Redbirds, Red Ink

As Opening Day nears, the business of baseball at AutoZone Park is getting a big change-up.

| March 04, 2010
Ray Pohlman and John Pontius
- Justin Fox Burks
Ray Pohlman and John Pontius
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In some respects, 2009 was a dream year for the Memphis Redbirds. Playing their 10th season in downtown's luxurious AutoZone Park, the St. Louis Cardinals' Triple-A affiliate clinched a playoff berth in the last week of the season, then swept both Albuquerque and Sacramento to win the Pacific Coast League championship. Despite trades that sent two of the Cardinals' top prospects (Brett Wallace and Jess Todd) packing, the home team excelled in July and August (going 34-25) and can now raise its first pennant since AutoZone Park's inaugural 2000 season.

But off the diamond, the 2009 campaign was hardly championship caliber. A month before opening day, the franchise's management arm — Blues City Baseball — defaulted on its scheduled payment of $1.625 million to U.S. Bank, the trustee for the $72 million in tax-exempt bonds issued to build AutoZone Park in 1998. The club has three scheduled payments totaling $5.4 million each year. It was the first such default since the stadium opened but not the last. The next scheduled payment (September 1st) wasn't made either. And now, the Redbirds will open the 2010 season under a forbearance agreement (an agreement to postpone, reduce, or suspend payment due on a loan for a limited and specific time period).

At the behest of U.S. Bank, the Memphis Redbirds Baseball Foundation — owners of both the franchise and ballpark — replaced Blues City Baseball last July with its own hand-picked management group, Global Spectrum (a division of Comcast-Spectator). Not only did the transition mean the end in Memphis for longtime Redbird decision-makers like Dave Chase (president) and Pete Rizzo (senior vice president of sales), it severed ties between the Redbirds and the Jernigan family. The "finest ballpark ever built below the major-league level" no longer has a connection to Dean and Kristi Jernigan, whose vision determined the location and scale of AutoZone Park during a time of great uncertainty in the local baseball community. (The Double-A Memphis Chicks left for Jackson, Tennessee, after the 1997 season.)

Winning baseball games — championships, even — is one thing. Making a profit with the national pastime, clearly, is another challenge entirely. But the show will go on this season, despite ink as red as the home team's caps.

You could call the construction of AutoZonePark a victory of architectural vision over economic reality. Building a baseball stadium on the scale envisioned by the Jernigans and other key players (such as designers Looney Ricks Kiss and HOK Sport) had simply never been done before. More than just size, the ballpark's grand brick exterior and two levels of suites added costs no minor-league ballpark had ever absorbed. (Even stadiums built around the same time, like Triple-A parks in Oklahoma City, Sacramento, and Round Rock, Texas, were built at less than half the cost of AutoZone Park.) The Jernigans anticipated the debt responsibility and, through Blues City Baseball (the for-profit arm of the Redbirds, created when the franchise was formed), guaranteed coverage of losses. (The Jernigans, it should be noted, invested a significant portion of their personal resources to keep the ballpark operating.) For the better part of a decade, each of those thrice-yearly debt payments was made on schedule, though not without the recognition that the cash-flow reality at Third and Union wasn't sustainable.

John Pontius is treasurer of the Memphis Redbirds Baseball Foundation. As president of Pittco Management (a for-profit division of the Hyde Family Foundation), Pontius, a financial analyst, recognized from the day he joined the Redbirds Foundation more than four years ago that the financial scales simply weren't balanced and would not become balanced under the status quo.

"The business model failed," says Pontius, "in that the debt was way in excess of what could be supported by the revenue of a minor-league baseball team. Most other Triple-A franchises would pay rent to their municipally owned stadium in the neighborhood of $500,000 to $1 million [a year]." Pontius points out that, thanks to dedicated streams of revenue from the stadium's 47 suites — $1.45 million in revenue is expected this year — AutoZone Park has remained near the top of all minor-league baseball in revenue, despite attendance that has plummeted over the last decade. (474,764 tickets were sold in 2009, compared with 696,083 in 2005 and 859,851 in the inaugural 2000 season). But even at a level that would be the envy of scores of minor-league clubs, revenues weren't enough to pay down the cost of the ballpark.

