Kevin Acee sat down with the ownership group of the Padres and comes away with an in-depth look at the state of the team’s finances. The group just bought out a large piece of debt that gives them more payroll flexibility:

With a $15 million cash call from ownership and a portion of the proceeds from a one-time MLB payment, the Padres paid a $28 million make-whole penalty as part of the 2017 refinance. That steep price was up to $40 million lower than the penalty would have been had it been paid sooner.

The refinance allowed the Padres to decrease the percentage of their annual budget that goes to interest payments — from about 5 percent to about 2 percent, a difference of $8 million per year between 2015 ($12.6 million) and ’18 ($4.3 million) — and thus go forward drawing on their line of credit at a much lower interest rate with fewer restrictions. The refinanced debt also includes much lower minimum principal payments, which adds to the Padres’ financial flexibility.

“It was ransom,” Fowler said.

He referred to the terms and interest rate on the $130 million debts/bonds balance for Petco Park and the parkade construction. Moores, mired in other financial bogs outside baseball, had been compelled in 2004 to agree to backing from bondholders that included a retirement fund and insurance companies at a blended rate of 8.5 percent, about double the prime rate at the time.
Getting out from under that mountain has been Fowler’s Everest.

San Diego Union-Tribune

The article goes on to what proportions of revenue are devoted to play salaries, maintenance of the park, baseball operations, etc. It is well worth the read to get a handle on not only how the Padres operate (and the mistakes they’ve made along the way), but what other teams likely face as well.

The bottom line, however, is can ownership turn this financial flexibility into winning:

Out of the ashes of 2015, the Padres created an entirely new plan.

Foremost, that required a $79.8 million expenditure in the international market in 2016 — $42.3 million in signing bonuses paid to teenagers from Latin American countries and a $37.5 million penalty for going over their allotted pool of money to do so. Additionally, the Padres paid almost $13 million in bonuses to their amateur draft picks that season. (To help pay the overage penalty, they made a cash call to all members of the ownership group, to the tune of $20 million.)

The idea was a number of the highly touted young players would be ready to make up the bulk of a contending team by 2020 or ’21, about the time the Padres would have the financial freedom to round out the roster. Further, the continual re-stocking of the system is meant to make winning a perennial possibility.

The Padres put themselves in a financial position to succeed. Now they need to execute.