Tuesday, July 15, 2008

Sabathia deal makes dollars and sense

from The Business Journal of Milwaukee:

The Milwaukee Brewers' acquisition of star pitcher CC Sabathia means the team won't make a profit this year. But the Major League Baseball team stands to reap a substantial financial gain long term in corporate sponsorships, ticket sales and more if the Brewers make the playoffs for the first time in 26 years.

That's the business reason behind the team's investment in the American League Cy Young winner, who won his first game pitching as a Brewer July 8. In acquiring Sabathia in a blockbuster trade with the Cleveland Indians this week, the team will have to pick up an estimated $5 million in salary he is owed for the remainder of the season. Principal owner Mark Attanasio said the additional salary, which increased the team's payroll to an all-time high of $90 million, will mean the Brewers will not make a profit this year as the team has for the first three seasons under Attanasio's ownership.

"In this case we'll probably lose money by doing what's right for the team," Attanasio said. "If you have that opportunity, you have to take it."

Team officials are expecting a jump in attendance over the remainder of the season, along with a corresponding increase in parking, concession and merchandise revenue. The team's goal of 3 million in attendance seems attainable with the buzz created by the Sabathia trade and the recent strong play on the field.

"There is great excitement in the community and that should translate into packed houses for the rest of the season," said Rick Schlesinger, Brewers' executive vice president of business operations.

The best example would be Sabathia's Milwaukee debut. The game drew more than 42,500 fans, a rare sellout on a Tuesday evening. Prior to the trade, Brewers officials expected about 34,000 fans.

In the past, Brewers officials have said fans spend an average of $28 per game on tickets, parking and concessions. For that Tuesday night game alone, that translates into an additional $238,000 in revenue.

A source close to the Brewers said the team already was expected to record a financial loss this season before the trade because of an estimated $2 million signing bonus paid to outfielder Ryan Braun as part of the eight-year, $45 million contract he signed in May, along with the $10 million being paid to reliever Eric Gagne, who was signed in the off season.

Schlesinger confirmed it is likely that adding in Sabathia's salary will make it difficult for the team to make enough to turn a profit. However, he said, the team is looking to the 2009 season for a big jump in revenue, especially if the Brewers finally make the playoffs this year.

For example, the team drew 1.9 million fans in 1982 when it made the playoffs and went to the World Series. In 1983, attendance jumped to almost 2.4 million, even though the team didn't make it to the post season.

"There is no doubt that if we make the playoffs, it would set us up extremely well for 2009," Schlesinger said. "It would have major implications for every aspect of our business."

Brewers officials already are talking with some existing corporate sponsors and potential new sponsors to capitalize on the higher level of excitement over the team. They also are developing ticket packages and other initiatives to pick up more revenue from an expected playoff push.

"It is really easy to get meetings right now and then walk in and spend the first 15 minutes talking about the success on the field," Schlesinger said. "We are working to elevate the brand and find partnerships that make sense for the team and the business." Payoff

Marty Greenberg, a Milwaukee sports attorney, said Attanasio made the right decision in taking a short-term financial hit for a long-term financial gain.

"This city is so starved for a winner on the baseball field," Greenberg said. "This will pay off for the team in more hot dogs being sold, more T-shirts and higher prices for their sponsorships. It will all trace back to the bottom line."

Greenberg said the key financial driver for the Brewers is attendance, which produces concession, parking and retail revenue.

Attanasio has taken a business approach to running the team, as opposed to other owners in all sports who view running the team as a hobby, Greenberg said.

"He quickly figured out that this city really wants a winner and will support a winner in record numbers," Greenberg said. "That support translates into money for his bottom line." Moving quickly

The team moved quickly to take advantage of the Sabathia trade from a business standpoint. Within a day of the trade being announced, the Brewers and its retail supplier, Majestic Athletic of Bangor, Pa., had 750 Sabathia T-shirts, priced at $35 each, and about 50 jerseys, priced at $210 each, in the team's retail stores at Miller Park. Most sold quickly.

Schlesinger said team officials did not contact Majestic until the trade was announced at about 8 a.m. July 7.

"We had to be very careful because I did not want any of our conversations to leak out before the trade," he said. "But we were able to move very quickly after the trade to get product here. There is an expectation from the fans that product will be here and we had to meet that."

Ticket sales skyrocketed in the days after the trade. In the first 48 hours, the team sold 40,000 tickets for the rest of the season. On an average day, about 3,000 tickets are sold.

Schlesinger said it was not group sales, but people buying two or four tickets.

"We're really seeing a spike," he said. "If we keep playing well, it is going to be hard to get tickets come August and September."


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