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Posted: April 01, 2011

Rough diamonds

A look back at the Monfort brothers on the eve of Rocktober

David Lewis and Eric Peterson

Editor's note: When David Lewis and Eric Peterson took on the task of writing about the business model Charlie and Dick Monfort had developed for the Colorado Rockies, the best we hoped for was that the team would still be viable by the time our September 2007 issue went to press. Years of losing seasons made us wonder whether that be too late for the story to attract much interest. But our timing proved prophetic: Sure, the Rockies in their first World Series appearance lost four straight to the Boston Red Sox, but baseball fever came to Denver and made a city believe in the boys of summer.

Charlie and Dick Monfort without a doubt are the most reviled, despised, maligned, smeared and slandered businessmen in the Rocky Mountain region this side of Joe Nacchio.

That is because the Monfort brothers run the Colorado Rockies Baseball Club Ltd., not an ordinary business. And it is because losing, like the Rockies, might be even worse than cheating, à la the deposed Qwest CEO. Fans and the press have screamed for majority owners Dick and Charlie Monfort to sell the team and fire just about everybody, most notably General Manager Dan O¹Dowd. Some even argue ownership has abused what amounts to apublic trust in taxpayer-funded Coors Field.

And the sporting press, notably The Denver Post, has been merciless. A May column by Post scribe Mark Kiszla was headlined, "Rockies Owners Must Go ..Monforts Should Do the Right Thing and Sell the Rockies," one of many along that line. And this is not to mention the vitriol uncorked by frustrated fans on talk radio and the Internet on sites such as MonfortsMustSell.com.

And yet, in a rare sit-down in late July at their spacious Coors Field offices, the brothers Monfort seem positively buoyant, eager to talk about their business -- within limits, of course, because while baseball is a public business it also is a very private business.

Chairman and CEO Charles K. Monfort fetches a cup of coffee and sits relaxed in a chair in his orderly office, energetic and entrepreneurial. He vigorously defends the Rockies¹ trajectory, mainly on the basis of management¹s focus on fiscal sanity and player development. Dick Monfort, solid and straightforward, seems like the sober numbers guy, a commonsense businessman who, incidentally, carries not an iPhone or other premium brand, but a Sanyo cell phone that not long ago Qwest gave away with new accounts.

Such frugality may have been a lesson learned.

The Rockies¹ 2000 signings of pitchers Mike Hampton and Denny Neagle proved an ill-fated attempt at a Yankees-style business model. Now that the team is no longer struggling under the weight of those two bloated contracts, the same critics still second-guess every single move, most recently the off-season trade of starting pitcher Jason Jennings to the Houston Astros after ownership had said they¹d finally assembled a stable of starting pitchers who would give them a solid foundation for years to come and the dearth of moves at this year¹s trading deadline.

But the Monforts remain resolute: They say they are staying the course and not selling anytime soon, although "ever" is a strong word, Dick says. Charlie Monfort calls the Neagle and Hampton signings a result of going into a panic mode, pushing the front office toward an American League East-style paradigm, that is, Yankees- or Boston Red Sox-style spending.

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"We were starting to lose fan base," he says. "The honeymoon with Coors Field and the Rockies was wearing off. We felt that it would help boost up the market, and people would come to Coors Field again."

 While some critics argue ownership milked the fans jubilation dry during this honeymoon, the Monforts say a dip in attendance was inevitable, and the fact that it happened was more a result of overspending on payroll than not spending enough.

"The bottom line is that the dwindling fan base is always going to happen at some point in time, because we had an unreal honeymoon fan base at the time," Charlie says. "So it was just doing its natural progression, which is what it is doing still, but now we spend within our means."

But critics of this recent tightfisted strategy are just as numerous as those who look in the rearview mirror, at the team¹s signing of Hampton and Neagle to contracts worth a combined $172 million in 2000 (not to mention first baseman Todd Helton¹s $151 million deal, inked the following year).