Dave Chase served seven years as president and general manager of the Redbirds. But as an employee of Blues City Baseball, Chase was a casualty in the management transition. Having worked in professional baseball since the late Seventies, he took a considerable amount of institutional memory with him.

"AutoZone Park is really a year-round facility," says Chase. "It has tons of interior space. Most ballparks don't have that. It's built like a major-league park. Other than the number of seats, all the amenities, the super-structure underneath — it's major league. The club level is outrageous, the number of suites. Ballparks in Indianapolis and Louisville, for instance, are just smaller versions of AutoZone Park, and they're not year-round facilities.

"The Jernigans wanted AutoZone Park to exceed everyone's imagination," adds Chase. "We always had these dreams in Memphis and never fulfilled them. And even now, there are people who go [to the park] and say, 'I can't believe this is in Memphis.'"

Pontius describes the break with Blues City Baseball and the Jernigans as harmonious. "It was certainly understood," he says. "We had defaulted on our first bond payment [in March 2009]. That's no different than you defaulting on your home loan. We missed our mortgage payment."

With more than $50 million still owed the bond-holders, the decision to change management structure was automatic, if not easy. While the Redbirds Foundation was technically in default on the bond payments, Blues City Baseball was in default on its guarantee agreement to fund the losses. "The bond-holders had the right to require us to replace managers if they were in default," says Pontius. "And they did. The Jernigans recognized this. There was little controversy."

Why no interruption to the baseball schedule? "We agreed with our lenders," explains Pontius, "that a continuation of baseball as transparent to the fans as possible was not only of primary importance but in the best interest of everyone. We have this nice ballpark; the franchise needs to continue here."

Ray Pohlman — a vice president with AutoZone and current president of the Redbirds Foundation — points out that the recent recession, while affecting the turnstile count, hasn't had that big an effect on the financial structure at Third and Union. "Our attendance was down last year," he says, "but it was down everywhere. [More ticket sales] would not have made a difference."

"There was, and should have been, an expected decline from the early years at the ballpark," adds Pontius. "The newness wears off. Memphis did exceptionally well with season tickets in the early years, because people wanted to be part of the Redbirds. But there are 72 home games. And most people came to realize it's a big ballpark, and you don't need to own tickets to 72 games when you're probably not going to make but 20. We replaced a lot of those season ticket packages with power packs [covering a reduced number of games] or individual tickets."

"When the park opened, it was a community play," says Pohlman. "Everybody wanted to be a part of AutoZone Park. Dean and Kristi did a great job of selling that. But we struggled like [other minor-league franchises]: How do you make sure season-ticket holders actually use their tickets?"

It's one thing to bring in, say, $20 for a sold ticket. It's quite another to sell that ticket-holder $30 of concessions and merchandise. "That's a bigger component of revenue streams in minor-league baseball — as a percent of the total — than it is in major-league baseball," says Pontius. "Because the game is not of the same consequence. It's easier to get up from your seat and participate in the activities." (The Redbirds don't earn any revenues in parking revenue; the various garages and lots that surround the ballpark are all independently owned.)

To the rescue, at least temporarily, is Global Spectrum, a facilities management firm based in Philadelphia that has operated Citizens Bank Park (home to the Philadelphia Phillies) and University of Phoenix Stadium (home to the Arizona Cardinals of the National Football League), along with minor-league hockey and baseball facilities. Strictly a "fee manager," as Pontius describes them, Global Spectrum is charged with bringing operating finances closer to balance. Atop the local team is new general manager Ben Weiss, a 31-year-old native of Allentown, Pennsylvania, and former general manager of the Mullins Center in Amherst, Massachusetts (home to the University of Massachusetts basketball and hockey teams).

"They've brought a new perspective to the market," says Pohlman. "The bond-holders recommended them, and we did some due diligence and agreed. They're looking for new opportunities from a marketing perspective. If they're successful, when you go to the ballpark on April 16th [Opening Day], you'll see some changes."

