Follow the Money: Padres Style

Follow the Money

Remember how fun the 2015 season’s offseason was? It all seems so long ago. It’s easy to try and reassure myself with the mantra of “remember last year when we all made Clint Barmes final piece jokes” and then AJ went all crazy on us. I’ll just keep telling myself that there’s more to the plan than Drew Pomeranz and John Jay. And I really think there is. There are plenty of quality, available free agents out there. At the time of this writing, the Padres have Justin Upton, Yoenis Cespedes, Chris Davis, Ian Desmond and a host of other good to great players available to sign if they are so willing. The problem is, like it always seems to be, is that the Padres ownership appear to want to go cheap.

As much as they patted themselves on the back for raising payroll (which they constantly refer to as a massive payroll increase) by a little more than 10% last year, I don’t expect them to raise payroll again this year. In fact, Mike Dee has already started socializing the idea of a lower Major League payroll. Of course, he states that they may increase spending on “total player costs”, but this is Dee­-speak for total expenditures to include MLB payroll, draft slot bonuses, minor league salaries and international acquisitions. When Dee says total expenditures on players will be possibly above $120M, which he said in a December interview with Dan Sileo, it’s important to denote that this does not mean MLB payroll. It’s denoting a decrease to MLB payroll. Just doing the math, the draft slot bonuses alone for 2016 are roughly $10M, the international bonus pool is between $3M and $4M, and let’s say $2.5M in minor league player salaries. That puts MLB salaries at about the same as last year to a little less than last year for 2016. That is, unless the Padres blow away their international bonus pool limits (the Yankees, for example last year, spent $17M on bonuses), which will apparently carve back MLB payroll even more. This type of penny pinching is pretty standard for Padres fans, but the question is, why is this happening this year?

Especially once you start looking closer at the financials. The Padres have been all too happy to point out their large attendance boost last season, over 300K additional tickets were sold. This has a real, material effect on the income for the Padres. I debated how to calculate marginal revenue for each additional ticket, which is difficult due to varying ticket prices and quantity of concessions consumed. I settled on a relatively conservative figure of $40 per additional ticket, which would reflect a $30 ticket and a $10 beer. Again, I think this is conservative. That is $12M in additional revenue for the team, with additional ticket revenue being almost 100% additional PROFIT for the team. If you were to up that $40 plug number to $50 per additional ticket, you’d be looking at $15M in additional revenue, but for the sake of this analysis, lets be safe and use the $12M figure.

In 2015, the team embraced non­-baseball events as a source of revenue, ranging from Taylor Swift concerts to Holiday Wonderland to Monster Jam. In Mike Dee’s December Dan Sileo interview on 1090, he stated that the Padres sent $3M to the city as their share of 2015 non-baseball  revenues. This, per the city’s agreement with the Padres, is 30% of the non­-baseball revenue, implying that the Padres took home $7M in additional 2015 revenue through these events. It should be noted that at the time Mike Dee said this, Holiday Wonderland had not happened yet also, so that $7M figure may be even higher. For this sake of this analysis, I’ll use $7M.

There was also a more stealthy source of additional financial gain for the team in 2015. For years, Forbes magazine has reported that the Padres have one of, if not the highest, operating incomes in Major League Baseball. The thing with operating income is that it does not include debt payments, specifically, stadium debt payments. The story we’ve heard from ownership going back to Moores and Moorad was that the Padres were hamstrung by high stadium debt payments which ate into their profits substantially. In the Moores days, it was reported that the team was scraping the MLB maximum debt load of 50% of revenues. Of course, as most homeowners know, you can refinance debt when interest rates are low, and interest rates have been at historical lows for the past couple years. As the Union Tribune reported a few weeks ago, the Padres refinanced their debt from 2001 rates to 2015 rates, which is a substantial decrease in debt servicing costs. This theoretically should open up a lot of that operating income to now be spent on payroll instead of interest. As the Padres keep their books private, we have no way of estimating the interest savings, but given that the team was in the 40­-50% debt to revenue ratio range, I think it can only be described as substantial savings, most likely more than $10M per year based on Forbes revenue estimates.

So that brings us to this offseason. There are calls for the team to settle for Alexei Ramirez at shortstop to “save money” from what Ian Desmond would cost. But the question is, why? We’ve seen that revenues went up at least $19M, not counting large savings on debt servicing, and not counting ticket price and concession price increases. If anything, payroll should be higher to reflect the additional revenues and profits. But Dee is already sandbagging on 2016 salary. The Padres, according to Jeff Sanders at the U­T, are sitting at $96M of 2016 salary right now. There is room to likely sign both Desmond and a Cespedes or Upton, assuming the large revenue increases. But instead, we will likely settle for an Alexei Ramirez and some injury projects and be satisfied that Alexi Amarista isn’t the starting shortstop anymore. The Padres’ fans deserve better. Don’t let Dee get away with his “we are looking at total player spending above $120M” rhetoric. See it for what it is, a cut in MLB payroll while the team increases revenues and profits.

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