It was perhaps the least-sexy and heretofore least-heralded of any signing in Padres history. But it may prove to be one of the most crucial.

It involved, in fact, hundreds of signatures on thousands of pages of documents.

The transaction the Padres consider one of the final pieces in the turning point of a franchise was not orchestrated by General Manager A.J. Preller but instead by Executive Chairman Ron Fowler, General Partner Peter Seidler, Chief Financial Officer Ronda Sedillo, President of Business Operations Erik Greupner and General Counsel Caroline Perry.

The pivotal move this group pulled off was the re-financing of the burdensome debt the team inherited from previous owner John Moores.


Gaining financial freedom has been at the crux of the Padres’ business model to this point under this ownership group, which is about to embark on its seventh full season in control.

That was the key point that came out of a 90-minute meeting earlier this month with Fowler and Sedillo in which facets of the team’s finances were shared and spending decisions were explained to the Union-Tribune.

The meeting — along with an hour-long follow-up with Sedillo — resulted from a request made to Fowler to open the Padres’ books in order to give the public an understanding of how the team has spent its money.

The caveat from the club was that many of the numbers shared herein had to be “general.” The Padres are a private company and one of 30 members of a greater private organization. One member does not have the prerogative to make public financial data Major League Baseball has not approved for release.


Even without divulging many specific dollar amounts, a vivid picture is painted of a team intent on getting its house in order.

With a $15 million cash call from ownership and a portion of the proceeds from a one-time MLB payment, the Padres paid a $28 million make-whole penalty as part of the 2017 refinance. That steep price was up to $40 million lower than the penalty would have been had it been paid sooner.

The refinance allowed the Padres to decrease the percentage of their annual budget that goes to interest payments — from about 5 percent to about 2 percent, a difference of $8 million per year between 2015 ($12.6 million) and ’18 ($4.3 million) — and thus go forward drawing on their line of credit at a much lower interest rate with fewer restrictions. The refinanced debt also includes much lower minimum principal payments, which adds to the Padres’ financial flexibility.

“It was ransom,” Fowler said.


He referred to the terms and interest rate on the $130 million debts/bonds balance for Petco Park and the parkade construction. Moores, mired in other financial bogs outside baseball, had been compelled in 2004 to agree to backing from bondholders that included a retirement fund and insurance companies at a blended rate of 8.5 percent, about double the prime rate at the time.

Getting out from under that mountain has been Fowler’s Everest. With the exception of a few detours, all paths have led to this point.

“I knew when I was working on this deal with John Moores we had to inherit this very expensive debt,” Seidler said. “The expectation was there would come a time we could refinance and it would accelerate our financial capacity. Knowing how skilled Ron is organizing a budget and how skilled Ronda is executing a budget, it’s heartening it all came together as it did.”

In the barest terms, the Padres’ budget over the past four years saw approximately 33 percent going toward major league salaries, approximately 32 percent to other baseball expenses (front office salaries, travel, minor league operations, etc.), approximately 22 percent to operating expenses (ballpark operation, all non-baseball departments) and about 9 percent toward debt reduction and interest payments.


They have spent 88 percent of the money they have taken in operating the team and ballpark — including local revenues (tickets, concessions, sponsorships, etc.) and revenue paid by MLB (national television, licensing, etc.) — while 4 percent has gone toward debt reduction and 5 percent toward interest payments.

The other 3 percent has gone toward capital improvements at Petco Park.

“We had to do it this way,” Fowler said. “… We’re not particularly proud of some of it.”

Given the circumstances — some of their own making and some of which predated them — the team’s ownership actually feels confident about the way they have gone about their business.


The numbers the Padres shared underscore the patience and faith the team is both exercising and asking for.

They also give context to the financial machinations during the first half-dozen years of this ownership group — and why, at the same time the value of the team has increased from the $600 million purchase price in 2012 to an estimated $1.2 billion, the Padres have made a relatively meager investment in major league personnel.

(The valuation comes from Forbes, whose annual listing of professional teams’ value, revenues and expenses is generally considered by industry insiders to be educated guessing. That approximate valuation of the franchise, however, is not disputed by the Padres.)

