, Banc One Corporation, Wells Fargo Bank, BankAmerica, America West Airlines, Discount Tire, Swift Transportation, Tosco Corp. (which owns Circle K), El Dorado Investments (a subsidiary of Pinnacle West Capital Corporation), Kenilworth Investments (a company owned by Nike chairman Phil Knight), Pulitzer Publishing Company (owner of KTAR and KMVP radio), Finova Corp. and Central Newspapers Inc., publisher of the Arizona Republic.

The limited partners have put up 99 percent of the money for the team and the Diamondbacks' share of ballpark construction costs.

Colangelo, along with Phoenix shopping-mall developer Eddie Lynch (who leads an $8.5 million investment group in the team), are the key members of AZPB I Incorporated, which manages the funds invested by the limited partners. Colangelo has controlling interest in AZPB. Joining Colangelo and Lynch on the board of AZPB are accountants Richard Dozer and Thomas Harris.

Colangelo and Lynch have each contributed about $1 million to the partnership, according to Team Marketing Report, a Chicago sports-research company. Despite his relatively small investment, the limited partners have given complete control of the Diamondbacks to Colangelo.

Along with control comes a nice salary--at least $2 million a year, or 3 percent of gross revenue, whichever is greater.

But the salary is chump change compared to what Colangelo stands to make if the Diamondbacks are profitable over time.

Under terms of the partnership agreement, Colangelo stands to reap a fortune if he accomplishes two things. First, he must ensure that his limited partners receive at least a 5 percent return on their investments each year. Second, he must generate enough profits to repay investors their full contributions to the partnership, which currently stand at about $174 million.

Once the limited partners are repaid, AZPB's ownership stake in the team will go from 1 percent to 25 percent. It will likely take a decade to repay the limited partners' share, and by that time, the value of the Diamondbacks could increase to, say, $500 million or more.

Do the math. If the Diamondbacks are worth $500 million by the time the limited partners are paid off, Colangelo's company AZPB would own a share worth $125 million.

But getting there won't be easy. Colangelo must negotiate a treacherous and fickle sports market where fan support can turn to apathy overnight.

Colangelo embarked on the free agent spending spree not to simply put a competitive team on the field, but to right the Diamondbacks' listing financial ship, and preserve his chance for a bonanza.

"The only solution that appeared appropriate was to protect the investment already made," Colangelo says.

How confident is he in his buy-now, pay-later scheme?
"Let's try this game plan and move forward. Now, only time will tell, but the good news is this: We are going to have a four-year run here, with what is now considered to be maybe the second-, third- or fourth-best pitching staff in baseball."

On the field, the Diamondbacks have other serious problems that have not been addressed. The team set a National League record last year for most strikeouts (1,239) and was last in hitting with a .246 team batting average.

Acquiring the free agents also cost the team its second-, third-, fourth-, fifth- and sixth-round draft picks this year, leading some critics to say the Diamondbacks have abandoned their future for a quick fix.

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John Dougherty
Contact: John Dougherty