Sell the team? Forget it, says Rockies unabashedly exuberant CEO Charlie Monfort
From ColoradoBIZ, 2004
By Stewart Schley
His revenues are tumbling. His customer base is eroding. Some of his best employees have been snatched up by the competition. And his market value is dropping by the millions.
So why is this CEO so damn happy?
Because he’s Charlie Monfort. Because he’s an optimist by nature. And because in his business, early in spring, just about anything seems possible – even winning the NL West with a rotation of castaway starters looking to reclaim the satisfying snap of fastballs past.
“We need a lot of things to go right,” says Monfort, the chairman and CEO of The Colorado Rockies Baseball Club. “But in the West, I like our chances.”
Monfort’s enthusiasm is instantly infectious, but it masks a growing problem. In a metro Denver market that’s increasingly crowded with sports teams, Monfort’s Rockies are mired in an economic slump far worse than Larry Walker’s home run drought of last May.
The big problem: plunging attendance and waning fan interest. “I used to have people begging me for tickets,” says Paul Berteau, a Denver insurance broker who has owned season tickets along the third-base line since the team’s inception. “Now, by the middle of the season, I can’t give them away.”
He’s not exaggerating much. Last season the Rockies drew 403,000 fewer patrons than in 2002, and 830,000 fewer than the 3.2 million who showed up in 2001.
For the beef and beer barons who own the team, those aren’t just throwaway baseball stats. The Rockies, unlike big-market teams with rich local TV deals, depend disproportionately on ticket sales, concessions and parking. Fan-related spending accounts for more than 70 percent of the team’s estimated $110 million in annual revenue.
The closely held Rockies don’t disclose finances publicly. But based on average per-fan revenue of $28.57 per game, calculated from baseball’s 2000 Blue Ribbon Panel on Baseball Economics report, last year’s defections may have cost the team more than $11 million in lost revenue. Coupled with the need to redeem equity erased by former owner Oren Benton’s bankruptcy, the decline contributed to a shortfall that forced Monfort, his brother Richard and the team’s other partners to sink $12 million of their own cash into the Rockies last November.
The capital call of 2003 signals that the Rockies have more challenges to work out than getting their base-stealing signals right. Three straight years of sub-.500 seasons have chased away fans, and big payroll obligations tied to a handful of players have forced Monfort to cut loose rising talents like Jay Payton and Darren Oliver. In the meantime, the Rockies have refused to hike prices for season ticket holders. The ensuing budget crunch has left Monfort such little wiggle room that the team even asked the relatively inexpensive third-baseman Vinny Castilla to defer part of his 2004 paycheck.
To Monfort, the pressures are just a financial variation of a bad-hop grounder. It’s all part of the game. “We’ve gone through a normal business cycle, but it doesn’t mean we can’t be successful and we can’t win,” says Monfort.
In truth, the numbers aren’t all that perilous so long as Monfort and Co. can put together a team that brings back some of the zing to the Coors Field experience and draws 30,000-plus into September. It’s possible. Despite a lingering financial hangover from the bloated Mike Hampton and Denny Neagle deals of 2000, the Rockies go into 2004 with a strong offensive lineup and a $58 million payroll that’s higher than 16 of 30 Major League teams – including the World Series champion Florida Marlins.
But pre-season optimism is one thing. Winning is another. If the 2004 Rockies continue their lackluster on-field performance, it could mean continued fan defections, and a deeper funding shortfall.
Capital shortages, revenue declines, fretting about payroll. Wasn’t owning a baseball team supposed to be, well, fun? It certainly seemed that way in the early years, when the Rockies captivated the state with a blend of personality and power-ball that kept the turnstiles turning and the beer men bustling. During their inaugural 1993 season at Mile High Stadium, the Rockies topped one million fans in just 17 games, fastest in Major League Baseball history, and followed up in subsequent seasons with home-game attendance that routinely surpassed the 3 million mark. A cushy new ballpark and a Wild Card berth in 1995 turned up the volume even more.
Then came the crash. Monfort and general manager Dan O’Dowd rolled the dice during baseball’s 2000 winter meetings, agreeing to lock up close to $170 million in long-term deals for two southpaw pitchers, Hampton and Denny Neagle. Each had turned in previous 20-win seasons, and at the time, few doubted that the gamble was worth it. “We thought we were two pitchers away,” says Monfort. But before two seasons were up, both were busts, and fans knew it. With the economy beginning to reel and the team stringing together the first of three consecutive sub-.500 seasons in 2001, the exodus began.