Between the twin challenges of driving revenue and controlling costs, Pontius says Global Spectrum's emphasis will be on the former. "This is a revenue turnaround," he emphasizes. "Previous management, recognizing the losses that we were generating, had for years done things to control the cost side of the business, and I think they did a reasonable job. I don't think there was a lot of low-hanging fruit on the expense-reduction side. To improve the bottom line, it will be revenue-oriented."

"That includes ticket sales, group sales, sponsorships, advertising, all those traditional revenue sources," adds Pohlman. "And special events. It's a baseball-only facility, but over the years we've had a concert or two, and they generate revenue. But that market's down, too. There aren't many tours. You really need a performer — like Willie Nelson or Dave Matthews — who wants to do outdoor venues and specifically a ballpark. It's also a great place for corporate outings."

When it opened in April 2000, AutoZone Park was the centerpiece in an entertainment revolution downtown. But that landscape has changed. "When the Redbirds first jumped into this market," notes Chase, "they were raking in revenue hand over fist, and there was no NBA team. Dean was a big booster for the NBA coming here and was very involved in making that happen. But in the first year the Grizzlies were here, it probably cost us $1 million in sponsorship revenue. There were multi-year deals that weren't renewed with us. Our official position was that whatever's good for downtown is good for all of us. But none of us predicted the economic downturn. The Redbirds needed everything to be perfect from day one and stay that way for 30 years."

The cloud of the park's cost cast a shadow over the work Chase and his colleagues put in. "The biggest challenge of going to work there every day," says Chase, "was knowing that none of us could solve [the budget problem]. None of us could write the check. My job became keeping the darn thing on the tracks the best I can, play the games, keep the ballpark clean."

Debt obligation aside, Chase's successor sees his challenge as similar to those he faced in stints at the Wachovia Center (in Philadelphia) and the Mullins Center. "We have to sell more tickets and more advertising," says Weiss. "When I got here, the first thing I did was look at our ticket packages and see how consumers are reacting to them. How do we get the casual fan to come back, the families?"

The Redbirds recently invited eight season-ticket holders to participate in a focus group on how to improve game day at AutoZone Park. Weiss says there were few complaints but that there will be some new on-field entertainment ideas for 2010 — in addition to 14 fireworks nights. But Weiss emphasizes the ballpark will not become a "circus." He says there will be a series of community nights that aims to engage various slices of the regional market and reconnect them to Redbirds baseball. "We want to work with local community leaders," says Weiss, "and tell them, hey, this is your night."

When it comes to ad sales, Weiss acknowledges new strategies are required for a "new economy." "It's so hard to get the sponsorship dollars these days," he says. "Five, 10 years ago, people would give you X amount of dollars to put signage on the scoreboard. Now, they want activation, fan engagement. We've had to work really hard to renew some of our five- and six-year deals. It's about finding what works for [the advertiser], making sure we can deliver, that we don't over-promise. We're finding that you have to work harder to hit your goals."

Adds Weiss, "One of our marketing guys is always saying, 'Let's make the good nights better.' When we do have 14,000 people down here, they [need to] have a great time, go home and tell everyone they know."

Pohlman sees rejuvenation of community-wide interest in AutoZone Park as critical to the future of the franchise. "There are two reasons why this whole project started," he says. "One was to revitalize downtown, and the other was to return baseball to the inner city. We think we've accomplished the first one. AutoZone Park was a significant catalyst to the revitalization of downtown. I can't tell you how many people I've met who had never been downtown until we built the ballpark. I think the Grizzlies would tell you the same thing. They wouldn't have relocated here. And even through our economic issues, we've been able to maintain the RBI program."

As Blues City Baseball was being replaced by Global Spectrum last July, the Redbirds endured a public-relations nightmare involving the youth baseball programs funded by the Redbirds Foundation. A decision was made by the outgoing management team to cancel the remaining playoff games in the RBI (Returning Baseball to the Inner-city) program. Later, RBI coaches claimed that they hadn't been paid. The perception was that Memphis kids were the first to suffer when the Redbirds' financial house began to crumble.

