News

JERRY-RIGGEDCONTRARY TO WHAT HE TOLD THE COUNTY, COLANGELO IS PREDICTING STRONG, EARLY PROFITS FOR BASEBALL INVESTORS

Will Jerry Colangelo and the Arizona Diamondbacks struggle to make a buck in their new, taxpayer-financed stadium? Or will they turn a huge profit right out of the gate?

The answer from Colangelo is both. It all depends on whom he's telling.
When he was convincing the Maricopa County Board of Supervisors to approve a quarter-cent sales tax to build the stadium, he said the team would lose money the first year and barely scrape by for ten years.

But as he trolls for investors to pony up the hefty Major League Baseball franchise fee, he is projecting a $12.9 million profit in the first year alone.

The new profit projections are contained in a secret financial prospectus circulated by Colangelo to private investors in the Diamondbacks. If the rosy predictions come to pass, Colangelo will have pulled off a series of stunning political and financial coups that would make Donald Trump envious.

First, Colangelo got the Board of Supervisors to impose an unpopular sales tax to raise $238 million to cover most of the expense of a retractable-domed stadium. The total cost of the stadium is expected to be $284 million.

Second, he persuaded the state's rich and powerful to kick in another $100 million of the $130 million franchise fee. The $30 million balance for the fee will be covered by bank loans.

Then, he secured control over the operation of the stadium and the team through a ten-year contract that will pay his management group a fee worth at least $2 million a year.

And, finally, once he repays his Diamondback partners their initial investments, Colangelo and his management group will pocket 25 percent of the team's profits.

Not bad for a guy who is putting only $800,000 of his own money into a project worth more than $410 million.

How did he do it?
The old-fashioned way: He played fast and loose with the numbers.
When Colangelo needed the supervisors to approve the quarter-cent sales tax, he wore his pauper's coat. A financial report prepared by Welle Consulting Group of Minneapolis for Colangelo was presented to supervisors.

The February 16, 1994, report showed Colangelo's baseball investment group losing $376,000 the first year, with losses continuing for five years. That report also showed the baseball team losing $42 million after ten years. But the loss on the team was offset by $73 million in profits Colangelo's group would earn from operating the stadium.

The Welle report overstated stadium profits, however, because the report assumed a $30 million contribution from the City of Phoenix over ten years. The city didn't agree to the contribution. Without the city's support, Colangelo's group would barely be scraping by after ten years.

The bleak financial outlook was an essential element in convincing the supervisors that taxpayer support was necessary to build the stadium. No stadium, no baseball team.

Supervisors voted 3-1 to impose the tax.
With the sales tax in place, Colangelo donned his power suit to round up investors. Earlier this year, he circulated the confidential private offering to potential investors. Recipients of the offering were warned not to reproduce or distribute the document without Colangelo's written consent.

The offering contains detailed financial projections that were kept secret for several months. Not even the Maricopa County Stadium District, which will build and own the stadium, saw the projections until last week, when the report was unveiled during a court hearing.

Colangelo's March 24 offering statement presents a far rosier financial picture of the baseball team and stadium operations than the projection given to supervisors a year earlier.

Rather than losing money the first year, Colangelo's baseball team and stadium operations would clear $12.9 million--an earnings estimate 35 times greater than the Welle report presented to supervisors. The partnership is projected to accumulate $45 million in profits after only six years of play.

What changed in the past year to cause such a dramatic swing in earnings estimates? Ticket-sales receipts are now projected to be much higher, while player salaries have declined.

In the prospectus, Colangelo estimates the team will attract 3.2 million fans and ring up $40 million in ticket sales ($12.50 average ticket) in the first year, up from the Welle report's projection of $29 million. Projected player salaries, meanwhile, have fallen from the $26 million estimate in the Welle report to $20 million in the prospectus.

The drop in salaries clearly reflects the team's goal to avoid signing big-name stars who come with hefty salaries.

"The team's intention [is] to build the team with younger players, as opposed to signing expensive free agents," the offering statement says.

More important, the dramatic increase in earnings projected by Colangelo's group raises serious questions over whether the stadium could have been privately financed. It is a question most county supervisors don't want to address. Only Supervisor Tom Rawles, who voted against the stadium sales tax, returned calls seeking comment. Colangelo did not return a phone call.

KEEP PHOENIX NEW TIMES FREE... Since we started Phoenix New Times, it has been defined as the free, independent voice of Phoenix, and we'd like to keep it that way. With local media under siege, it's more important than ever for us to rally support behind funding our local journalism. You can help by participating in our "I Support" program, allowing us to keep offering readers access to our incisive coverage of local news, food and culture with no paywalls.
John Dougherty
Contact: John Dougherty