Faced with an entirely different market circumstance than the Rockies once enjoyed, the team now is adopting a new, humbler approach. The immediate job for Monfort is to keep spending under control until the Hampton-Neagle payouts expire in 2006. But the fan defections have also prompted the Rockies to devote more attention to business basics – more aggressive marketing, more care and feeding of season-ticket holders, and more discounting of tickets through special packages.
The new tactics will cost the Rockies more money, and it’s doubtful that the team will win back 400,000 ticket-buyers in a single season. That means more digging into checkbooks. Monfort acknowledges that even if season-ticket sales for this year hold steady at the 2003 level of about 19,000, it’s likely the partners will have to put more cash into the operation in each of the next two off-seasons. Even so, the ever-ebullient Monfort says the existing ownership core of the Monforts, Jerry McMorris and brewer Peter Coors have no thoughts of cashing out.
And yes, Monfort has heard all about the supposed synergies of a much-speculated Rockies-Kroenke Sports combination. Combining with Kroenke Sports, the well-capitalized cross-town owner of the Nuggets and Avalanche, could give the Rockies a fat infusion of capital, and bring Kroenke Sports a sorely needed source of spring-summer programming for its soon-to-launch regional sports network. Or so the theory goes.
But Monfort dismisses any idea of selling the team to E. Stanley Kroenke or anybody else. He says the only conversations he’s had with Kroenke deal with possible sponsorship synergies and lower-level business dealings. Moreover, the Rockies aren’t in any particular hurry to reassess local TV rights. The team’s $18 million per year contract with Fox Sports runs through 2006. (For its part, Kroenke Sports had no comment.)
But whether the Rockies are interested or not, the strategic arguments for a possible Kroenke alliance have strengthened with the formation of the new Kroenke TV network. That’s because a new romance is blossoming between baseball teams and owned-and-operated TV networks. The gaudiest example is the New York Yankees, which collects $75 million a season from running a team-owned sports channel, the YES Network. But beyond New York, a growing number of teams are making money by doing exactly what Kroenke Sports Enterprises is doing – running their own TV networks instead of renting rights to independent networks like Fox Sports. “It’s clearly made an enormous difference for the Yankees and for the Red Sox, and on a slightly different model, it made an enormous difference for the Cubs and the Braves,” says Andrew Zimbalist, a Smith University economics professor and the author of The Economics of Sport.
Even without its own TV network, the Rockies could probably fetch close to $300 million in an outright sale, based on a rough industry valuation multiple of around 2.5 times revenue, according to Sal Galatioto, the managing director of Lehman Bros. sports advisory and finance group in New York city.
But that number has been shrinking along with attendance. In 2001, when the Rockies were packing 3 million-plus into Coors Field, Forbes pegged the team’s value at $334 million, ninth-highest in the big leagues. Last year, the team had slipped to $304 million in the Forbes annual ranking, around the middle of the pack.
Monfort exhibits little interest in valuation models. As the top executive and owner of a scarce asset – one of baseball’s 30 big-league ball clubs – he’s not exactly worried. Monfort believes Major League Baseball owners are only now beginning to adjust to a favorable new climate spawned by the league’s summer, 2002, labor agreement. Despite big-money deals for the likes of Albert Pujols and Alex Rodriguez, the pact has helped to rein in overall spending on free agents. And like many in baseball, Monfort points to the 2003 Marlins’ unlikely run to the top as evidence that smaller-market teams are very much in contention again. Lehman’s Galatioto agrees the Rockies are in more of a temporary lull than a business crisis. “I think Denver’s a great sports market,” Galatioto says. “Part of the Rockies issues are performance-related. If they become a competitive team, that team in that building can do very well.”
Mostly, though, Monfort dismisses speculation about deal multiples and team valuations because he’s far more smitten by the game itself: the wide expanse of honeycombed grass that blankets the outfield, the pop of a catcher’s mitt on a sunny Tucson afternoon when the games don’t really count and the P&L can wait another day. Returning to Greeley from a recent trip to the team’s spring training complex in Arizona, Monfort was plotting not for an exit strategy, but for the day when he can put a couple more fans in the seats. Monfort’s wife, Vanessa, give birth to twins Lucas and Danneka last October.
“Just adding to the season ticket base,” Monfort says. Now there’s an optimist for you.