"We overspent what this market can handle; we overspent what the Rockies can handle," Charlie says. "And we had a negative cash flow and a serious possible bankruptcy problem if we didn¹t start rectifying it."

Most professional teams operate at a smallish profit. A few, however, bleed losses every year. That means ownership has to dig into its own pockets to make up the deficit. That was not a scenario the Monforts and their partners could live with.

"There are a lot of teams that (lose money, so their owners) subsidize their clubs every year ‹ all this is rumor ‹ to the tune of $10 million to $40 million," Dick says. "Charlie and I are not financially in the type of shape that we can subsidize $10 million to $40 million per year. We were not going to do that. So we had to make some changes."

The team¹s financial future might have looked dire, but the brothers point out that bankruptcy in Major League Baseball is not like bankruptcy in the real world. Baseball¹s owners "go out and find other investors or get their investors to buck up some," Charlie says. "You have an entity where there are only 29 others. We probably would have looked for a buyer."

Yet in order to hold on, Charlie adds, the team had to defer payments to many of its players. Larry Walker will still collect a paycheck in 30 years and make a capital call for $12 million from its various owners in 2003.

"Dick was really the one who saw the writing on the wall sooner than anybody," Charlie says. "He said, 'You know what, we¹ve got to get back to the basics and get to where we spend what we take in. The fans will tell us how much revenue we have through their support.' It is pretty simple, basic economics if you think of it, but in baseball it gets a little crazy sometimes."

Dick, at 53 the older of the brothers by six years, describes it more bluntly. "It¹s better not to have these damn things (deferred payments and long-term contracts), but those days are gone. We got caught up in what our competition was doing and, trying to stay up with the Joneses, we did deferrals as well. It is not a smart way to run your business."

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To blunt the impact of the deferred deals, the owners have invested with such companies as Citicorp, Wachovia and Wells Fargo. An outsider might wonder why the brothers didn¹t put that money into contracts for up-and-coming players instead, but Charlie Monfort literally sounds like he¹s taking the pledge when he describes the arrangements.

"We are, to the best of our ability, trying to get that stuff off the books, pay it off earlier when we can and let it fund itself," he says. "So some of that is already funded; some of it is not. We have actually invested about $30 million in the market in different ways over the last four or five years to pay for this going forward."

The Monforts say that early in the season, as this summer's poor press rose to its ornery crescendo, hopeful investors got in touch. But outside investors are unwelcome. "We like the partners we have," Charlie Monfort says.

The team can afford to hang on because in July 2004, with the previous year's cash call fresh in mind, Fox Sports Net Rocky Mountain offered what the Rocky Mountain News termed "a colossal deal.² Fox agreed to pay $200 million for 10 years to broadcast Rockies games through 2014, as well as invest $20 million for a 10 percent to 15 percent piece of the ball club.

Fox enabled the Rockies owners to dodge another cash call, but, "That¹s not why we took them on as partners," Dick says. "We took them on because of the relationship, the partnership, what they can bring to the table. And the money didn¹t hurt: $20 million."

Bringing in Fox Sports Net Rocky Mountain "was based on them being the right partner. We probably could have sold those shares to somebody else, but Fox was a natural," Charlie Monfort adds. That¹s why, "We are very comfortable with who we have with our limited partners, and us as general (partner)."

Should there have been no FSN, Stanley Kroenke, owner of the Denver Nuggets, Colorado Avalanche and Altitude Sports and Entertainment, would have owned the only cable television outlet with an interest in broadcasting Rockies games. Presumably, he then could have dictated the terms of a broadcast contract.

Instead, Fox provided an invaluable alternative. Also, observing Kroenke from a distance does not motivate the Monforts to want a sports network of their own someday.

"I hope they¹re successful. I hope Fox Sports stays successful, which I think they will, because that is better for us because we have got two strong entities that will be bidding for our product," Charlie Monfort saysDick Monfort rejects the idea of running the Rockies broadcasts. "We don¹t know that business," he says.

