1,881 Words on Why the Padres Should Support the Convadium

The Chargers have taken a definite step forward in their quest for a downtown San Diego stadium with a plan to fund the construction with a hike to hotel taxes. This being a Padres blog, it’s interesting to explore the impact that a downtown Chargers stadium would have on their new neighbor, Petco Park. And don’t kid yourself, it will have a real, material impact on the Padres bottom line.

For background, the City of San Diego and the Padres have a joint-use agreement that splits non-baseball profits between the team and city. For the majority of Petco Park’s history, the split was 70/30 with the city receiving 70% of net profits, the team receiving 30%. This is seemingly generous for the city, but due to lackadaisical city government leadership (SHOCKING), little effort was put into booking events and driving revenues. In 2012, the split shifted to the Padres taking 70% and the city taking 30%, allowing innovation of private industry to increase bookings. And it has worked.

Thanks to the Freedom of Information Act, Gwynntelligence.com has obtained documents detailing the 2012-2015 non-baseball revenues, including data on individual events booked to Petco Park. This data gives us a chance to analyze the effect of a new Chargers stadium on the Padres non-baseball event profits. This is also a rare glimpse into a baseball team’s books. It’s not the really juicy stuff, but thanks to the public nature of the Padres’ joint use agreement for Petco, regular citizens are able to see a portion of the Padres’ financial information.

In general, the Padres aren’t bringing in as much money as most fans and observers think. The total Padres share of non-baseball event/concert profit for fiscal year 2015 was $4,236,184.77. It’s not chump change, but it’s also not enough to sign any free agent of any real merit. We’re talking about enough money to pay for about 40 games of Melvin Upton. Of that total profit, the Padres took home a total share of $2,260,431.56 for the Rolling Stones and Taylor Swift concerts combined. Major sell out concerts at Petco appear to bring in somewhere in the range, on average, of $980K to $1.2M for the Padres. The Padres’ released documents don’t detail the profits for the Taylor Swift and Rolling Stones concerts separately, but the 2014 documents show that the McCartney concert brought in a total profit of $1,404,598.41, with the Padres share being $983,218.60. I imagine this can vary based on the cost of the musical act. There’s no denying that major concerts are quick, larger dollar figure sources of revenue for the team.

Local sports talk radio, with their complete lack of economic knowledge or analysis, have off the cuff stated that a Chargers downtown stadium would expand the pie, bringing in more large concerts to downtown. While this sounds good to the uneducated, there are only so many major concert tours per year to bring into these venues. It is not a never ending supply of concerts to bring here. Aside from the supply issues, concert promoters must deal with tour routing to large, wealthy swatchs of Southern California like Orange County and Los Angeles where they may not want to cannibalize customers with too many shows in this geographic region. Conventional wisdom should say that a Chargers stadium is a direct competitor to this concert revenue for the Padres. And this is true. Not only are they competing for a limited pie of large concert tours, competition may drive down venue pricing. The Chargers stadium may be developed as a purpose built concert venue, unlike Petco Park where concerts must adapt to a venue that wasn’t designed with concerts in mind. So that’s it right? Chargers stadium is bad for the Padres, right?

Not really. As you look at the types of events the Padres hold, you actually find that those less flashy events are great revenue drivers. And the best events are those that coincide with large conventions and events in town. Kind of like the type of events that a larger convention center and football stadium would bring (Super Bowl!). Let’s look at what the team brings in for Comic Con, which purportedly would stay in San Diego with an expanded convention center.

The Padres brought in just over $1M in July from Comic Con private parties, signage, and the Walking Dead Experience. The Walking Dead Experience brought in roughly $280K alone. Petco Park brought in $223,365.00 for temporary advertising wrapped on the building, which of course is visible to parts of the Convention Center and the Hilton Bayfront. Basically, the Padres have been able to monetize a single week of Comic Con during a road trip into essentially the same profit as they pull in from a major concert that is disruptive to groundskeeping and the playing field. This type of advertising revenue and event space rental would likely be brought in for other marquee events held at both the Convadium and the Convention Center. We are talking Super Bowls and Republican Conventions big. The Padres would profit greatly from these types of mega events held in San Diego that are really, at this point, only possible with a new Chargers stadium. Additionally, there is always a chance that ad wraps during football season could be put on Petco Park as well, as the Petco would have direct line of sight to the Convadium.

Marathons are also historically big money makers for Petco Park. The Rock and Roll Marathon utilized the Park at the Park for their after race concert with O.A.R. in 2015. The Padres brought in $429,265.60 profit for this usage.