“There are two ways to look at it,” said David Carter, executive director of the University of Southern California’s Marshall Sports Business Institute. “The first part is they’re addressing their financial mess and over time they will be more of a sustainable business on an annual basis, a more sound ongoing concern as a baseball franchise. But the other thing that’s happening is as they’re chipping away at this and are less debt laden and more financially sound, that is also going to add to the value of the (team).”


Three main points

Essentially, the peek into the Padres’ books revealed three crucial points.

First, only $35 million in capital calls from ownership and $68 million in payments from MLB’s sale of its technology arm, BAMTech, has kept the team at break even on a cash basis.

Second, the team has invested heavily in infrastructure — both in terms of its ballpark and its minor league system.

Third, and perhaps most importantly to the fan base going forward, the Padres have extricated themselves from an oppressive interest rate and are finally poised to put their money to good use — perhaps as soon as this year and almost certainly within the next two years.


“I think it’s about that fan expectation,” Carter said. “If they’re touting flexibility, I think the fans are going to say, ‘Flex for us.’ … From a fan perspective, they don’t necessarily care about franchise finances. They care about whether or not ownership is going to field a competitive team. So ownership has to turn it around and say, ‘How do we balance financial stability and the fan requirement we put a competitive product on the field?’ ”

Nearly 6½ years (and six losing seasons) after taking over, the ownership group led by Seidler and Fowler says it is in a position financially where it can make good on its promise “to field a team worthy of fans’ support with the goal of competing for a World Series championship each season.”

That was the top ownership commitment in a sign posted in the Petco Park team store shortly after this group finalized its purchase in August 2012.

Basing an assessment solely on major league payroll, it would be difficult to ascertain how the Padres have sought to make good on that championship aim.


The team has ranked 26th among the 30 MLB teams in payroll since 2013, according to numbers available on spotrac.com.

And while the Padres don’t ever plan to be a team that ranks in the top third in payroll, Seidler and Fowler have long pledged to spend what it takes to annually field a team that contends for a championship.

They will spend thusly, they say, when it will make a real difference in the standings.

The state of the roster plays into the timing of such expenditures. The Padres say they plan to supplement a young core of homegrown prospects with a handful of more costly veteran players. They will add those players, they say, when they believe those additions can make up the difference between what they are now and what they hope to be.


That most likely, after another season of development in 2019, will be in 2020 or ’21.

It is in the examination of their financial maneuvers over the past four years that a plan to actually be able to do so becomes evident.

Wasted time, money

The four-year period begins in 2015, following a time of transition in which the team president (Tom Garfinkel) and general manager (Josh Byrnes) the new ownership inherited were replaced and the team embarked on a plan to drastically improve Petco Park. It commences in the year in which the newly hired Preller made a splash by acquiring a number of high-priced veterans via trades and free agency.

That splurge ultimately proved ill-fated and is among the reasons for the red ink splashed around the Padres’ books.


In addition to the initial outlay between 2015 and ’16, investments in Matt Kemp, James Shields, Melvin Upton Jr. and others have cost the Padres a net of $50.45 million since the start of 2017 — after all of those players were gone.

In 2019 and 2020, the Padres are on the hook for a net of $28.75 million payable to players no longer with the team. That number shrinks to $8.5 million in ’20 and to zero afterward, giving the Padres further financial flexibility — or money to spend on players that will actually play for them.

In addition to the money Preller’s “rock star” phase burned, that route consumed time.

The detour also played the biggest role in confirming in the mind of Seidler and Fowler that they would not deviate in that manner ever again.


It showed them there is no guarantee such a splurge will work, and it starkly illustrated how it can hurt.

The Padres bumped up payroll by $40 million in 2015 and realized just a $15 million increase in ticket and concessions/merchandise revenue for that year.

“It really convicted me,” Fowler said. “I didn’t need much change in my belief, but it convinced me that the business model didn’t work. We had a blip in terms of revenue … (and) we dug a big hole for ourselves.”

Of course, that experiment did not lead to winning. The Padres were 10 games out by the All-Star break in 2015, by which time they already had fired manager Bud Black, and finished 74-88. They started selling off the expensive parts the following offseason and had subtracted every one of the high-priced additions by August of that season.


The team acknowledges sustained success on the field can lead to a swell in receipts. That is why, they say, it was crucial to get to the point where they can invest in veteran on-field talent.

