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D-backs payroll stable with cash investment

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By Barry M. Bloom / MLB.com

07/16/09 3:39 AM ET

PHOENIX -- The current season isn't playing out exactly the way the D-backs' ownership planned it, but because of an influx of capital from the general and limited partners, player payroll should not take a hit in the years to come.

At the same time the group is in the process of paying down hundreds of millions of dollars in deferred compensation to former players, the current owners invested $50 million -- $10 million per year over the next five years -- to offset any loss in revenue caused by the sagging economy.

"There's certainly a light at the end of the tunnel," Ken Kendrick, the team's managing general partner, told MLB.com on Tuesday. "And we don't think it's a train coming right at us."

When the current ownership group took over in 2004, the franchise owed in excess of $200 million in deferred compensation to former players, who helped bring the D-backs a World Series championship in 2001. That principle figure now stands at about $40 million and "the bulk of that money will paid off in three years," Kendrick said, freeing up more cash to spend on the team.

At the same time, a rights offering was presented to D-backs owners to stabilize the finances of the ballclub, no matter what the economic circumstances brought.

"What we concluded early this spring was that based on the economy, regardless of how our team might play, we had concerns that revenue streams wouldn't necessarily be what we planned," Kendrick said. "And so we decided to put some additional capital into the team over the next five years. If our revenue streams are good, we'll have that additional money to invest in the baseball side of the business. If not, we have money there to cover it.

"We are going to have a revenue decline this season. Fully two-thirds of the teams in baseball are going to have a revenue decline when everything plays itself out. We just wanted to get out in front of this thing now and let our baseball people plan accordingly."

A rights offering allows each owner to maintain his percentage position in the club by investing a specific amount of money based on that percentage.

It is legally different from a cash call, which is a mandatory demand for funds from every owner based on the percentage possessed. In a rights offering, an owner can decline to participate, but the percentage of individual ownership would decline accordingly.

"It's a right, it's not an obligation," Kendrick said. "It was an opportunity. If you own 1 percent of the team and you want to put in 1 percent of the money then you will continue to own 1 percent of the team. If you don't, at the end of the day, you'll own less than a percent when the offering occurs."

With outgoing general partner Jeff Moorad's portion of ownership in the team in abeyance since he became part of a group this year that purchased a third of the Padres, the D-backs now have four general partners. They also sold $99 million of limited partnerships over 10 years back in 2004 when outgoing managing general partner Jerry Colangelo sold his portion of the club to the current group. That money was earmarked to pay off the deferred player compensation debt during the same 10-year period.

"When we came in, we took over a severely stressed, although not declared, but a nearly legally bankrupt club," he said. "That's where we were."

Moorad's slice of D-backs ownership, now less than 10 percent because he obviously didn't purse the rights offering, is being handled by Major League Baseball. MLB stipulates that no owner of a large stake in one franchise can hold more than 5 percent of another. It has yet to be sold, Kendrick said.

Kendrick declined to discuss the individual prices paid by the various owners in the rights offering, but did say that it was "fully subscribed" and that all of the current owners had opted to participate.

It turned out to be a prescient financial move. The season has been a perfect storm for the D-backs. They lost former Cy Young Award winner Brandon Webb after the fourth inning on Opening Day with a right shoulder injury and Conor Jackson, one of their top hitters, soon thereafter because of valley fever. They made a surprising managerial change from Bob Melvin to A.J. Hinch in May and open the remainder of the season in St. Louis on Friday with a 38-51 record, 18 1/2 games behind the first-place Dodgers in the National League West.

As feared, ticket sales and revenue are down, but not precipitously, Kendrick said. And the team is nowhere near the financial state it was in when Kendrick and his group took control of the franchise.

The player payroll this year is $76 million and soars over $90 million once the deferred contracts are included. Even though attendance is down nearly 15 percent from last year, other revenue sources such as sponsorships and local TV and radio are stable, meaning the revenue shortfall will be "modest," Kendrick said.

The good news for D-backs fans is that the $50 million cash investment helps defray all that. And it means that the money spent on the baseball product will continue to remain stable or marginally increase.

"The new money will be there to fund operations," Kendrick said. "If revenue streams don't fall dramatically -- and who can be sure what's going to happen in this economy -- we should be fine. We'll be able to continue to build the payroll and have a better team.

"If somebody had told me before the season we'd have lost Webb and Jackson, I'd have told them we'd be lucky to finish .500."

Barry M. Bloom is a national reporter for MLB.com. This story was not subject to the approval of Major League Baseball or its clubs.