The biggest non-concert money maker (well it was kind of a concert) was a large Cisco company event related to their Cisco users convention held at the convention center. This was a private Aerosmith concert held on the field, along with private event space rental and catering. This event alone brought in $709,585.30. And this event is most indicative of the type of large, private events that can be brought in in higher quantities after making the San Diego Convention Center more competitive with other cities. These large events are held all over the nation in various cities, but could, with competent management and a newly enlarged and improved facility, be bid for and won in larger quantities. Additionally, more convention space could lead to multiple large conventions being held simultaneously. The more conventions that are held in San Diego, the more private events Petco Park can book.

I think it’s likely the Padres lose some concerts, or at the very least, have their concert venue contracts decrease in profitability due to competition. But, in true Mr. Brightside fashion, I think this can be more than offset with increased convention business along with the occasional mega event held at the Convadium. There are other likely smaller positive effects on the Padres involving increased residential development in East Village leading to more residents within walking distance of Petco Park, and in turn, more potential customers for Padres tickets, but I don’t have a way to speculate or predict this outcome. Regardless, I think it would be fairly marginal. There is the potential for heavy rail transit (the Coaster) to build a station to service Petco and the Convadium, which would make it substantially easier for North County residents to bypass traffic and get to games without dealing with trolley transfers.

In the end, I think the Convadium is a net positive for the Padres. I think the Padres’ optimal solution would be to just get a convention center expansion without a downtown Chargers stadium, but unfortunately for Ron Fowler, the stadium seems to be the means to get that expansion built. As it is, the team leadership should embrace and lobby for this project to supplement their own interests.

Here were some fun facts uncovered in the released documents:

– The Padres much vaunted Holiday Wonderland is comparably not very profitable for the team. Results of 2014’s Holiday Wonderland were not released, but the 2014 edition brought in $224,289.10 in profit. This is a lot of money, but consider that this was over a three week period of nearly daily business. It showed a profit margin of 15.8%. Consider that Monster Jam posted a 55.4% profit margin for Petco, and that the Cisco Aerosmith event had a 32.2% profit margin. For pure profit, you can’t do better than marathons, with the Rock and Roll Marathon posting a 86.7% profit margin for Petco Park. In case you were wondering, Monster Jam brought in $343,193.38 for Petco Park. Also note that the Padres also spent $74K in their own capital expenditures to put on Holiday Wonderland in 2014, according to thier released 2014-2015 capital expenditure report.

– Mark Grant went on 1360 AM with Dave and Jeff and stated how all of the events that the Chargers stadium brought in would help it pay for itself. He gave an “out of the box” example of opening up Petco Park’s Park at the Park for game watching. This sound good to the average listener, but the data shows this wouldn’t pay for more than the cost of a single season ticket package to the Chargers. The Padres opened up Petco Park for a World Cup viewing party in July 2015. The net profit from concession sales? $444.51.

– The larger thesis of non-football events like concerts and parties paying for the Chargers stadium appears to be false. With total profits of just over $6M (assuming the city keeps 100% share of those event profits), the city would be hard pressed to service their debt, let alone pay down the debt. While arguments could be made for the convention center expansion driving city revenues, it’s a little harder to see, beyond major concerts and mega events, how the Chargers stadium would pay for itself (all data shows it won’t). Don’t fall for the rhetoric.

– Remember when the founder of Hodad’s died and they held a memorial service for him at Petco Park? The team profited off of the death of their major concession tenant, charging $1,516.09 in fees for the memorial service.

– The Davis Cup, for all it’s fanfare and impressive tennis courts built on the field in 2014, only brought in $160,449.75 profit; a relatively small amount compared to other larger events held at Petco.

– Someone named Jacob had his parents pay for a Bar Mitzvah in November 2013 that cost $502,293.49. Petco Park profited with $152,067.99 off of this lucky kid’s parents.

– My high school alma mater, La Costa Canyon HS, held their 2014 prom at Petco Park. How much does something like that cost? $42,462.00.

– The Padres have indeed increased their share of non-baseball event revenue since 2012, although in dollar terms, it’s not as much as you’d expect. Since November of 2012, the Padres have increased their year over year non-baseball event profits from $1.44M to $4.24M in the last 2015 fiscal year, a 302% increase. Of course that $2.8M ends up coming out to about one Matt Thornton. Not nothing for sure, but also not enough to go out and sign Strasburg.

– The Padres have hosted private events for the Los Angeles Rams and Atlanta Falcons in their facility.

– If you want engagement photos done at Petco Park, it looks like the team charged $550.00 for access in 2014. Congratulations Gutierrez’s!

– While non-baseball event profits have gone up 302%, fixed costs related event sales and marketing have also increased substantially. These costs have gone up from $771,287.67 in 2012-2013 to $1,645,982.18, an increase of 213%.

Here are the official documents regarding the joint use non-baseball revenues:

2012 Petco Park Non Baseball Events-Detailed_0323162013 Petco Park Non Baseball Events-Detailed_0323162014 Petco Park Non Baseball Events-Detailed_0323162015 Petco Park Non Baseball Events-Detailed_032316

 

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