How do the Padres begin to mine enough value from one employee, Manny Machado, to justify a 10-year, $300 million contract? How do they leverage the four-time All-Star's revenue-swaying power to ensure the business side of the transaction makes sense?
The questions, simple and direct. The answers, complex.
In a normal multimillion-dollar business transaction, there would be line-by-line budgeting and accounting to not only recoup the investment, but spark profit. The world of major professional sports, however, operates differently.
If owners summon the financial will to win, heart can sometimes outmaneuver head - squeaky clean math be damned.
"The No. 1 priority for us is to win and that's defined as winning a world championship," Padres managing partner Peter Seidler said. "The money side of it comes second. Manny's a giant, rarely-available piece of the winning equation.
"Financially, obviously having him in San Diego will improve our revenue. It will sell tickets. It will buy us sponsors. It'll increase ratings on our cable TV channel. To what extent? It's all gut feel and there's no precise way to forecast it like you might have in other businesses."
The Padres understand the arguments for and against tackling the largest free-agent contract in the history of American sports. But the franchise is not burning the books in a wildly unchecked spending spree.
When divorced from the competitive baseball portion of the discussion, the Padres formulated a patient and calculated approach to creating more and new revenue along the way.
Start with ticket sales.
"It's about $1 million, over and above what our projections were (before signing Machado)," Chairman Ron Fowler told the Union-Tribune. "The biggest element is attendance. You've got to put butts in seats and all that stuff will come together. It's a long-term investment and that's how we look at it."
The Padres, as detailed last month by the U-T's Kevin Acee, also restructured debilitating financial debt inherited from previous owner John Moores. Refinancing allowed the club to decrease interest payments by upwards of $8 million annually. They lowered their minimum payment on the principal. They repositioned their line of credit at a far lower interest rate.
All of it created a cocktail of flexibility, allowing more resources to shift to baseball payroll. It's $1 million here. It's $8 million there. It's all the millions worth of ripples Machado will spur if performance and winning follow.
And it's certainly an "if." The exhaustively researched "if" depends heavily, though, on the bankable production of their new third baseman. Machado's 637 games played the last four seasons leads baseball. So do his 2,808 plate appearances.
What the 26-year-old has delivered with that unflappable regularity is high-quality performance. The baseball metric known as WAR (Wins Above Replacement) that measures the overall value of players shows Machado's career total through his age-25 season surpassed Lou Gehrig, Joe DiMaggio, Stan Musial, Willie Mays and Barry Bonds.
In boardroom parlance, it's the ultimate high-risk, high-reward situation.
"If they expect to sell $300 million in foam fingers, it's not going to happen," said David Carter, a nationally recognized sports business expert who's the executive director of USC's Marshall Sports Business Institute. "But if they want to create avenues for businesses to connect with the team, there's certainly a lot of value."
Potential paydays vary
A large opportunity to cash in on Machado's star power will come through television screens.
More eyeballs in Southern California will increase ratings, which in turn causes advertising rates to spike. That creates immediate revenue for the Padres, who own a 20-percent stake in Fox Sports San Diego as part of a 20-year deal struck in 2012. That potential also translates to its multiyear radio deal with Entercom.
Machado substantially increases the likelihood the Padres could be carried on national TV, massively elevating new markets and awareness. More national games increases direct revenue, but also creates a chance to negotiate stronger returns on ballpark signage that is seen by a far bigger audience.
"It increases value for all those things," said Jim Steeg, the former COO of the Chargers who ran the Super Bowl for the NFL from 1980-2004. "Whether it's the Sycuan (Casino) sign in center field or whatever. Things that are seen become a lot more valuable because they're seen nationally and not locally.
"It's not value today, because it's already sold. But there's a value on the renewal."
So, the long play begins.
Carter, of USC, said Machado's Dominican and broader Latin American roots offer opportunity. The Angels used the signing of Japanese pitching-and-hitting sensation Shohei Ohtani, a former Padres target, to "unlock new categories."
