PHOENIX — Despite selling more tickets this season than all but one Major League Baseball team, the San Diego Padres took out a loan for about $50 million in September to address short-term cash flow issues and meet their obligations, including player payroll, people briefed on the team’s finances told The Athletic.
MLB teams commonly tap into lines of credit to pay their bills, prompting some officials in the sport to suggest any concern should be tempered because the Padres were ultimately creditworthy enough to draw the loan. But other officials briefed on the team’s finances who were not authorized to speak publicly viewed the Padres’ situation as worrisome.
“The Padres organization continues to have access to all the resources, financial and otherwise, it needs to field a championship caliber team for the fans of San Diego,” Padres CEO Erik Greupner said in a statement. “We established a capital plan for 2023 with our ownership group and lender partners and are operating our business in accordance with that plan.”
MLB and the MLPBA declined comment.
The Padres started the season with a payroll of about $250 million, third-most in baseball, and an outlier among teams that play in a similar bottom-third media market. The investment generated excitement and income: the club set a franchise record with 3.3 million tickets sold, and per a team spokesperson, finished in the top six in the sport for regular-season ticket revenue.
But in September, the Padres had a third-party lender willing to loan the club $100 million. The team asked MLB for permission to receive close to the full $100 million, according to people briefed on the team’s finances. MLB gave the team permission to draw roughly $50 million, which the league deemed a sufficient amount for the team to cover its expenses.
“If the question is, despite all that revenue growth, why would we need to be borrowing more money? I mean, you can connect those dots,” said a Padres official who was not authorized to speak publicly. “The levels of payroll that we’ve been at have probably reasonably been in excess of what we could have supported, but it was part of the larger plan.”
Owners can borrow as they see fit when doing so in their own name, but the league has standards and an approval process when loans are taken out in a team’s name. The greater a club’s pre-existing debt, the more difficult it can be to receive permission, people briefed on the process said. The Padres were carrying enough debt relative to their revenues that MLB was more cautious than it might have been in other situations.
But what is unclear is exactly what happened, or did not happen, to produce the Padres’ end-of-season shortfall, which caught some officials in the sport by surprise.
Last offseason, the Padres signed shortstop Xander Bogaerts to an 11-year, $280 million contract; pitcher Yu Darvish a six-year, $108 million extension; and third baseman Manny Machado to an 11-year, $350 million contract. Those deals helped run the club’s current estimated luxury-tax number to $296 million, according to Cot’s Contracts. Now, the Padres might be in a position where they feel a need to trade another star, Juan Soto, to better their finances.
The player costs were not unexpected entering the year, an indication that a turn of events late in the year might have exacerbated a need for the loan. The Padres official who was not authorized to speak publicly said that was not the case.
“We anticipated we may need it at some point this year,” the official said of the loan. “We’re not in crisis. We’re managing the business responsibly, we will continue to do that going forward.”
The team’s lead owner, Peter Seidler, has had health troubles recently, announcing in September that he underwent an unspecified medical procedure. Later in the month, Seidler was not one of the Padres representatives who made a presentation to the league about the club’s finances, people briefed on the meeting said.
Teams have different methods of raising money. Sometimes a team’s owner or owners can put more of their own money into the club. But the Padres are said not to have made a cash call before the $50 million loan.
“It’s not as simple as Peter saying, ‘Oh, we’re all going to put in more money because you got like 25 other people that own the club that are like ‘Hey, just because you decided to have a $270 million payroll, doesn’t mean I want to go out of my pocket to pay it,’” one person briefed on the team’s financials said. “It’s just not as simple as maybe some other situations.”
The Padres official who was not authorized to speak publicly said that the lender did not need the team’s ownership to put in additional capital in order to provide the loan. The official also said that Seidler “is engaged,” and that funding from ownership would have been available if necessary — including from Seidler.
“(It is) false that because of Peter’s condition, we are not in a position right now to do something that we otherwise need to do,” the official said.
Seidler was not available for an interview, a team spokesperson said.
The Padres’ spending has become politicized in the sport, which can complicate industry perspectives. Various parties are incentivized to make San Diego’s payroll look prudent, or not.
Any owner who spends heavily will drive up prices for other owners. But Seidler’s spending, in particular, also runs counter to a refrain favored by owners and the commissioner’s office: that teams outside of the largest markets have trouble financially competing with those inside those powerhouse markets. In effect, the Padres’ spending made other owners look bad. Some owners also believe the Padres have simply been behaving recklessly.
On the other side of the spectrum, their spending is regarded positively by the Players Association, player agents, and even some owners who want to see their peers invest more in their respective products.
Strong ticket sales often contribute to strong revenues. Only the Los Angeles Dodgers had more in 2023, at 3.4 million sold. The Padres reported 61 sellouts as well.
“The Padres’ equity has gone way up, their attendance is great — I don’t see where the issue is,” said a high-ranking executive with a rival club who was not aware of the Padres’ loan.
But teams do not typically publicize the average price point at which tickets are sold, or their total gate revenues. The Padres missed the playoffs, and the increased revenues that would have been associated with them.
Beyond MLB’s own internal measures designed to create financial stability, the players and owners collectively bargain a “Debt Service Rule,” or DSR, which is intended to ensure a team has “sufficient resources to support its level of debt or proposed debt.”
“No Club may maintain more Total Club Debt than can reasonably be supported by its EBITDA,” the CBA reads, referring to earnings before interest, taxes, depreciation and amortization.
After any given year, anywhere from a quarter to more than a third of MLB teams might be out of compliance with the rule, and the Padres project to be one such team when the 2023 accounting is completed, people briefed on their finances said. It would not be the first time in recent years the Padres were technically out of compliance.
Most often, no formal remedial measures are taken. As a first step, a team tells the league how it plans to handle the debt. If the team then doesn’t succeed in those efforts, technically, the commissioner, in consultation with the union, has the power to issue discipline.
But that’s not known to have ever happened over a debt-service issue. Instead, on a handful of occasions, MLB has put teams on a formal, remedial plan under the CBA where they’re essentially pushed to reduce their debt. The Rangers were said to be one such team, while under previous ownership.
It’s unclear whether the Padres will wind up with a formal get-out-of-debt plan under the CBA. That would not happen until December or January, once year-end financial reports are prepared, people briefed on that process said.
An informal plan could be sufficient for the league, however. In the September meeting with MLB, Padres officials discussed how they plan to improve their financial situation ahead of the 2024 season.
According to officials briefed on the team’s thinking, payroll in 2024 is expected to be closer to $200 million. The team might need to trade Soto to reach that goal. Soto remains unlikely to sign an extension and could be due more than $30 million in his final season before free agency.
Commissioner Rob Manfred has publicly cast a skeptical eye toward the Padres before.
“Look, I think there’s real positives in the Padres story,’’ Manfred said at a February press conference. “I think that the investment that the club has made in talent has allowed them to grow their revenue to the point that they will be a payor under the revenue-sharing system this year.
“The trick for the smaller markets has always been sustainability. Hats off to Peter Seidler. He’s made a massive financial commitment, personally, to make this all happen. And the question becomes, how long can you continue to do that?”
(Top photo of Petco Park, where the Padres reported 61 sellouts this season: Matt Thomas / San Diego Padres / Getty Images)