UTK Special 3/2/23

Machado's Signing a Sign of Things To Come?

Manny Machado extended his stay with the Padres with a complicated and long term deal. There’s something in here for everyone. For Machado, it’s a lot of money, guaranteed, that will keep his family comfortable for generations. For the Padres, they get a top tier player and clubhouse leader for an extended period in the midst of both a winning window and one where they’re trying to court favor with potential extensions and future signings like Juan Soto and Shohei Ohtani.

Wait, you don’t think the Seidler-led Padres will be in the discussion on Ohtani, perhaps baseball’s biggest star? Surely, money set aside, at least in theory, for Soto will be all the Padres can spend in what former owners and commissioners insisted to all of us was one of those dreaded “small markets.”

Instead, it was just small owners. (Hi, Bob. Hi, Dick.)

Peter Seidler, now the face of the franchise, seems friendly and likable, despite being one of those dreaded private equity billionaires. He has baseball in his blood from the O’Malleys and a mustache that seems worthy of Daniel Plainview. As the video above shows, he’s also a man of his word. “I drink it up, Monfort!”

Seidler’s firm might not own too many big names - save Rawlings, the company that makes the ball the league plays with, in partnership with MLB. Most of SEP’s holdings are things like Quick Quack Car Wash, Grace Loves Lace (a bridal wear company), and The Wheel Group (you know, wheels.) One of their largest holdings, Sportsman’s Warehouse, was to be sold to Bass Pro Shops, but the deal was blocked by the FTC, cutting off a $785m deal.

But the Padres are now a billion dollar company, something the Seidlers could sell if they wished, but they don’t appear to wish that at all. They appear to want divisions, pennants, and rings, and like the private equity Dodgers, this PE-fueled firm is not out of cash. The Seidlers don’t have extended partner networks to convince, stadium issues, or competing holdings to watch across the Atlantic.

Indeed, they may be in a unique position to understand where this is all going, both baseball as a game and as a business. Add in an historical perspective likely in place from their youth and I think what the Seidlers are doing is not only smart, but knowingly prescient. I believe that the Seidlers see the money coming because it’s them, or someone like them.

Private equity and its cousin, the hedge fund, is largely responsible for many of the fortunes currently in the sports world. Big money - Musk, Bezos, Gates, et al - have largely stayed out of sports because they didn’t need the fame. Jerry Jones buys the Cowboys because it makes him much more famous than natural gas fields. Jim Crane wasn’t well known for trucking, just rich, which let him buy the Astros. You probably didn’t know the Seidlers or Seidler Equity, despite them being baseball royalty. You didn’t know Mark Walter, Todd Boehly, or Guggenheim or Eldridge, and even now probably couldn’t match the fund to the person. There’s so much overlap, it’s barely necessary.

I could go on with the money in the game, but it’s the money outside the game, for now, that’s key here. While private equity is open in other sports and in firm control of European sports and their valuable rights and properties, it’s yet to really take hold in US sports. Given the issues with TV rights and RSN’s - covered elsewhere very well by Maury Brown - this is an area where PE could nudge the door open.

Once in, PE will want a cut and not just of a team, but teams. PE likes portfolios and owners like silent partners. Buying five percent of several teams might seem like a conflict of interest, but if the firm doesn’t have a say, everyone’s happy. Minority partners can cash out at good values, if they so choose, and majority partners have one less person to hear out, aside from when the distributions come.

Suffice it to say, I don’t buy that baseball teams lose money over the long term. I’m sure any team can work the books or overspend in a year, but as Don Van Natta’s breakdown of how Daniel Snyder massaged the books in Washington, without even his super-savvy partners being aware (Fred Smith, the founder of FedEx, is no noob, even if he was a bit over a barrel with his son seeking a head coaching job.) If they’re not losing money, they could be generating it, creating that precious flow through the books of a private equity firm. Even if the Reds are down this year, the Twins are up and the cash flows like a river.

Once that PE money flows in, values go up. Infusions will happen, credit will be written, and some will walk away with a nice return on a previous investment. Owning 51 percent of a team will still have a big value, but that other 49 will become simply a part of a portfolio for the Blackstones, Bridgewaters, Carlyles, and don’t get me started if the Saudis or Qataris get involved.

Peter Seidler lives in that world and while he might be a small fish relatively, he’s a successful one. He understands baseball and business in a way few likely do, and he’s seen fit to spend hard, right now. I believe it’s because he believes there’s a reward, even beyond the ring and the family tradition. I believe he has a straw ready.