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Sports News Without Fear, Favor or Compromise
Sports News Without Fear, Favor or Compromise

The Value Of The San Diego Padres Grew $300 Million In Three Years Because Baseball Owners Are Stupid

Illustration for article titled The Value Of The San Diego Padres Grew $300 Million In Three Years Because Baseball Owners Are Stupid

Don't think there's a market bubble going on in MLB? Look at this, from the Associated Press:

A group headed by former Los Angeles Dodgers owner Peter O'Malley and including pro golfer Phil Mickelson reached agreement Monday to buy the San Diego Padres from John Moores.

The purchase price is believed to be around $800 million.

$800 million for the Padres. Sounds high, but maybe the team has more fans than we thought. Nope:

The agreement came months after Jeff Moorad's attempt to buy the team on a layaway plan fell apart. Moores' deal with Moorad, who began his attempted purchase of the club in 2009, was valued at about $500 million.


The San Diego Padres are still the same San Diego Padres they were in 2009. Hell, they may even be worse: The 2009 Pads had Adrian Gonzalez and Jake Peavy. The new team doesn't have a comparable star, unless you really like Carlos Quentin. And the Padres rank 14th out of 16 National League teams in per-game attendance, which is the team's worst showing since 1995.

So why are they "worth" $300 million more than they were three years ago? It's simple. Big television contracts make every potential owner squeal.


We've written before about the craziness cable-television money has brought to baseball (here and here, to name recent instances). The $2 billion sale in May of the Dodgers—to guys who do not have $2 billion—exemplified this lunacy. (The Dodgers think they will get $4 billion from their next TV contract.)

And, what do you know, the Padres recently signed a 20-year, $1.2 billion contract with Fox Sports San Diego. It was a sweet deal made even sweeter by Fox's $200 million cash advance to the team. (Since that $200 million will go toward paying off the outgoing owners, only $600 million actually changes hands in the sale.) Perhaps Fox's $200 million came from the network's cash reserves, but it's more likely that a regional sports network—especially one based in San Diego—would need to borrow money to come up with $200 million in cash. And that $200 million in cash is the only part of the deal that isn't Monopoly money. Everything else is a guarantee far into the future.

Perhaps you wonder what's wrong with making guarantees far into the future. Isn't that how business works? Well, sure, maybe. But prudent businesses generally don't make their future guarantees rely on ridiculous, unsustainable oligopoly-exploiting perpetual price increases!


As a refresher, this is how sports works on cable and satellite: The cable company negotiates a monthly fee with the channel that carries the games. Every channel has a fee (see here), and so your cable bill includes the $4.69 a month you pay for ESPN and the 33 cents a month you pay for MTV and the 58 cents a month you pay for Fox News. Unless the channel is on a special programming tier, like HBO or IFC, every subscriber has to pay those fees regardless of whether he watches the channels in question. Regional sports channels are not on special tiers, which means that everyone in the San Diego area with a cable box or a satellite dish—even those who don't care about the Padres, which is probably to say, 95 percent of the people in the San Diego area—pays approximately $20 a year for Padres games.

This is a broken system in the first place. It irritates a lot of cable and satellite executives. But they've gotten angrier than usual recently because sports networks have asked for giant rights fees increases to pay for the deals they've signed with teams. For instance, ESPN, which has guaranteed large contracts in recent years to the SEC and ACC and Big 12, has raised its fee 42 percent since 2006.


All this brings us back to San Diego, where Time Warner Cable is right now refusing to carry Fox Sports San Diego, because the network is asking for too much money. (The network is asking for a rights fee increase because it needs to—it just gave the Padres all that money.) So if you have Time Warner, you can't watch the Padres. But because the Padres have won only 47 of their 111 games, and because the Padres trot out a rotation which, until a week ago, included Jason Marquis AND Kip Wells, no one has complained enough to make Time Warner capitulate.

This is a glimpse of our future: televised baseball as scarce resource, a result of teams and cable networks putting too much stress on the delicate bargain of the past.


Any prospective Padres owners should have been able to glean something from the ongoing struggle: Fox's billion-dollar promise is anything but guaranteed. Phil Mickelson was once known as a serious gambler. He bet obsessively on NFL games, even though he knew he wouldn't win. We don't say this lightly: This is the worst wager of his career.

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