Barry Jackson

Why potential investor says Jeter plan is badly flawed and will fail

Marlins owners Bruce Sherman and Derek Jeter meet with the media on Oct. 3 after buying the team.
Marlins owners Bruce Sherman and Derek Jeter meet with the media on Oct. 3 after buying the team. adiaz@miamiherald.com

Fourth in a five-part series on the new Marlins owners and their plans. 

New Marlins CEO Derek Jeter slashed payroll largely because investors were assured they would not be asked to cover losses. Jeter also cited the fact Miami hasn’t been to the postseason since 2003.

But one investor who was asked to join Jeter’s group and decided against it said Jeter’s plan has a fatal flaw.

He said Jeter made a miscalculation by trading popular players including National League MVP Giancarlo Stanton, angering many of the team’s fans and believing he could nevertheless increase attendance by 4000 per game in 2018 and by an additional 3000 in 2019, as one version of his Project Wolverine business model projects.

“The Derek Jeter plan all along was to crush payroll to reduce expenses and somehow magically have ticket sales go up,” the Northeast-based businessman said. “Can’t happen. This is entertainment. Fans come to see players they identify with, not Triple A players.

“Ticket sales will collapse even more under this plan. Nobody [in his group] really looked at this. It shows lack of business acumen. You will still need to rebuild with top players at some point and they will be more expensive and harder to bring to Miami, especially under this new management team and the reputation” established during cost-cutting.

For Jeter, there was one interesting alternative to immediate payroll slashing: Begin the 2018 with most of the 2017 roster, but make clear to South Florida fans and potential sponsors that attendance and sponsorship revenue needed to rise significantly and immediately for the model to be sustained. Jeter then could have slashed payroll before the July trade deadline if those two key potential revenue sources did not increase by next summer. There’s no indication that he seriously considered this approach.

Another person who spoke to Jeter about joining his group said he couldn’t understand why Jeter would implement an unpopular strategy that would severely damage his ability to increase attendance and sponsorship money.

The team is in good shape financially for 2018 because every team is receiving a one-time payment of $50 million from MLB’s sale of a digital media company to Disney. That’s on top of the $110 million the Marlins expect to receive from baseball for national TV contracts and the Marlins’ sizable revenue sharing handout.

But it could be more challenging in 2019 and beyond, if the Marlins do not meet ambitious revenue projections. Those projections, shared with The Miami Herald by sources, have the Marlins’ paid ticket revenue jumping from $30 million last season to $40.6 million in 2019 and $45.8 million in 2020, and sponsorship revenue from $19.1 million in 2017 to $32 million in 2019 and $41.6 million in 2021.

And from an on-field standpoint, ESPN analyst Keith Law indicated the longterm outlook looks bleak. “They’ve done poorly in these trades, prioritizing moving money over acquiring talent,” he said. “Even a best-case scenario wouldn’t make them contenders.”

The August version of Project Wolverine projects profits of $68 million in 2018 and between $10 million and $22 million annually in 2019 through 2021 based on rosy revenue figures. A potential investor said the Marlins have four options if revenues fall well below the team’s optimistic projections:

1) Keep payroll below the projected modest numbers for 2019 ($81 million) and 2020 ($85 million).

2) Have owner Bruce Sherman cover losses in coming years, much as Jeffrey Loria did on multiple occasions. Sherman, the group’s control person, has invested $350 million, according to a different document given to MLB and shared with The Miami Herald. That’s by far the biggest share of the group’s 18 investors.

One associate of Sherman said he is surprised, based on Sherman’s investment history, that he would become the top money man for an investment whose success is based on ambitious revenue projections. He said one reason was Sherman’s admiration for Jeter. The Marlins would not make Sherman or anyone else available for comment.

Miami Marlins co-owner Derek Jeter speaks to the media after a town hall meeting at Marlins Park on Tuesday, Dec. 19, 2017.

3) Ask the minority partners to cover losses in future years, even though they have been told orally (not in writing) that they wouldn’t be asked to do so, according to one businessman who was approached by Jeter.

4) Hope to convince people to invest in the Marlins to give them more working capital to sustain possible losses. Jeter has been hosting breakfasts to try to find more investors and his group has emailed wealthy businessmen a new document, called “Project Citrus,” that implores them to invest.

The teaser to that document, obtained by FanRag’s Jon Heyman, says “management will be committed to player payroll discipline to preserve and enhance financial flexibility” and “focus on substantially strengthening the farm system over time to assist with player payroll discipline.”

It also cites mistakes by the previous regime as a reason of “lack of faith,” implying that one of those mistakes was former manager Ozzie Guillen’s praise of deceased dictator Fidel Castro. “Sponsors have lost faith in existing management due to missteps in the past,” that document says.

Miami Marlins' Derek Jeter and Bruce Sherman discuss their vision for the future of the franchise on Tuesday, October 3, 2017.

The Marlins are seeking $200 million from new investors, and the Marlins declined to say if they have raised anything since Project Citrus was sent to potential investors in recent weeks.

Coming Wednesday: Part 5 of this 5-part series: How this rebuilding plan and business model could succeed.

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