For 2007, "Our revenue and our expenses are probably going to be about the same," he adds. "We are basically at the point where, as we said before, we are a conduit: What the fans come with, with their support, we take that money, and we put it into either the farm system or free agents trying to fill holes to make the team better for next year."

Charlie says the rock-bottom payroll in recent years is based on this common-sense business model.

"Going forward now, these guys are going to be making a lot more money: You could see our payroll easily go from whatever it is this year ($54 million) to $74 million next year just to keep the same guys on the field that are here now."

But many fans doubt ownership will pony up enough to keep rising stars like Matt Holliday in purple pinstripes. Dick defends the team¹s frugal approach. "Our big hang-up with free agency is not the money," he says. "The money is a problem, don¹t get me wrong: Paying some guy at $13 million or $18 million or $20 million a year in itself is a problem. But the bigger problem, and where we got into the problem with Hampton and Neagle, is seven-year contracts. You can¹t tie yourself down to seven years with any player, especially a pitcher.

"It¹s not that we would not pay what some other team would, but we wouldn¹t go probably more than three or four years. So what that forces us to do is go down a couple of rungs to the guys that aren¹t going to get the seven- or whatever-year deals. We just won¹t do it. We¹re not going to go out and sign some guy, probably not even our own guy, to a seven- or eight-year contract."

Deals like the one Todd Helton signed in 2001 ‹ $151 million over 11 years are out of the question, the Monforts say. (One baseball insider, who asked to remain anonymous, calls Helton "a financial albatross" for the team.) Which brings us back to Matt Holliday, and whether the team will dig deep enough to re-sign him, or other young talents such as third-baseman Garrett Atkins, pitcher Jeff Francis and shortstop Troy Tulowitski when the time comes. Charlie says it¹s the players' choice.

"We have no control over what Matt does," he says. "We have control for the next two years. And again, if you are going back and an agent is going to mark a line in the sand and say, 'It is seven years, or he is out of here,' we have no control over that. Five would not be a disaster maybe, but that would be a stretch for us, and it would be a market-based contract.

"Like Dick says, the market is what it is for a player on a per-year basis, but the length of it ‹ because it is guaranteed ‹ is what we concern ourselves with. Is it worth it to Matt? To stay in the surroundings he is comfortable with, with the players that he appreciates, here in Colorado? Is that enough? It¹s like Dick says; that is Matt¹s call.

"Matt will have been here six years. Do his loyalties start with the team and end with the game? That is not really happening in any sport anymore, unfortunately."

The league¹s bigger markets inevitably have deeper pockets. At least it¹s better than college football, where players have a maximum commitment of five years, the brothers joke. "You¹ve got to understand that you have (players) for six years," Charlie says. "Maybe you can buy an extra year or two, like with Jeff Francis I think we bought an extra year. We have got to be smart about it. You have to trade a kid in year five because he is going to be a free agent, and you either get nothing for him or something. And that¹s what we were faced with Jason (Jennings)."

But the Houston media is now calling the Jennings trade one of the worst moves in Astros history, while Colorado fans who said the trade proved the team wasn¹t willing to pay the price for success have done an about-face. And the Rockies¹ above-.500 record (as of mid-August) has won over some of the team¹s LoDo neighbors.

"In the last three to five years, their winning or losing has made very little difference. In the last five weeks, an incredible difference," says Noel Hickey, native of Galway, Ireland, and partner in the Celtic Tavern, two blocks from Coors Field. "It¹s not just because of the Rockies on the weekends; during the week their attendance has gone from 12,000 to 37,000 or 39,000, as in the Padres series, the Dodgers series. All (LoDo businesses)
did pretty well out of it."