Chief toward attaining that financial flexibility was paying down $77 million (of the inherited total of $193 million) of debt since taking over. Of that, $45 million came out of the $50 million BAMTech payment last year.

The other significant part of that plan was an investment in a minor league system that has over the past three years come to be seen almost universally as the best in baseball with 10 of the game’s top 100 prospects according to MLB.com.

Out of the ashes of 2015, the Padres created an entirely new plan.


Foremost, that required a $79.8 million expenditure in the international market in 2016 — $42.3 million in signing bonuses paid to teenagers from Latin American countries and a $37.5 million penalty for going over their allotted pool of money to do so. Additionally, the Padres paid almost $13 million in bonuses to their amateur draft picks that season. (To help pay the overage penalty, they made a cash call to all members of the ownership group, to the tune of $20 million.)

The idea was a number of the highly touted young players would be ready to make up the bulk of a contending team by 2020 or ’21, about the time the Padres would have the financial freedom to round out the roster. Further, the continual re-stocking of the system is meant to make winning a perennial possibility.

That is in contrast to the Padres’ history, which includes five playoff appearances in 50 seasons. Essentially, theirs has been a lightning-in-a-bottle approach, where trades, the occasional free agent and the even rarer homegrown talent conspire for a contending season or two at a time. The relatively haphazard spending from year to year and lack of a fruitful farm system created a revolving door of sorts for many of the team’s high-priced players.

“We could probably do one of two things,” Fowler said. “We could probably afford to spend more and still not be near the top (in payroll) over the long term and win somewhere between 78 and 84 games each year. … Or we can do what we are doing. That is to have a lot of young guys who we think are very talented, get them some experience, get them up here, surround them with a couple veteran leaders who can do what needs to be done and continue to add.”


Said Seidler: “I think we’re on the verge of that coming together in the next couple years — and over the next decade.”

Improving the ballpark

While waiting for that plan to come to fruition, the Padres set out to improve a facet of the fan experience they could control right away.

Since 2014, the Padres have made more than $40 million in stadium improvements, including the big scoreboard and LED ribbons, new public-address system, right-field scoreboard, solar panels and LED sports lights all around the ballpark. They are also in the midst of spending approximately $13 million over a five-year period (through 2022) for structural steel refurbishing.

The biggest portion of the Padres’ operating expenses of more than $68 million per year, which covers virtually every department that isn’t baseball related, is ballpark maintenance. The Padres paid between 78 percent and 83 percent of the maintenance costs over the past four years, their portion ranging from a low of around $14.5 million to a high of nearly $22 million, with the city paying the rest.


“They grossly underestimated how much it was going to cost to maintain this park at the time (it was built),” said Sedillo, who joined the Padres in January 2013.

“Our goal when we took over,” Fowler said, “was over the next 10 years to get the ballpark looking like it was five years old and keep it there.”

To that end, they have other projects planned or in the works, including remodeling in the Omni Club and replacing 6,200 seats. They moved up the distribution of those expenditures and the bulk of the steel work.

Said Fowler: “We can’t have that much of that expense out there in ’20 and ’21 when we’re starting to build, so we moved some money forward for this year.”


The Padres’ initial budget projections for 2019 had them losing upwards of $16 million. They have that number down to between $8 million and $9 million. They will call on their line of credit to get to even.

Player payroll for ’19 is pretty close to set, though Fowler allows it could grow if Preller convinces him a player (or players) would help them substantially. The Padres remain actively listening and trying to work trades.

But making a move that greatly increases payroll now is highly unlikely.

The extended time frame pains Fowler, whose desire to win is tempered only by his love of debt reduction and his dogmatic faith that the latter will help lead to the former. It is likewise difficult for Sedillo, a lifelong baseball fan and self-described “wannabe GM,” though her numbers-based belief in the soundness of the plan tempers her discontent.


The 50-60 hours the pair spends each fall winnowing down numbers and lining up budget projections serve to convince them splurging for a player before the right time is the wrong thing.

“That’s abandoning the process we signed up for,” Fowler said. “I would say Ronda and I are probably two of the most frustrated people, because we’re fans first and happen to work for the baseball team second. So our patience level is not the same as a lot of the people.”

kevin.acee@sduniontribune.com