Out of Left Field - Lessons from the Padres on How to Navigate a Pandemic

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 affect the restart of the 2020 Major League Baseball (MLB) 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 event on How the San Diego Padres Managed through the Pandemic. The panelists that joined the event from the San Diego Padres were Ronda Sedillo, SVP and CFO, and Erik Greupner, President of Business Operations. The engaging Town Hall discussion was moderated by life-long, die-hard Padres fan, Dennis Doucette, Partner at Procopio, Cory, Hargreaves & Savitch, LLP. BDO and RA Capital Advisors served as sponsors for the event.

Heading Into 2020

As an introduction to the 2020 Season, Erik Greupner took the audience through the prelude to the season with the announcement of "Brown is Back", an intentional move from a marketing and branding perspective to establish and coincide with a new era of winning. Check out the video link demonstrating the marketing and brand campaign to highlight the opportunity to break out from the past (Brown is Back).

Over the past few years, Padres management have been very intentional about 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," stated Mr. Greupner. "We have cultivated a strong base of players in their first 6 years of MLB service time - and once they reach arbitration their salaries are tied statistically to comparable players across MLB."

San Diego Media Market is the 2nd smallest media market in MLB. Approximately 20% of total revenue for the Padres P&L is tied to the size of the media market and the rights fees that the team receives as a result.

Management believes in a stewardship of public trust. Petco Park, the home of the Padres, was voted by USA Today as the #1 Ball Park in America, a reflection of ownership investment and commitment since 2012 when they acquired the team. Ownership has put in +$70mm into maintaining and improving the stadium, a city owned asset, and this exemplifies a great public-private partnership between the Padres and the City of San Diego.

From an attendance standpoint, the Padres were the 4th highest team in MLB from a year-over-year (YoY) increase in average attendance in 2019 with approximately 30,000 people attending, despite a losing record. Management used this healthy YoY growth to plan for 2020 .... until the pandemic changed everything.

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", stated Mr. Greupner. "Put yourself in that position in your respective businesses. How did you respond? We all thought that this would only last 2-3 weeks and we would be right back at it. The Commissioner demonstrated tremendous leadership to do the right thing."

From a financial standpoint, Ronda Sedillo and her team had to perform daily budgeting exercises with guidance from MLB. "It was like trying to pin jello to the wall", stated Mr. 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", stated Ms. Sedillo. "We had to find areas for expense reduction, including salary and staffing levels." No different than how other businesses in the community responded.

With the support of ownership, the club made a $1mm contribution to assist Padres employees and their third party contracted partners. According to Mr. 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. Ronda, 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", stated Ms. Sedillo.

"We had daily budgeting exercises."

-Ronda Sedillo

The Season -Take Me Out To The Ball Game

Stands were empty and only ball players, 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 - which 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," stated Mr. 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.

"Sponsors wanted to show their commitment to the club despite the shortened season and spoke with their pocketbooks."

-Erik Greupner

"During periods of turmoil, companies that weather the storm invest in relationships and marketing", stated Mr. Greupner. "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 1800's when they hit grand slams in 4 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 4 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" stated Mr. 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

So what does next year look like? Your guess is as good as anyone. Ronda, Erik 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", stated Erik Greupner.

Congratulations to the team and management on a tremendous 2020 season.

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David H. Crean, Ph.D., is a Managing Director for Objective Capital Partners, a leading investment banking advisory firm in Southern California, and the President of the Association for Corporate Growth (ACG) San Diego Chapter. ACG is the global community for middle market M&A dealmakers and business leaders focused on driving growth. ACG San Diego is "Where Deal Makers Meet". For more information on ACG Programs, Membership and Sponsorship, please visit https://www.acg.org/sandiego.

The ACG CEO Town Hall events are lead by the Chapter's Programs and Marketing Committees. Special thanks to Stuart Moss, Dorothy McLin, Olivian Pitis, John Foley, and ACG San Diego Executive Director, Judy Susser-Travis.