"The Padres need to look at this the same way," Carter said.
Even the existence of fantasy baseball leagues creates a marketing canvas. When you lack players who perform well or bring name recognition to the table, far fewer pay attention. Sign a superstar, however, and fringe fans suddenly are more likely to draft that player, follow his career, consider buying a jersey and so on.
That's how far and wide potential revenue streams reach and how varied they can be.
"I know this might sound dumb, but you have a player people want in every rotisserie or fantasy league," Steeg said. "You're going to follow what Machado does because he's in your league. It's just another way you become relevant.
"That's the change that's going to happen. You're going to be talked about. Think of a comparable city to San Diego. Maybe Seattle. People aren't normally talking about (the Mariners)."
The critical importance of exposure and relevance caused Steeg to push for the Chargers to be on the HBO, all-access show "Hard Knocks" in 2005. He saw the building momentum with players like LaDainian Tomlinson, Antonio Gates, Shawne Merriman and the passing quarterback torch from Drew Brees to Philip Rivers.
Steeg convinced coach Marty Schottenheimer and owner Dean Spanos, but was shot down by general manager A.J. Smith.
"The argument was, nobody knows who we are and we've got all this young talent," Steeg said. "You're the 4 o'clock game on the East Coast on Sundays. But we were becoming something everybody had to talk about and watch.
"Eventually, that allows you to make more money elsewhere. It's really important."
The Padres agree.
"With a player like Manny, there's immediately a buzz and return on the business side," said Erik Greupner, the team's president of business operations. "What's more important for the long-term is what this translates to on the field. Bringing winning baseball on the field, bringing more people into the stadium, really has a snowball effect that we can build off of to increase revenue.
"It's all a product of winning."
Padres 'time to strike'
The investment in Machado remains staggering to consider, especially in a market like San Diego. His total salary currently is the seventh highest in the big leagues this season. The last time the franchise pushed a player into baseball's Top 10 was Hall of Famer Tony Gwynn in 1991.
For context on the unique financial air the Padres find themselves breathing, the combined contracts of Machado and first baseball Eric Hosmer - who signed a $144 million deal last spring - top the gross domestic product of the Polynesian country of Tonga.
Yet, the team still will fall below the MLB's average payroll in 2019. Projected opening-day payroll obligations stand just shy of $116 million, according to analysis by the Union-Tribune's Jeff Sanders.
To the Padres, it's not a matter of focusing on Machado's salary alone. They manage and budget toward the total team payroll number.
"The headline number is his contract, but it's probably a trap to fall into to just look at his portion of our overall payroll," Greupner said. "The question is best answered by looking at total payroll and the return on total payroll. Manny's obviously the biggest piece of that total payroll, but the analysis for us is never about one player in a vacuum.
"This is a commitment we believe, by taking it on and if it can lead to winning baseball, is going to return over time."
General manager A.J. Preller, who orchestrated the record-breaking deal, said the hours invested understanding the signing through the business lens would astonish.
"In the last month, from a business standpoint Erik Greupner and his group, Wayne Partello on the marketing side, when we really started getting serious, their teams and their leadership, they put together and explained to myself, Ron and Peter, the potential impact Manny would have from a business standpoint, a revenue standpoint, from a brand standpoint, from an imaging standpoint.
"... That was definitely an important part of the puzzle."
With Machado, Carter said the overall valuation of the franchise grows.
"You have to ask yourself, how do you define success?" he said. "Is it annual profitability or is it long-term franchise value?"
Seidler, the managing partner, explained a lunch between himself, Fowler and Machado - offering a glimpse at the merging of head and heart in a $300 million deal.
"At one point, Ron looked at him and said, 'Peter and I are conservative businessmen,' " Seidler said. "I had to jump in. I said, 'Ron might say he's conservative, but I know him well. He knows when to make a strike and this is our time to strike.' "
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