Cards’ AAA Affiliate Shines On The Field, But Financial Problems Loom

The St. Louis Cardinals’ farm system is the envy of the league. ESPN’s Keith Law recently ranked the Cardinals’ minor-league teams Number 1 in his annual farm-system rankings, with Shelby Miller, Trevor Rosenthal and Oscar Tavares all in Law’s Top 100 prospects. Baseball America agreed.

But all is not well for the Cardinals’ Triple-A affiliate Memphis Redbirds of the Pacific Coast League. Their story is a warning that, even in a baseball-loving town, it isn’t always true that “if you build it, they will come.”

The Redbirds play in AutoZone Park in downtown Memphis. The ballpark, built in 2000, is nestled between high-rise office buildings not far from the Mississippi River. AutoZone Park is considered a jewel among minor-league ballparks. Baseball America named it the 2009 Minor League Ballpark of the Year. There are wide concourses, club seating, luxury suites and open-air party decks. It cost $80 million to build — a high price tag for a minor league ballpark.

And now, it’s awash in a sea of debt.

The Redbirds are owned by a local non-profit organization called the Memphis Redbirds Foundation. The Foundation was established by Dean Jerrigan, at the time the CEO of Storage USA and his wife. They financed the ballpark’s construction with nearly $80 million in tax-free bonds. The idea was to generate enough revenue to pay the annual debt on the bonds and funnel any remaining profits into inner-city baseball projects.

In it’s first season, AutoZone Park welcomed more than 800,000 fans. That was the high water mark. With a downturn in the economy and competition from newly-relocated Memphis Grizzlies of the NBA, corporate sponsorships dried up and attendance declined. The Foundation fell behind on its bills.

The low point came in 2009 when the Foundation missed a $1.625 million bond payment. The bond holders ousted the Redbird’s management team from Blues City Baseball — also owned by Jerrigan — and brought in Philadelphia-based Global Spectrum, a venue-management company owned by Comcast. Global Spectrum installed one of their executives, Ben Weiss, as the Redbirds’ general manager. But the changes didn’t come fast enough for the bond holders. In 2010, they sold the bond debt at a deep discount to the New York-based private equity firm Fundamental Advisors.

And that’s where the story gets interesting.

Over the last few seasons, Weiss has started to turn things around for the Redbirds. He beefed up the sales and promotions team and saw attendance rise. Ticket sales topped 500,000 in 2011 for the first time in years and rose again in 2012. Fundamental Advisors — the bond holder — has agreed to forgo debt payments on the bonds while Weiss works to strengthen the Redbirds’ finances.

With the team’s finances beginning to stabilize, the Foundation would like to sell the Redbirds. The two most talked-about potential buyers: the Cardinals and the city of Memphis. The Cardinals reportedly looked into purchasing its affiliate but opted against it. That’s not unusual. The Atlanta Braves are the only major-league franchise that owns its Triple-A club, the Gwinnett Braves. All other Triple-A affiliates — and most other minor-league teams — are connected to their major-league franchises through a player development contract. The Cardinals recently renewed its PDC with the Redbirds through the 2014 season.

An oft-floated idea — according to the Memphis Commercial Appeal — is for the city of Memphis to create a ballpark authority or similar entity to issue new bonds to finance a purchase of AutoZone Park and the team, under private ownership, would pay rent to the city. As the newspaper notes, that’s “the way many ballparks across the country are operated.” Indeed, it’s also the way for taxpayers to be left holding the short end of the stick.

It’s not at all clear, however, that Fundamental Advisors has any intention of selling AutoZone Park anytime soon. Fundamental Advisors is a niche private-equity firm in that it invests entirely in distressed assets financed by municipal bonds — i.e., public-works projects like affordable housing, health-care facilities and stadiums. According to The Deal magazine, Fundamental’s founder and CEO, Laurence Gottlieb, invests in these properties not only to make money, but to restore a public asset for the benefit of the community. Gottlieb told The Deal last September that Autozone Park was still a “needy asset,” suggesting that Fundamental intended to hold onto that investment a while longer.

That may be good a very good thing for city of Memphis and Redbirds fans.

 




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Wendy is also a contributing writer for Sports on Earth. Her writing has appeared on ESPN.com, Baseball Nation, Bay Area Sports Guy, The Score, The Classical and San Francisco Magazine. Wendy practiced law for 18 years before beginning her writing career. You can find her work at wendythurm.pressfolios.com and follow her on Twitter @hangingsliders.

21 Responses to “Cards’ AAA Affiliate Shines On The Field, But Financial Problems Loom”

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  1. Chad says:

    As a former Memphis resident, I have to say it’s a shame. It’s a wonderful stadium and the Redbirds are generally a competitive team. But the city of Memphis is just not in a good place financially.

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  2. Bob Arnold says:

    I agree; it is a wonderful stadium. If you are ever in Memphis, you absolutely need to try and catch a game–especially on a fireworks night. Their post-game show is spectacular.

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  3. Cliff says:

    Does FA own the park? The just own the bonds, right? Why would they not allow the stadium to be sold to the city, surely the city is more likely to repay than the Foundation?

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    • Jake says:

      When a company is in default (meaning they missed a debt payment) it means the creditor has the right to seize the asset as payment, and can use that leverage to demand institutional changes (giving them de facto control). Looks like this is what the bond holders did, then they sold those rights to Fundamental Advisors, who will control everything as long as the Redbirds are in default.

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  4. gnomez says:

    As another interesting note, I believe that Memphis is the only affiliate the Cardinals don’t own.

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  5. Jason says:

    This seems like a great opportunity for the Angels to restock their farm system.

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  6. fergie348 says:

    Big shout out to Wendy for continuing to dig into the financial aspects of MLB. I’m a huge fan of this kind of reporting..

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  7. Todd says:

    gnomez, without doing research, I’m pretty certain their Low A affiliate switched locations this year due to the contract being up. They may own the other ones though.

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  8. Was the foundation the owner of just the team or also the ball park? If the ball park, how did they finangle the issuance of tax free bonds? Nonprofits cant issue those alone, I think they need some public entity’s backing, which should be in the form of publicly controlled revenue source. Are the taxpayers already on the hook?

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  9. KJOK says:

    It’s my understanding that the Cardinals were VERY close to buying the team, but backed out due to the debt load.

    The Cardinals do own their AA Springfield team, but I think that’s the only one they own outright.

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  10. ineedanap says:

    I love you, Wendy.

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