|Tuesday, August 19
Updated: September 1, 1:52 PM ET
Blue Jays challenged by the dollar
By Darren Rovell
Paul Godfrey thumbs through the rest of his morning paper at a slower pace than most sports executives.
While statistics and standings matter to the president and chief executive of the Toronto Blue Jays, so too does the exchange rate.
"The dollar can be our greatest demon," Godfrey said. "I look at the box scores, but I also make sure I look at the business pages."
It's the factor that 28 other baseball teams don't have to worry about. It's a major component that makes it virtually impossible to do future business in Montreal. Each cent of fluctuation between the value of the Canadian and U.S. dollar means a $400,000 swing, Godfrey said.
Godfrey, the former chairman of metropolitan Toronto, knows that at its 2002 height, the Loon was worth a measly two-thirds of a U.S. dollar. Its mid-August 2003 value is thankfully up to 72 cents.
"It's among the worst things all teams in Canada face," Godfrey said. "But because in baseball there are more games than in basketball and hockey, you are more dependent on the dollar-to-dollar relationship. When you have 80 percent of your expenses (payroll, farm system, travel and scouting) in U.S. dollars and 70 percent of your revenues (ticket sales, local television rights and sponsorship) in Canadian dollars, you're behind from the start."
The Blue Jays aren't going the way of the Expos anytime soon. But they're not as financially healthy as the Toronto Raptors, who were left as the NBA's only Canadian team when the Vancouver Grizzlies left for Memphis two years ago. The only time the Blue Jays approached the fever the city has for their Maple Leafs was 10 years ago.
In 1993, the Blue Jays had a league-high payroll of $45.7 million. But the team, which won the World Series that year, was also drawing an unprecedented four million fans for the third straight season. The only other team that has ever been seen by four million fans in one season at home was the 1993 expansion Colorado Rockies.
The Jays haven't made the postseason since then, the Skydome is less than half full for home games and they've endured some of the highest operating losses in all of baseball at more than $50 million per year for the last two seasons.
The team's outlook is one of the reasons why Canadian media mogul Ted Rogers was able to buy 80 percent for a bargain basement $112 million three years ago.
While Rogers bought the Blue Jays partly to serve as a content provider for his Sportsnet television network (the Blue Jays have 120 games scheduled on the station this year), he won't tolerate major financial losses.
Because Rogers wants to be able to break even in the next couple years, the "build young, lower payroll" mantra will now apply to the Blue Jays. Payroll was chopped by $25 million, the second most drastic reduction in the league, in order to cut losses in half. Next year, payroll is targeted to be around $50 million -- which is what the team has averaged in salary over the past 12 seasons.
But whether fans will come to the ballpark depends on winning. That's the job of general manager J.P. Ricciardi. Ricciardi, who was hired last year after 15 years of working with the Oakland A's, will soon be depending on young, cheap talented pitchers like Jason Arnold and David Bush and perhaps an outfield including prospects like Alexis Rios and John-Ford Griffin to complement the likes of Eric Hinske and Orlando Hudson.
As the Blue Jays found out in the past, stars don't sell fans if the team itself isn't successful. The current management is wary of making too many promises in order to convince fans that baseball should receive a fraction of the attention that hockey gets in Canada's largest city.
"The easy thing to do in the past was to tell our fans that we were one or two players away from winning it all," said Godfrey, who was named club president and CEO in September, 2000. "We were never one or two players away. We just had overpaid underachievers. The best marketing tool is to have a winning ball club. Roger Clemens won two Cy Young Awards in Toronto (in 1997 and 1998) and the crowds went up minimally when he pitched. People love Carlos Delgado, Vernon Wells and Roy Halladay, but the best marketing tool is a winning ball club."
Attendance is up by roughly 3,000 fans per game from last year, but that difference could quickly plummet if the Blue Jays -- who are 12-17 in the second half of the season -- continue their losing ways.
"A lot of people in this city are Blue Jays fans, not baseball fans," said Jeffrey Citron, a Toronto-based corporate finance attorney and sports business consultant. "That means if they're not winning, many people aren't going to come."
The team should have been able to capitalize more on their fast start this year, but were held back because of the SARS scare. On April 23, the World Health Organization (WHO) told travelers to try to avoid Toronto as a result of the outbreak.
On April 29, the Blue Jays sold out the Sky Dome by selling $1 (Canadian) tickets for a game against the Texas Rangers.
The next day, the notice was lifted after city officials disputed that the notice should have been issued in the first place. But Toronto -- which had the largest outbreak outside of Asia -- remained on the WHO's infected areas list through June.
Team finances are still being affected by the April advisory.
"Toronto was kicked in the teeth and we probably have lost about $3 million to date because of it," Godfrey said. "U.S. visitors make up about 20 percent of our July crowd and this year, they only accounted for 5 percent."
Blue Jays officials are encouraged that interest in the team is up. Despite a mediocre July, 100,000 more viewers per game watched games on Sportsnet last month than those that watched games in July 2002. TSN-broadcast games in July are also up by about 100,000 viewers per game as compared to a similar time last season.
In order to stay on a solid financial footing, the Jays will need some help from Major League Baseball. Not only are they expecting about $3 million more this year from the increased revenue sharing, but they are hoping to receive at least $5 million in a currency equalization plan.
Baseball gave the team $5 million last season, a figure Godfrey calls "nowhere close to what we need." The team and the commissioner's office is currently working on a long-term formula that will take into account an average conversion rate, but the Blue Jays in exchange might have to allocate a certain number of dollars toward payroll and marketing to prove that they are making an effort.
Marketing is a touchy situation at 1 Blue Jays Way -- where the Skydome sits. That's because the Blue Jays have one of the most complex and least beneficial leases in the entire professional sports world.
They get 18 percent of concession sales, while most teams in a leased building usually make at least double that. Skydome advertising is split 50/50 with Sportsco, which owns the facility, if the signage is on television. But if the signage is not seen by the television viewer, the team only makes 15 percent of that revenue.
The team makes money off the sales of box seats, but the top revenue generators, club seats and luxury boxes, are property of Sportsco.
"Instead of one for profit, it's two for profit," Godfrey said. "Were competing against each other for the fan and it's a very awkward situation."
Another revenue stream -- naming rights -- is also not available to the Jays. The team must approve the name, but it is not entitled to any compensation from the deal.
Blue Jays officials can suggest that Sportsco -- which bought the building in 1999 for $80 million -- make at least $10 million worth of touching up to the 14-year-old facility, but they can't make them do anything throughout the course of their lease, which expires after the 2008 season.
"The stadium is as big of an issue as the currency is," Citron said. "They can't even market the team the way they want to and they can't do anything to improve the building."
"In order for us to make the red ink disappear, we have to spend less and still win," Godfrey said. "I think that's very realistic."
To make serious money, perhaps the Blue Jays have to be so successful on the field that fans will be willing to give them money with George Washington's face on it.
Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.email@example.com.