In the end, the cumulative competitive edge -- or disadvantage -- a baseball team gains from the sum of all of its at-bats, for and against, is inextricably tied to its financial success ‹ or failure. And, despite the fact that the Rockies haven¹t finished with a winning record since 2000, the consensus of top baseball minds ranks the team¹s approach to the business of baseball as about average, not quite abysmal.

"It¹s like turning an oil tanker around, but I personally think they¹re moving in the right direction," appraises sports investment banker Salvatore Galatioto, president of Galatioto Sports Partners in New York. "I'm pleasantly surprised how they slowly but steadily are turning things around. There¹s not a lot to complain about. They¹re pretty underrated. At this point, if I were a Rockies fan, I¹d be happy, and optimistic for the future."

Andrew Zimbalist, professor of economics at Smith College in Northampton, Mass., and author of "May the Best Team Win: Baseball Economics and Public Policy," is not quite as optimistic.

"They¹re obviously not doing well," he says. "It¹s a franchise that started out with a lot of enthusiasm and a terrific ballpark, and they¹ve parlayed none of that into sustained popularity or success on the field.

"If you¹re in a smaller market, you have to rely on player development and the draft more than trades and free agents -- it¹s a question of execution," Zimbalist says. "At the end of the day, you need good scouts, a good sabermetrician, a good general manager, a president willing to decentralize the decision-making process, and you have to have some luck, and the Rockies haven¹t put it together."

For the uninitiated, sabermetrics is the analysis of baseball through objective evidence such as statistics, championed by such regaled GMs as Billy Beane in Oakland and Theo Epstein in Boston. The Rockies currently do not have a dedicated sabermetrician on the payroll.

In the book "The Baseball Economist" (Dutton, 2007), professor of economics and sabermetrics devotee J.C. Bradbury delves deeply into the intersection between economics and on-the-field performance and finds the Rockies to be the 16th best organization, right in the middle of the pack of the majors' 30 teams. Using just about every baseball number he could get his hands on, Bradbury finds the team got about $384 million worth of on-the-field performance from 2003 to 2005, nearly $68 million more than its payroll would have suggested.

While Colorado is middling, according to Bradbury¹s system, its expansion twin, the Florida Marlins, are on top, surprisingly ranking as the best organization in the league from a business perspective. Galiatoto agrees. He says the Marlins were "the best in baseball" in terms of wins per dollar spent on payroll, despite the fact the team could be swimming out of town soon.

But Galatioto says the Rockies are in good position to succeed, an assessment Rox followers have heard year after year after year but have yet to see materialize.

"The first thing I look at is a team¹s demographics," he says. "If you¹re in a bad area demographically speaking, you¹re in trouble. But Denver has very good demographics, most notably its growth curve, the income level of its residents, and its geographic isolation. It¹s not like being on the East Coast where there¹s a team every 75 miles.

"The problem is they have not in the past put a good product on the field. Fans will tolerate losing, but once it¹s five, six years, it doesn¹t matter how nice of a stadium you¹ve got. That¹s a huge hurdle to get over."

While the Monforts argue that attendance will determine spending on talent, Zimbalist notes that on-the-field success is inextricably tied to financial success; the former fosters the latter, and the latter enhances the former.

"If you¹re not successful on the field," he adds, "it¹s very hard to get fans anywhere ‹ whether it¹s Denver or Boston or New York -- to come to the ballpark."

Dick Monfort says the mistakes that haunted the team since the dawn of the 21st century are now history.

"We did some things we should not have done, and we went through six years of hell to correct it, and we did correct it," he says. "So now we have a great farm system; the team is young. We have a lot of great players."

While the formula looks to be working, the pennant race is just now heatingThe onus is now on the team on the field, not the owners in their plush office, to win. But if the team loses, it¹s more ammunition for those who argue it¹s time for the Monforts to step aside and sell the team. But losing is not insider trading. The brothers can be thankful for that, or they¹d already be clearing space for their new roommate in Joe Nacchio.

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David Lewis and Eric Peterson are freelance writers based in Denver.

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