Out of Left Field
The effects of COVID-19 continue to ripple through the world’s health, educational, financial, and commercial institutions, and the sports ecosystem is no different.
The effects of COVID-19 continue to ripple through the world’s health, educational, financial, and commercial institutions, and the sports ecosystem is no different. The nonstop sports entertainment industry we’ve come to expect came to a halt. It didn’t take long for the reality of the coronavirus pandemic to delay the restart of the 2020 Major League Baseball season. Thankfully, management teams and players adjusted to the “new normal” and worked alongside MLB officials to implement a modified season.
On September 24, 2020, ACG San Diego hosted an exciting CEO Town hall with the theme “How the San Diego Padres Managed through the Pandemic.” The panel featured Ronda Sedillo, SVP and CFO, and Erik Greupner, president of business operations from the San Diego Padres organization.
Over the past few years, Padres management have been very intent on building a club with a mix of international and domestic players from drafts, sprinkled in with strong free agency players. “We feel very bullish on having the best farm system in all of MLB,” Greupner said. “We have cultivated a strong base of players in their first six years of MLB service time—and once they reach arbitration their salaries are tied statistically to comparable players across MLB.”
2020 Season in Three Phases: Spring Training
Shortly after Spring training commenced, Commissioner Manfred put a halt to further activities. “Leadership is tested during times like this,” said Greupner. “Put yourself in that position in your respective businesses. How did you respond? We all thought that this would only last two to three weeks and we would be right back at it. The Commissioner demonstrated tremendous leadership to do the right thing.”
From a financial standpoint, Sedillo and her team had to perform daily budgeting exercises with guidance from MLB. “It was like trying to pin Jello to the wall,” recalled Greupner.
Managing expenses and headcount were top of mind. There was no game day revenue expected from ticket sales—season tickets or individual games—or concessions.
“We were working fast and furiously to manage our P&L under uncertain circumstances,” said Sedillo. “We had to find areas for expense reduction, including salary and staffing levels.” This was no different than how other businesses in the community.
It was important for management to ask important questions. How is this going to age? What is the right thing to do? Are we going to be proud of how we respond?
Erik Greupner
President of Business Operations, San Diego Padres
With the support of ownership, the club made a $1 million contribution to assist Padres employees and their third party contracted partners. According to Greupner, “It was important for management to ask important questions. How is this going to age? What is the right thing to do? Are we going to be proud of how we respond?” The expense reductions also created opportunities for several Padres management executives to achieve their childhood dreams.
Normally, the club would have to pay for ball boys and girls for games. Sedillo, in fact, served as a ball girl for several of their games. Creativity at its best in order to save precious capital.
Ultimately, the club had to borrow funds and reach into their loan facility with US Bank and syndicated partners which was hugely helpful.
“Over the past few years, the club worked hard to pay down the debt, freeing up our ability to draw funds back up when we needed to,” said. Sedillo.
The Season: Take Me Out To The Ball Game
Stands were empty and only ballplayers, their coaching staffs and umpires were allowed on the field. Temperature checks were instituted, masks were required and point-of-care testing was available at the door. There was no contact allowed between front office staff and players. Plexiglass, hand sanitizer and precautionary signs were everywhere.
There were club protocols instituted by MLB—113 pages along with another 50 pages or so of Padres-specific protocol—that needed to be followed by all players. Players were encouraged to be compliant and take the steps seriously. “Generally, we were one of the better teams in terms of compliance,” said Greupner. “I am proud to say that we have not experienced infections like what other clubs experienced. It’s part diligence and serendipity.”
Financially, the club continued to pare back on expenses and borrow from their line as they ‘limped’ along. Their sponsorship group, however, really made a dramatic impact on their P&L. It highlighted the importance of relationships.
“During periods of turmoil, companies that weather the storm invest in relationships and marketing,” he said. “We continued to find touchpoints with our sponsors and deliver value to them.”
One of the highlights of the exciting season was the period of time in mid-August when the Padres shattered a long MLB record dating back to the 1800s when they hit grand slams in four consecutive games. Thus, coining the team as “Slam Diego.” For those non-baseball fans, the grand slam is one of the most exciting events in the game other than a triple play. To accomplish it in four consecutive games is unbelievable.
Post Season
After 14 long years of absence from post-season play, the Padres demonstrated that smart investment and hard work pay off. As of this writing, the Padres played in a wild card series against the St. Louis Cardinals at Petco Park and had advanced to the National League Division Series to play their division rival, Los Angeles Dodgers. Petco Park and the city of San Diego will host the American League series, both the divisional (New York Yankees and Tampa Bay Rays) and championship series.
“We are proud of San Diego,” said Greupner. “We have a very competent operations team, MLB recognizes that fact, and they want to utilize our great team and facility to host the playoff series.”
2021 Outlook
What does next year look like? Your guess is as good as anyone’s guess. Sedillo, Greupner and their team are preparing multiple scenario budgets and plans. They range from a “no fans,” reduced season budget to their preferred scenario of a full season, 162 games, no constraints. Only time will tell.
“At the end of all of this, we will all look back in years from now, and we as leaders will recognize and demonstrate growth personally and professionally as a result of the pandemic,” said Greupner.
David H. Crean, Ph.D., is a managing director for Objective Capital Partners, an investment banking advisory firm in Southern California, and the president of ACG San Diego.