Pontius and Pohlman say that RBI and its companion program, STRIPES (Sports Teams Returning in the Public Education System), remain a part of the Redbirds' future in the community and that last year's canceled playoffs were a misguided casualty of the management transition.

"The decision to not play those final games was a bad decision," says Pontius. "It was made in the middle of a very difficult transition from one management team to another. Obviously, if anyone had the ability to make that decision over again, they'd make it differently.

"The programs have been successful," he continues. "They're well conceived. They could be better funded. We haven't been able to fund them the way we'd like to."

According to Pohlman, more than 1,200 kids participated in the RBI program in 2009, at 14 sites and at five levels of play. Similar numbers are expected this year.

Pontius notes that the RBI program preceded AutoZone Park. The program was originally backed by Idlewild Presbyterian Church (where Pontius is a member). "Idlewild has had great outreach in the inner-city," says Pohlman. "This was just an extension of that."

"Everyone [with the Redbirds] has been committed to the children from the beginning," stresses Pontius. "If we were in better financial straits, it would be a lot easier to do a better job. But we remain committed to the effort."

Fifteen Blues City Baseball employees — roughly half the staff — were retained when Global Spectrum was hired, with the most significant turnover in the Redbirds' sales staff. "Because Global Spectrum had an advanced system and processes that they employed at their various sites," explains Pontius, "it was logical that they would bring in people who were trained in those systems and processes." But however big an impact the new management makes on the bottom line, new ownership of the franchise is the ultimate goal for all concerned.

The St. Louis Cardinals went deep into negotiations with the Redbirds about the possibility of purchasing the franchise and ballpark last year, only to shy away with concerns over the economy and budget details. The Redbirds' player-development agreement with the Cardinals runs through 2012, and both Pontius and Pohlman see the affiliation as a major selling point. "I believe the Cardinals value being here for their business as much as we value them being here for ours," says Pontius. Whether or not the Cardinals are involved in discussions, though, a sale must go down.

"[The Cardinals' affiliation] is a positive but not a critical factor in finding a new owner," adds Pontius. "It's more the ballpark, the location, the fan base.

"The search is just beginning. We've been doing this in a more intimate manner than we were when we were making our bond payments. [The bond-holders'] understanding of their collateral is better and what they're selling. A sale will not yield them full payment; that's a given. They're looking at a reasonably significant discount for what they're owed, because the business model was flawed. We now know what revenue streams can be expected. So the process is to find a new owner, come to the bond-holders with fresh cash, and let them go on and do something else with the money. But it'll be at a discount."

The new buyer, presumably, won't be a not-for-profit entity. So the dynamic of the Redbirds' role in Memphis — and in the city's business community — will change when the club is sold. "There are only minor differences between a not-for-profit corporation and a for-profit corporation," says Pontius. "They just have a different tax status. Now, we don't have shareholders. We always viewed the community as our shareholders.

"We're looking for a quality owner, one who wants to operate the team in a quality manner, the way fans have grown to expect. And that includes participation in our charitable activities."

Pontius says the club has been approached by "half a dozen" interested parties in recent years, most of them before the team was for sale. The Redbirds Foundation will be revisiting some of these parties. "As it is for most businesses these days," says Pontius, "the market is thinner. But there is a market."

And for now, at least, it's time to play ball.

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Ben Weiss
Ben Weiss
- Justin Fox Burks

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I would like to comment on the RBI season's playoffs being canceled last summer. The decision to cancel the playoffs were made because the transportation company, First Student, had not been paid by the Redbirds for several weeks and as a result, the buses were not allowed to pick up the RBI participants. To say that the decision was a "bad decision" is not a fair statement. The decision to cancel the playoffs were unavoidable and certainly regrettable. Had the Redbirds made payments or been in reasonable contact with the bus company maybe the decision to cancel could have been avoided. It is not fair to those who were involved in that decision making process to say that it was a bad decision. There were no other options for the decision makers in the process.

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Posted by dreason21 on 03/13/2010 at 10:48 PM
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