$65 Million Too Much to Pay for Padres, Expert Says : Top Sports Appraiser Says That Price Would Be ‘Way Out of Line’ for Club

If George Argyros paid $65 million for the San Diego Padres, as was reported last week, the Orange County real estate developer paid far more than the team’s appraised value, said Michael Megna, perhaps the world’s leading appraiser of sports franchises.

American Appraisals Associates Vice President Michael Megna declined to discuss the sales price, but he described the $50 million to $65 million that Kroc reportedly wanted for the National League franchise as “way out of line” with his appraised value.

A more realistic figure for the franchise that Ray Kroc acquired in 1974 for $12 million would be $45 million, according to Buzzie Bavasi, who has served as an executive with the Padres, Angels, Dodgers and other professional baseball teams.

Megna, who consulted with Argyros on the Padres deal, did not complete a full appraisal of the Padres, but he has determined the value of more than 20 professional sports franchises during the last 10 years. Last year he valued the New York Mets National League franchise at $100 million.

Megna, who has appraised cattle ranches in Argentina, copper mines in Mexico and Elvis Presley’s Graceland estate in Memphis, described sports appraisals as the most difficult to conduct because “intangibles” can generate 80% of a franchise’s value.

Intangibles played a role several years ago when Megna appraised the Detroit Tigers for Tom Monaghan, owner of Detroit-based Domino’s Pizza. Megna declined to state the acquisition price but published reports estimated the deal at $50 million, more than twice the price paid a few months earlier for the Chicago White Sox.

The intangible that prompted Monaghan to pay top dollar for the Tigers was publicity: being associated with the Tigers later helped Domino’s acquire more than 100 new franchises, Bavasi said.

For $125,000, American Appraisals gives a prospective buyer or seller “a preliminary answer within two weeks, a firm answer in 30 days and a complete appraisal in 90 days,” Megna said during a telephone interview last week.

Appraisals dwell largely on intangibles because physical assets--ranging from bats and balls and training equipment to leasehold improvements--rarely are valued at more than $1 million, Megna said.

Two of the most difficult intangibles that Megna must contend with are the amount of good will created by past owners and the buyer’s reason for wanting the team.

Argyros’ associates last week suggested that the Orange County real estate developer acquired the Padres because he wanted to stay active in professional baseball--he now owns the Seattle Mariners of the American League--but eliminate the frequent trips to the Nortwest.

Argyros has lost an estimated $23 million during the six years he has owned the Mariners, largely because the perennial losers have had trouble attracting fans. Argyros’ contract with King County allows him to move the Mariners out of town if the team does not sell 15,600 season tickets or 1.8 million total tickets during 1987. So far, the club, which last year drew 1 million fans, has sold just 4,500 season tickets.

In contrast, The Padres set the franchise’s attendance record of 2.2 million in 1985 and drew 1.8 million fans during 1986. With the exception of the strike-shortened 1981 season, the Padres have drawn more than a million fans every year since 1974.

Past attendance is important because “all clubs follow cycles . . . with tops and valleys,” Megna said. “The difference is that good clubs turn around in a shorter period of time than the bad clubs.”

The prestige of joining the select circle of major-league franchise owners also makes it difficult to determine a club’s asking price, according to Megna and Bavasi.

Other intangibles include:

The Players

A successful appraisal must determine if “John Smith on the farm team is going to be a million-dollar player in two years,” Bavasi said last week. “All you’re buying is the players and a piece of paper that says you got the franchise.”

If appraising the future of a farm team phenomenon requires a crystal ball, gauging the value of an aging superstar can sometimes be determined through a close check of medical records, said Megna, who has armed clients with information about previously unknown injuries to key athletes.

That kind of detective work is especially important in sports--particularly basketball and football--where an exceptional athlete becomes known as “the franchise.”

“There’s no question that Larry Bird is the franchise in Boston,” Megna said. “Five or six years ago, you couldn’t ignore Kareem (Abdul-Jabbar) and Magic (Johnson) is only a notch lower than Larry Bird.”

He also tries to determine “when fat salaries are contributing to player indifference” and when players are “demanding more than they’re really contributing.”

The Media

A franchise’s radio, broadcast television and cable television contracts are as important as what occurs on the playing field, said Megna, who added that “a club in a major market can generate more from local media rights in one year than a minor club in a minor market can (generate) in four or five years,” Megna said.

Television rights played an important role in Argyros’ decision to buy the Padres and sell the Mariners because “San Diego is a more established (television) market than Seattle,” Megna said. “Seattle has a huge market potential but the opportunity to crack it was just not developing.”

During 1986, the Padres signed a multiyear contract with KUSI-TV ( Channel 51), which will broadcast 51 Padres games during 1987. Terms of the contract, which will run for eight years if all options are exercised, were not available. However, this season the Padres are buying blocks of air time from KUSI and are booking all the commercials.

Additionally, Cox Cable last year sold 16,000 cable television packages for home games to San Diego viewers.

The Leases

Hot dogs, souvenirs and parking lot fees might not sound important but “leases are much more valuable than a club’s physical assets,” according to Megna.

Leases dictate how much revenue a club retains from the sale of food, beverages and scorecards, the advertising on scoreboards, and rents from sky boxes. Some municipalities retain hefty chunks of that revenue, but Bavasi described the Padres’ lease with San Diego as exceptionally good.

The Padres turn over 8% of all ticket revenue to the city but are not required to pay a percentage of concessions sales. All parking lot receipts are transferred to the city and the Padres pay 10% of the revenue generated by scoreboard advertising and other stadium advertising devices to the city. However, the Padres do not collect rent from the stadium sky boxes because they are owned by the Chargers of the National Football League.

City of San Diego officials have said that the ownership change should not affect ongoing negotiations to sign the Padres to a long-term stadium lease. The Padres’ contract expires at the end of 1988, and Deputy City Manager Jack McGrory anticipates that negotiations will be “wrapped up in a couple of weeks.”

Given precedent in other sales, Megna said Argyros will demand the “right to finalize the lease” should his acquisition be approved by the American and National leagues.